UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2024
| OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the transition period from ______________ to ________________ | |||||
Commission file number 0-14112
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
(Address of Principal Executive Offices)
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ☐ No ☒
As of October 28, 2024, the Registrant had 72,959,325 shares of Common Stock outstanding ($0.01 par value).
TABLE OF CONTENTS
| Page Reference | ||||||||
| PART I | FINANCIAL INFORMATION | |||||||
| ITEM 1. | Condensed Consolidated Balance Sheets as of September 30, 2024, and June 30, 2024 (Unaudited) | |||||||
| Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2024 and 2023 (Unaudited) | ||||||||
| Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended September 30, 2024 and 2023 (Unaudited) | ||||||||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2024 and 2023 (Unaudited) | ||||||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | ||||||||
| ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||||
| ITEM 4. | Controls and Procedures | |||||||
| PART II | OTHER INFORMATION | |||||||
| ITEM 1. | Legal Proceedings | |||||||
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| ITEM 5. | Other Information | |||||||
| ITEM 6. | Exhibits | |||||||
| Signatures | ||||||||
In this report, all references to “Jack Henry,” the “Company,” “we,” “us,” and “our,” refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.
FORWARD LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “seek,” “anticipate,” “estimate,” “future,” “intend,” “plan,” “strategy,” “predict,” “likely,” “should,” “will,” “would,” “could,” “can,” “may,” and similar expressions. Forward-looking statements are based only on management’s current beliefs, expectations and assumptions regarding the future of the Company, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
3
| JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | |||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||||||
| (In Thousands, Except Share and Per Share Data) | |||||||||||
| (Unaudited) | |||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Income tax receivable | |||||||||||
| Prepaid expenses and other | |||||||||||
| Deferred costs | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
| PROPERTY AND EQUIPMENT, net | |||||||||||
| OTHER ASSETS: | |||||||||||
| Non-current deferred costs | |||||||||||
| Computer software, net of amortization | |||||||||||
| Other non-current assets | |||||||||||
| Customer relationships, net of amortization | |||||||||||
| Other intangible assets, net of amortization | |||||||||||
| Goodwill | |||||||||||
| Total other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Accrued income taxes | |||||||||||
Current maturities of long-term debt | |||||||||||
| Deferred revenues | |||||||||||
| Total current liabilities | |||||||||||
| LONG-TERM LIABILITIES: | |||||||||||
| Non-current deferred revenues | |||||||||||
| Deferred income tax liability | |||||||||||
| Debt, net of current maturities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
Preferred stock - $ | |||||||||||
Common stock - $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Less treasury stock at cost | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
4
| JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | |||||||||||
| (In Thousands, Except Per Share Data) | |||||||||||
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| REVENUE | $ | $ | |||||||||
| EXPENSES | |||||||||||
| Cost of Revenue | |||||||||||
| Research and Development | |||||||||||
| Selling, General, and Administrative | |||||||||||
| Total Expenses | |||||||||||
| OPERATING INCOME | |||||||||||
| INTEREST INCOME (EXPENSE) | |||||||||||
| Interest Income | |||||||||||
| Interest Expense | ( | ( | |||||||||
| Total Interest Income (Expense) | |||||||||||
| INCOME BEFORE INCOME TAXES | |||||||||||
| PROVISION FOR INCOME TAXES | |||||||||||
| NET INCOME | $ | $ | |||||||||
| Basic earnings per share | $ | $ | |||||||||
| Basic weighted average shares outstanding | |||||||||||
| Diluted earnings per share | $ | $ | |||||||||
| Diluted weighted average shares outstanding | |||||||||||
See notes to condensed consolidated financial statements.
5
| JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) | |||||||||||
| (In Thousands, Except Share and Per Share Data) | |||||||||||
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| PREFERRED SHARES: | |||||||||||
| COMMON SHARES: | |||||||||||
| Shares, beginning of period | |||||||||||
| Shares issued for equity-based payment arrangements | |||||||||||
| Shares issued for Employee Stock Purchase Plan | |||||||||||
| Shares, end of period | |||||||||||
| COMMON STOCK - PAR VALUE $0.01 PER SHARE: | |||||||||||
| Balance, beginning of period | $ | $ | |||||||||
| Shares issued for equity-based payment arrangements | |||||||||||
| Balance, end of period | $ | $ | |||||||||
| ADDITIONAL PAID-IN CAPITAL: | |||||||||||
| Balance, beginning of period | $ | $ | |||||||||
| Shares issued for equity-based payment arrangements | ( | ||||||||||
| Tax withholding related to share-based compensation | ( | ( | |||||||||
| Shares issued for Employee Stock Purchase Plan | |||||||||||
| Stock-based compensation expense | |||||||||||
| Balance, end of period | $ | $ | |||||||||
| RETAINED EARNINGS: | |||||||||||
| Balance, beginning of period | $ | $ | |||||||||
| Net income | |||||||||||
| Dividends | ( | ( | |||||||||
| Balance, end of period | $ | $ | |||||||||
| TREASURY STOCK: | |||||||||||
| Balance, beginning of period | $ | ( | $ | ( | |||||||
| Purchase of treasury shares | ( | ||||||||||
| Balance, end of period | $ | ( | $ | ( | |||||||
| TOTAL STOCKHOLDERS' EQUITY | $ | $ | |||||||||
| Dividends declared per share | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
6
| JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | |||||||||||
| (In Thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net Income | $ | $ | |||||||||
| Adjustments to reconcile net income from operations to net cash from operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Change in deferred income taxes | ( | ( | |||||||||
| Expense for stock-based compensation | |||||||||||
| (Gain)/loss on disposal of assets | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Change in receivables | |||||||||||
| Change in prepaid expenses, deferred costs and other | ( | ( | |||||||||
| Change in accounts payable | ( | ( | |||||||||
| Change in accrued expenses | ( | ( | |||||||||
| Change in income taxes | |||||||||||
| Change in deferred revenues | ( | ( | |||||||||
| Net cash from operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from dispositions | |||||||||||
| Purchased software | ( | ( | |||||||||
| Computer software developed | ( | ( | |||||||||
| Proceeds from investments | |||||||||||
Purchase of investment | ( | ||||||||||
| Net cash from investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Borrowings on credit facilities | |||||||||||
| Repayments on credit facilities | ( | ( | |||||||||
| Purchase of treasury stock | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Proceeds from issuance of common stock upon exercise of stock options | |||||||||||
| Tax withholding payments related to share-based compensation | ( | ( | |||||||||
| Proceeds from sale of common stock | |||||||||||
| Net cash from financing activities | ( | ( | |||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | $ | $ | |||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | $ | $ | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
7
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Per Share Amounts)
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Jack Henry & Associates, Inc. and subsidiaries (“Jack Henry,” or the “Company”) is a well-rounded financial technology company. Jack Henry was founded in 1976 as a provider of core information processing solutions for banks. Today, the Company’s extensive array of products and services includes processing transactions, automating business processes, and managing information for approximately 7,500 financial institutions and diverse corporate entities.
Consolidation
The condensed consolidated financial statements include the accounts of Jack Henry and all of its subsidiaries, which are wholly owned, and all intercompany accounts and transactions have been eliminated.
Comprehensive Income
Comprehensive income for the three months ended September 30, 2024 and 2023, equals the Company’s net income.
Allowance for Credit Losses
The Company monitors trade and other receivable balances and contract assets and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events.
The following table summarizes allowance for credit losses activity for the three months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Allowance for credit losses - beginning balance | $ | $ | |||||||||
| Current provision for expected credit losses | |||||||||||
| Write-offs charged against allowance | ( | ( | |||||||||
| Other | ( | ||||||||||
| Allowance for credit losses - ending balance | $ | $ | |||||||||
Property and Equipment
Intangible Assets
8
Purchase of Investment
At September 30, 2024, and June 30, 2024, the Company had $25,750
Common Stock
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest and penalties expenses are recognized on the full amount of unrecognized benefits for uncertain tax positions. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.
Interim Financial Statements
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim condensed consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended June 30, 2024.
In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly in all material respects the financial position of the Company as of September 30, 2024, the results of its operations for the three months ended September 30, 2024 and 2023, changes in stockholders' equity for the three months ended September 30, 2024 and 2023, and its cash flows for the three months ended September 30, 2024 and 2023. The condensed consolidated balance sheet at June 30, 2024, was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.
The results of operations for the three months ended September 30, 2024, are not necessarily indicative of the results to be expected for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
9
Significant Accounting Policies
The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K for the fiscal year ended June 30, 2024. For the three months ended September 30, 2024, there have been no new or material changes to the significant accounting policies discussed in the Company’s Form 10-K for the fiscal year ended June 30, 2024, that are of significance, or potential significance, to the Company.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves the disclosures about a public entity's reportable segments through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The ASU requires additional disclosure related to rate reconciliation, income taxes paid, and other disclosures to improve the effectiveness of income tax disclosures. The ASU is effective for annual periods beginning after December 15, 2024, and applied on a prospective basis. Early adoption and retrospective application is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
NOTE 3. REVENUE AND DEFERRED COSTS
Revenue Recognition
The Company generates revenue from data processing and hosting, transaction processing, software licensing and related services, professional services, and hardware sales.
Disaggregation of Revenue
The tables below present the Company's revenue disaggregated by type of revenue. Refer to Note 10, Reportable Segment Information, for disaggregated revenue by type and reportable segment. The majority of the Company’s revenue is earned domestically, with revenue from clients outside the United States comprising less than 1% of total revenue.
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Private and Public Cloud | $ | $ | |||||||||
| Product Delivery and Services | |||||||||||
| On-Premise Support | |||||||||||
| Services and Support | |||||||||||
| Processing | |||||||||||
| Total Revenue | $ | $ | |||||||||
10
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with clients.
| September 30, 2024 | June 30, 2024 | ||||||||||
| Receivables, net | $ | $ | |||||||||
| Contract Assets - Current | |||||||||||
| Contract Assets - Non-current | |||||||||||
| Contract Liabilities (Deferred Revenue) - Current | |||||||||||
| Contract Liabilities (Deferred Revenue) - Non-current | |||||||||||
Contract assets primarily result from revenue being recognized when or as control of a solution or service is transferred to the client, except where invoicing is contingent upon the completion of other performance obligations or payment terms differ from the provisioning of services. The current portion of contract assets is reported within prepaid expenses and other in the condensed consolidated balance sheets, and the non-current portion is included in other non-current assets. Contract liabilities (deferred revenue) primarily relate to consideration received from clients in advance of delivery of the related goods and services to the client. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
The Company analyzes contract language to identify if a significant financing component does exist and would adjust the transaction price for any material effects of the time value of money if the timing of payments provides either party to the contract with a significant benefit of financing the transaction.
During the three months ended September 30, 2024, and 2023, the Company recognized revenue of $94,159 and $99,220 , respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
Amounts recognized that relate to performance obligations satisfied (or partially satisfied) in prior periods were immaterial for each period presented. These adjustments are primarily the result of transaction price re-allocations due to changes in estimates of variable consideration.
Transaction Price Allocated to Remaining Performance Obligations
As of September 30, 2024, estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period totaled $7,137,233 . The Company expects to recognize approximately 24 % over the next 12 months, 19 % in 13-24 months, and the balance thereafter.
Contract Costs
The Company incurs incremental costs to obtain a contract as well as costs to fulfill contracts with clients that are expected to be recovered. These costs consist primarily of sales commissions, which are incurred only if a contract is obtained, and client conversion or implementation-related costs. Capitalized costs are amortized based on the transfer of goods or services to which the asset relates, in line with the percentage of revenue recognized for each performance obligation to which the costs are allocated.
Capitalized costs totaled $505,993 and $503,152 , at September 30, 2024, and June 30, 2024, respectively.
For the three months ended September 30, 2024, and 2023, amortization of deferred contract costs totaled $54,907 and $50,537 , respectively. There were no impairment losses in relation to capitalized costs for the periods presented.
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, certificates of deposit, amounts receivable or payable, and short-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities.
The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:
Level 1: inputs to the valuation are quoted prices in an active market for identical assets
11
Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly
Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset
Fair value of financial assets included in current assets is as follows:
| Estimated Fair Value Measurements | Total Fair | |||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||||||||||||
| September 30, 2024 | ||||||||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||||
| Certificates of Deposit | $ | $ | $ | $ | ||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||
| Credit facilities | $ | $ | $ | $ | ||||||||||||||||||||||
| June 30, 2024 | ||||||||||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||||
| Certificates of Deposit | $ | $ | $ | $ | ||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||
| Credit facilities | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 5. LEASES
The Company determines if an arrangement is a lease, or contains a lease, at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases and equipment leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the Company’s leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based upon the information available at commencement date. The determination of the incremental borrowing rate requires judgment and is determined by using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease.
The Company leases certain office space, data centers, and equipment with remaining terms of 4 months to 9 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. Variable lease costs are recognized as a variable lease expense when incurred.
At September 30, 2024, and June 30, 2024, the Company had operating lease assets of $51,892 and $53,981 , respectively. At September 30, 2024, total operating lease liabilities of $57,902 were comprised of current operating lease liabilities of $8,977 and noncurrent operating lease liabilities of $48,925 . At June 30, 2024, total operating lease liabilities of $59,604 were comprised of current operating lease liabilities of $8,454 and noncurrent operating lease liabilities of $51,150 .
Operating lease assets are included within , and operating lease liabilities are included within (current portion) and (noncurrent portion) in the Company’s condensed consolidated balance sheets. Operating lease assets were recorded net of accumulated amortization of $36,699 and $34,306 as of September 30, 2024, and June 30, 2024, respectively.
Operating lease costs for the three months ended September 30, 2024, and 2023, were $2,893 and $2,468 , respectively. Total operating lease costs for the respective quarters included variable lease costs of $554 and $544 , respectively. Operating lease expense is included within cost of services, research and development, and selling,
12
general and administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statements of income.
For the three months ended September 30, 2024, and 2023, the Company had operating cash flows for payments on operating leases of $2,505 and $2,171 , and ROU assets obtained in exchange for operating lease liabilities of $7 and $0 , respectively.
As of September 30, 2024, and June 30, 2024, the weighted-average remaining lease term for the Company's operating leases was 75 months and 78 months, and the weighted-average discount rate was 2.70 % and 2.70 %, respectively.
Maturity of Lease Liabilities under ASC 842
Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at September 30, 2024:
| Due Dates (fiscal year) | Future Minimum Rental Payments | |||||||
| 2025 (remaining period) | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total lease payments | $ | |||||||
| Less: interest | ( | |||||||
| Present value of lease liabilities | $ | |||||||
The Company may sublease its facilities from time to time to third parties. Sublease income is recognized on a straight-line basis over the lease term, and is included within revenue on the Company's condensed consolidated statements of income.
On September 30, 2023, the Company entered into an agreement with a third party to sublease a portion of its Elizabethtown, Kentucky facility. The commencement date of the sublease was October 1, 2023, and it had an initial term of 57 months. Sublease income for the three months ended September 30, 2024 was $271 . There have been no indications of impairment related to the underlying right-of-use asset.
Minimum Sublease Payments
At September 30, 2024, the future total minimum sublease payments to be received were as follows:
| Due Dates (fiscal year) | Future Minimum Sublease Receipts | |||||||
| 2025 (remaining period) | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total sublease receipts | $ | |||||||
13
NOTE 6. DEBT
Credit facilities
On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced a prior credit facility that was entered into on February 10, 2020. The credit agreement allows for borrowings of up to $600,000 , which may be increased to $1,000,000 by the Company at any time until maturity. The credit agreement bears interest at a variable rate equal to (a) a rate based on an adjusted Secured Overnight Financing Rate (“SOFR”) term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50 % per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars plus 1.0 %), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit agreement. As of September 30, 2024, the Company was in compliance with all such covenants. The amended and restated credit facility terminates August 31, 2027 . There was $50,000 and $60,000 outstanding under the amended and restated credit facility at September 30, 2024 and June 30, 2024, respectively.
Term loan facility
On May 16, 2023, the Company entered into a term loan credit agreement with a syndicate of financial institutions, with an original principal balance of $180,000 . Borrowings under the term loan facility bear interest at a variable rate equal to (a) a rate based on an adjusted SOFR term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50 % per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars plus 0.75 %), plus an applicable percentage in each case determined by the Company's leverage ratio. The term loan credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the term loan credit agreement. As of September 30, 2024, the Company was in compliance with all such covenants. The term loan credit agreement has a maturity date of May 16, 2025 . There was $90,000
Other lines of credit
The Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate less 1.0 %. The credit line expires on April 30, 2025 . There was no
Interest
The Company paid interest of $1,588 and $3,509 during the three months ended September 30, 2024, and 2023, respectively.
NOTE 7. INCOME TAXES
The effective tax rate increased for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, with an effective tax rate of 24.0 % of income before income taxes, compared to 23.7 % in the prior fiscal year quarter.
The Company paid income taxes, net of refunds, of $3,006 and $2,569 in the three months ended September 30, 2024, and 2023, respectively.
At September 30, 2024, the Company had $20,084 of gross unrecognized tax benefits before interest and penalties, $18,153 of which, if recognized, would affect our effective tax rate. The Company had accrued interest and penalties of $3,752 related to uncertain tax positions at September 30, 2024.
The U.S. federal and state income tax returns for fiscal 2021 and all subsequent years remain subject to examination as of September 30, 2024, under statute of limitations rules. In addition, certain U.S. state income tax returns remain subject to examination as of September 30, 2024, under the statute of limitation rules from fiscal 2016 through 2020. The Company anticipates potential changes due to lapsing of statutes of limitations, and examination closures could reduce the unrecognized tax benefits balance by $3,000 to $7,000 within twelve months of September 30, 2024.
14
NOTE 8. STOCK-BASED COMPENSATION
Our operating income for the three months ended September 30, 2024, and 2023, included $6,705 and $7,148 of stock-based compensation costs, respectively.
On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan (“2015 EIP”) for its associates and non-employee directors. The plan allows for grants of stock options, stock appreciation rights, restricted stock shares or units, and performance shares or units. The maximum number of shares authorized for issuance under the plan is 3,000 .
Stock option awards
Under the 2015 EIP, terms and vesting periods of the options are determined by the Compensation Committee of the Board of Directors when granted. The option period must expire not more than ten years from the option grant date. The options granted under this plan are exercisable beginning three years after the grant date at an exercise price equal to 100% of the fair market value of the stock at the grant date. The options terminate upon surrender of the option, ninety days after termination of employment, upon the expiration of one year following notification of a deceased optionee, or ten years after grant.
During the three months ended September 30, 2024, there were no 12 options were outstanding at a weighted average exercise price of $87.27 with an aggregate intrinsic value of $1,043 .
At September 30, 2024, there was no compensation cost yet to be recognized related to outstanding options. All of the options are currently exercisable, with a weighted average remaining contractual term (remaining period of exercisability) of 1.75 years as of September 30, 2024.
Restricted stock unit and performance unit awards
The Company issues unit awards under the 2015 EIP. Restricted stock unit awards (which are unit awards that have service requirements only and are not tied to performance measures) generally vest over a period of 1 to 3 years. Performance unit awards are awards that have performance measures in addition to service requirements.
The following table summarizes non-vested restricted stock unit awards and performance awards as of September 30, 2024:
| Unit awards | Units | Weighted Average Grant Date Fair Value Per Unit | Aggregate Intrinsic Value | |||||||||||||||||
| Outstanding July 1, 2024 | $ | |||||||||||||||||||
Granted1 | ||||||||||||||||||||
| Vested | ( | |||||||||||||||||||
Forfeited2 | ( | |||||||||||||||||||
| Outstanding September 30, 2024 | $ | $ | ||||||||||||||||||
1Granted includes restricted stock unit awards and performance unit awards with market conditions at 100% achievement.
2Forfeited includes restricted stock unit awards and performance unit awards forfeited for service requirements not met and performance unit awards not settled due to underachievement of performance measures.
Of the 145 unit awards granted in fiscal 2025, 101 were restricted stock unit awards and 44 were performance unit awards. The restricted stock unit awards were valued at the weighted average fair value of the non-vested units based on the fair market value of the Company’s equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period, consistent with the methodology for calculating compensation expense on such awards.
15
| Monte Carlo award inputs: | Fiscal 2025 | ||||
| Compensation Peer Group: | |||||
| Volatility | % | ||||
| Risk free interest rate | % | ||||
| Annual dividend based on most recent quarterly dividend | $ | ||||
| Dividend yield | % | ||||
| Beginning average percentile rank for TSR | % | ||||
At September 30, 2024, there was $37,964 of compensation expense that has yet to be recognized related to non-vested restricted stock unit and performance stock unit awards, which will be recognized over a weighted average period of 1.47 years.
NOTE 9. EARNINGS PER SHARE
The following table reflects the reconciliation between basic and diluted earnings per share.
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net Income | $ | $ | |||||||||
| Common share information: | |||||||||||
| Weighted average shares outstanding for basic earnings per share | |||||||||||
| Dilutive effect of stock options, restricted stock units, and performance units | |||||||||||
| Weighted average shares outstanding for diluted earnings per share | |||||||||||
| Basic earnings per share | $ | $ | |||||||||
| Diluted earnings per share | $ | $ | |||||||||
Per share information is based on the weighted average number of common shares outstanding for the three months ended September 30, 2024, and 2023. Stock options, restricted stock units, and performance units have been included in the calculation of diluted earnings per share to the extent they are dilutive. There were nominal
NOTE 10. REPORTABLE SEGMENT INFORMATION
The Company is a well-rounded financial technology company and is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.
The Company’s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate and Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card processing services, online and mobile bill pay
16
solutions, Automated Clearing House (“ACH”) origination and remote deposit capture processing, and risk management products and services. The Complementary segment provides additional software, hosted processing platforms, and services, including digital/mobile banking, treasury services, online account opening, fraud/anti-money laundering ("AML") and lending/deposit solutions that can be integrated with the Company's Core solutions, and many can be used independently. The Corporate and Other segment includes revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating expenses not directly attributable to the other three segments.
The Company evaluates the performance of its segments and allocates resources to them based on various factors, including performance against trend, budget, and forecast. Only revenue and costs of revenue are considered in the evaluation for each segment.
Immaterial adjustments have been made between segments to reclassify cost of revenue that was recognized for the three months ended September 30, 2023. These reclasses were made to be consistent with the current allocation of cost of revenue by segment. Cost of revenue reclassed for the three months ended September 30, 2023, from Complementary to Corporate and Other, was $1,318 .
| Three Months Ended | |||||||||||||||||||||||||||||
| September 30, 2024 | |||||||||||||||||||||||||||||
| Core | Payments | Complementary | Corporate and Other | Total | |||||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||||||||
| Services and Support | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Processing | |||||||||||||||||||||||||||||
| Total Revenue | |||||||||||||||||||||||||||||
| Cost of Revenue | |||||||||||||||||||||||||||||
| Research and Development | |||||||||||||||||||||||||||||
| Selling, General, and Administrative | |||||||||||||||||||||||||||||
| Total Expenses | |||||||||||||||||||||||||||||
| SEGMENT INCOME | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||||||||
| INTEREST INCOME (EXPENSE) | |||||||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | $ | ||||||||||||||||||||||||||||
17
| Three Months Ended | |||||||||||||||||||||||||||||
| September 30, 2023 | |||||||||||||||||||||||||||||
| Core | Payments | Complementary | Corporate and Other | Total | |||||||||||||||||||||||||
| REVENUE | |||||||||||||||||||||||||||||
| Services and Support | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Processing | |||||||||||||||||||||||||||||
| Total Revenue | |||||||||||||||||||||||||||||
| Cost of Revenue | |||||||||||||||||||||||||||||
| Research and Development | |||||||||||||||||||||||||||||
| Selling, General, and Administrative | |||||||||||||||||||||||||||||
| Total Expenses | |||||||||||||||||||||||||||||
| SEGMENT INCOME | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||||||||
| INTEREST INCOME (EXPENSE) | |||||||||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | $ | ||||||||||||||||||||||||||||
The Company has not disclosed any additional asset information by segment, as the information is not generated for internal management reporting to the Chief Executive Officer, who is also the Chief Operating Decision Maker.
NOTE 11. SUBSEQUENT EVENTS
On October 31, 2024 , the Company entered into a new line of credit, the Discretionary Line of Credit Demand Note, with Fifth Third Bank in the amount of $50,000 and bears interest at the prime rate less 2.0 %. The line of credit renews annually.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included in this Form 10-Q for the fiscal quarter ended September 30, 2024.
OVERVIEW
Jack Henry & Associates, Inc. is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 7,170 full-time and part-time associates nationwide, and is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions. Our solutions serve approximately 7,500 clients and consist of integrated data processing systems solutions to U.S. banks ranging from de novo to multi-billion-dollar institutions with assets up to $50 billion, core data processing solutions for credit unions of all sizes, and non-core highly specialized core-agnostic products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. Our integrated solutions are available for on-premise installation and delivery in our private and public cloud.
Each of our solutions shares the fundamental commitment to provide high-quality business systems, service levels that consistently exceed client expectations, and integration of solutions and practical new technologies. The quality of our solutions, our high service standards, and the fundamental way we do business typically foster long-term client relationships, attract prospective clients, and have enabled us to capture substantial market share.
Through internal product development, disciplined acquisitions, and alliances with companies offering niche solutions that complement our proprietary solutions, we regularly introduce new products and services and generate
18
new cross-sales opportunities. We provide compatible computer hardware for our on-premise installations and secure processing environments for our outsourced solutions in our private and public cloud. We perform data conversions, software implementations, initial and ongoing client training, and ongoing client support services.
We believe our primary competitive advantage is client service. Our support infrastructure and strict standards provide service levels that generate high levels of client satisfaction and retention. We consistently measure client satisfaction using a variety of surveys, such as an annual survey on the client's anniversary date and randomly-generated surveys initiated each day by routine support requests. Dedicated surveys are also used to grade specific aspects of our client experience, including product implementation, education, and consulting services.
Our two primary revenue streams are “services and support” and “processing.” Services and support includes: “private and public cloud” revenues that predominantly have contract terms of six years at inception; “product delivery and services” revenues, which include revenues from the sales of licenses, implementation services, deconversions, consulting, and hardware; and “on-premise support” revenues, composed of maintenance fees that primarily contain annual contract terms. Processing includes: "remittance” revenues from payment processing, remote capture, and ACH transactions; “card” revenues, including card transaction processing and monthly fees; and “transaction and digital” revenues, which include transaction and mobile processing revenues. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.
We have four reportable segments: Core, Payments, Complementary, and Corporate and Other. The respective segments include all related revenues along with the related cost of revenue.
A detailed discussion of the major components of the results of operations follows. All amounts in the following discussion are in thousands, except per share amounts.
RESULTS OF OPERATIONS
For the first quarter of fiscal 2025, total revenue increased 5.2%, or $29,614, compared to the same quarter in fiscal 2024. Total revenue less deconversion revenue of $3,697 for the current fiscal quarter and less deconversion revenues of $4,136 for the prior fiscal year first quarter results in an increase of 5.3%, quarter over quarter. This increase was primarily driven by growth in data processing and hosting, card, and Jack Henry digital revenues, including Banno.
Operating expenses increased 2.5%, or $11,038, for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. Total operating expenses less deconversion operating expenses of $202 for the current fiscal quarter and less deconversion operating expenses of $381 and non-recurring expenses of $16,443 for the prior fiscal year first quarter results in an increase of 6.6%. This increase was primarily driven by higher personnel and direct costs, increased internal licenses and fees, and higher amortization.
Operating income increased 14.0%, or $18,576, for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024. Removing from total operating income the effects of deconversion operating income of $3,495 for the current fiscal quarter and deconversion operating income of $3,755 and non-recurring expenses of $16,443 for the prior fiscal year first quarter results in an increase of 1.6%, quarter over quarter. This increase was primarily driven by revenue growth partially offset by increased operating expenses detailed above.
The provision for income taxes increased 19.1%, or $6,038, for the first quarter of fiscal 2025, compared to the first quarter of fiscal 2024, primarily driven by the increase in income before income taxes. The effective tax rate for the current fiscal first quarter was 24.0% compared to 23.7% for the same quarter a year ago.
Net income increased 17.2%, or $17,512, for the first quarter of fiscal 2025, compared to the first quarter of fiscal 2024. Removing from total net income the effects of deconversion net income of $2,656 for the current fiscal year first quarter and deconversion net income of $2,854 and the VEDIP program net loss of $12,497 for the prior fiscal year first quarter, results in a 4.7% increase quarter over quarter. This increase was primarily due to net organic growth in our lines of revenue for the first quarter of fiscal 2025 partially offset by higher operating expenses and the increased provision for income taxes compared to the same quarter last fiscal year.
19
As we move into the second quarter of fiscal 2025, significant portions of our business continue to provide recurring revenue and our sales pipeline is also encouraging. Our clients continue to face regulatory and operational challenges which our products and services address, and in these times they have an even greater need for our solutions that directly address institutional profitability, efficiency, and security. We believe our strong balance sheet, access to extensive lines of credit, the strength of our existing product line, and an unwavering commitment to superior client service position us well to address current and future opportunities.
A detailed discussion of the major components of the results of operations for the three months ended September 30, 2024, follows.
Discussions compare the current fiscal year's three months ended September 30, 2024, to the prior fiscal year's three months ended September 30, 2023.
REVENUE
| Services and Support | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Services and Support | $ | 356,679 | $ | 342,205 | 4.2 | % | |||||||||||
| Percentage of total revenue | 59 | % | 60 | % | |||||||||||||
Services and support revenue increased 4.2% for the first quarter of fiscal 2025 compared to the same quarter a year ago. Reducing services and support revenue for deconversion revenue from each quarter, which was $3,697 for the current fiscal year quarter and $4,136 for the prior fiscal year quarter, results in growth of 4.4% quarter over quarter. This increase was primarily driven by double-digit growth in data processing and hosting revenues as new and existing clients migrate to our private cloud and processing volumes expand.
| Processing | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Processing | $ | 244,303 | $ | 229,163 | 6.6 | % | |||||||||||
| Percentage of total revenue | 41 | % | 40 | % | |||||||||||||
Processing revenue increased 6.6% for the first quarter of fiscal 2025 compared to the same quarter last fiscal year. This increase was primarily driven by growth in card revenue primarily from monthly service and risk management fees, improvement in Jack Henry digital revenue (including Banno) from a higher number of active users and expanding volumes from existing products and the recent introduction of new add-on products, and higher payment processing revenues from expanding volumes and new client revenue. Deconversion revenue did not significantly affect processing revenue quarter over quarter.
OPERATING EXPENSES
| Cost of Revenue | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Cost of Revenue | $ | 343,432 | $ | 323,002 | 6.3 | % | |||||||||||
| Percentage of total revenue | 57 | % | 57 | % | |||||||||||||
Cost of revenue for the first quarter of fiscal 2025 increased 6.3% over the prior fiscal year first quarter. Reducing cost of revenue for deconversion costs from each quarter, which were $115 for the current fiscal year quarter and $270 for the prior fiscal year quarter, results in a 6.4% increase quarter over quarter. This increase was primarily due to higher direct costs generally consistent with increases in the related lines of revenue, higher personnel costs, including an increase in employee headcount in the trailing twelve months, and increased internal licenses and fees from increased deployments and pricing. Cost of revenue remained consistent as a percentage of total revenue compared to the prior fiscal year quarter.
20
| Research and Development | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Research and Development | $ | 39,686 | $ | 36,892 | 7.6 | % | |||||||||||
| Percentage of total revenue | 7 | % | 6 | % | |||||||||||||
Research and development expense increased 7.6% for the first quarter of fiscal 2025 compared to the prior fiscal year first quarter. This increase was primarily due to higher personnel costs net of capitalization including an increase in employee headcount in the trailing twelve months. Deconversion and non-recurring costs did not significantly affect research and development expenses quarter over quarter. Research and development expense for the quarter increased 1% as a percentage of total revenue compared to the prior fiscal year quarter.
| Selling, General, and Administrative | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Selling, General, and Administrative | $ | 66,588 | $ | 78,774 | (15.5) | % | |||||||||||
| Percentage of total revenue | 11 | % | 14 | % | |||||||||||||
Selling, general, and administrative expense decreased 15.5% in the first quarter of fiscal 2025 compared to the same quarter in the prior fiscal year. Reducing selling, general, and administrative expense for deconversion costs from each quarter, which were $87 for the current fiscal year quarter and $111 for the prior fiscal year quarter and for VEDIP program expenses of $16,443 in the prior fiscal year quarter, results in a 6.9% increase quarter over quarter. This increase was primarily due to higher personnel costs, including benefits expenses from an increase in employee headcount in the trailing twelve months. Selling, general, and administrative expense decreased 3% as a percentage of total revenue this fiscal quarter versus the prior fiscal year quarter.
| INTEREST INCOME (EXPENSE) | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Interest Income | $ | 8,347 | $ | 4,745 | 75.9 | % | |||||||||||
| Interest Expense | $ | (2,825) | $ | (4,197) | (32.7) | % | |||||||||||
Interest income increased due to changes in average outstanding balances during the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Interest expense decreased when compared to the prior fiscal year quarter primarily due to a decrease in the amount outstanding. There was a $140,000 outstanding balance under the revolving credit and term loan facilities at September 30, 2024, and $245,000 outstanding balance under the revolving credit and term loan facilities at September 30, 2023.
| PROVISION FOR INCOME TAXES | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Provision for Income Taxes | $ | 37,607 | $ | 31,569 | 19.1 | % | |||||||||||
| Effective Rate | 24.0 | % | 23.7 | % | |||||||||||||
The effective tax rate increased for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, with an effective tax rate of 24.0% of income before taxes, compared to 23.7% of income before taxes for the same quarter last fiscal year.
21
| NET INCOME | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Net income | $ | 119,191 | $ | 101,679 | 17.2 | % | |||||||||||
| Diluted earnings per share | $ | 1.63 | $ | 1.39 | 17.1 | % | |||||||||||
Net income increased 17.2% to $119,191, or $1.63 per diluted share, for the first quarter of fiscal 2025 compared to $101,679, or $1.39 per diluted share, in the same quarter of fiscal 2024. Removing from total net income the effects of deconversion net income of $2,656 for the current fiscal quarter and deconversion net income of $2,854 and the VEDIP program net loss of $12,497 for the prior fiscal year quarter, results in a 4.7% increase quarter over quarter. This increase was primarily due to net organic growth in our lines of revenue for the first quarter of fiscal 2025 partially offset by higher operating expenses and the increased provision for income taxes compared to the same quarter last fiscal year.
REPORTABLE SEGMENT DISCUSSION
The Company is a well-rounded financial technology company and is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.
The Company’s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate and Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card processing services, online and mobile bill pay solutions, ACH origination and remote deposit capture processing, and risk management products and services. The Complementary segment provides additional software, hosted processing platforms, and services, including digital/mobile banking, treasury services, online account opening, fraud/anti-money laundering ("AML") and lending/deposit solutions that can be integrated with the Company's Core solutions, and many can be used independently. The Corporate and Other segment includes revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating expenses not directly attributable to the other three segments.
The Company evaluates the performance of its segments and allocates resources to them based on various factors, including performance against trend, budget, and forecast. Only revenue and costs of revenue are considered in the evaluation for each segment.
Immaterial adjustments have been made between segments to reclassify cost of revenue that was recognized for the three months ended September 30, 2023. These reclasses were made to be consistent with the current allocation of cost of revenue by segment. Cost of revenue reclassed for the three months ended September 30, 2023, from Complementary to Corporate and Other, was $1,318.
| Core | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenue | $ | 195,624 | $ | 186,439 | 4.9 | % | |||||||||||
| Cost of Revenue | $ | 81,420 | $ | 75,927 | 7.2 | % | |||||||||||
Revenue in the Core segment increased 4.9% and cost of revenue increased 7.2% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Reducing Core revenue for deconversion revenue in both quarters, which totaled $1,287 for the three months ended September 30, 2024, and $1,665 for the three months ended September 30, 2023, results in a 5.2% increase quarter over quarter. This increase was primarily driven by growth in data processing and hosting revenues as new and existing clients migrate to our private cloud and processing volumes expand. Reducing Core cost of revenue for deconversion costs in both quarters, which totaled $37 for the three months ended September 30, 2024 and $103 for the three months ended September 30, 2023, results in a 7.3% increase quarter over quarter. The Core cost of revenue increase was primarily due to higher direct costs generally consistent with increases in related lines of revenue. Core cost of revenue increased 1% as a percentage of Core revenue for the first quarter of fiscal 2025 compared to the same quarter in fiscal 2024.
22
| Payments | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenue | $ | 211,923 | $ | 199,358 | 6.3 | % | |||||||||||
| Cost of Revenue | $ | 113,020 | $ | 108,826 | 3.9 | % | |||||||||||
Revenue in the Payments segment increased 6.3% and cost of revenue increased 3.9% for the first quarter of fiscal 2025 compared to the equivalent quarter of the prior fiscal year. Reducing Payments revenue for deconversion revenue in both quarters, which totaled $1,914 for the first quarter of fiscal 2025 and $1,006 for the first quarter of fiscal 2024, results in a 5.9% increase quarter over quarter. This increase was primarily due to higher card revenue from organic growth from higher volumes, higher payment processing revenues from higher volumes and new client revenue, and increased remote capture and ACH revenue. The Payments cost of revenue increase was primarily due to higher direct costs generally consistent with increases in lines of revenue. Deconversion and non-recurring costs did not significantly affect Payments cost of revenue quarter over quarter. Payments cost of revenue as a percentage of Payments revenue decreased 1% for the first quarter of fiscal 2025 compared to the same quarter in fiscal 2024.
| Complementary | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenue | $ | 171,702 | $ | 161,366 | 6.4 | % | |||||||||||
| Cost of Revenue | $ | 65,967 | $ | 60,957 | 8.2 | % | |||||||||||
Revenue in the Complementary segment increased 6.4% and cost of revenue increased 8.2% for the first quarter of fiscal 2025 compared to the equivalent quarter of the prior fiscal year. Reducing Complementary revenue for deconversion revenue in both quarters, which totaled $473 for the first quarter of fiscal 2025 and $1,451 for the first quarter of fiscal 2024, results in a 7.1% increase quarter over quarter. This increase was primarily driven by growth in hosting revenues as new and existing clients continued to migrate to our private cloud and processing volumes expanded and increased Jack Henry digital revenue as the number of active users increased and volumes expanded from existing and new add-on products. Reducing Complementary cost of revenue for deconversion costs in both quarters, which totaled $60 for the first quarter of fiscal 2025 and $119 for the first quarter of fiscal 2024, results in an 8.3% increase quarter over quarter. This increase was primarily due to higher amortization of capitalized software from capital software development projects and increased licenses and fees from increased deployments and prices in the current quarter. Complementary cost of revenue as a percentage of Complementary revenue increased 1% for the first quarter of fiscal 2025 compared to the same quarter in fiscal 2024.
| Corporate and Other | Three Months Ended September 30, | % Change | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Revenue | $ | 21,733 | $ | 24,205 | (10.2) | % | |||||||||||
| Cost of Revenue | $ | 83,025 | $ | 77,292 | 7.4 | % | |||||||||||
Revenue classified in the Corporate and Other segment includes revenues from other products and services and hardware not specifically attributed to the other three segments. Revenue in the Corporate and Other segment decreased 10.2% for the first quarter of fiscal 2025 compared to the equivalent quarter of the prior fiscal year. Reducing Corporate and Other revenue for deconversion revenue in both quarters, which totaled $23 for the first quarter of fiscal 2025 and $14 for the first quarter of fiscal 2024, results in a 10.3% decrease quarter over quarter. The Corporate and Other revenue decrease was primarily due to lower hardware revenue quarter over quarter.
Cost of revenue for the Corporate and Other segment includes operating expenses not directly attributable to the other three segments. The cost of revenue in the first quarter of fiscal 2025 increased 7.4% when compared to the prior fiscal year quarter. This increase was primarily due to higher personnel costs, including an increase in headcount in the trailing twelve months, higher internal licenses and fees from increased deployments and prices, and increased cloud consumption costs, quarter over quarter. Deconversion and non-recurring costs did not significantly affect Corporate and Other cost of revenue quarter over quarter.
23
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $43,212 at September 30, 2024, from $38,284 at June 30, 2024.
The following table summarizes net cash from operating activities in the statement of cash flows:
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income | $ | 119,191 | $ | 101,679 | |||||||
| Non-cash expenses | 53,085 | 46,094 | |||||||||
| Change in receivables | 26,373 | 72,519 | |||||||||
| Change in deferred revenue | (69,358) | (66,322) | |||||||||
| Change in other assets and liabilities | (12,395) | 3,169 | |||||||||
| Net cash provided by operating activities | $ | 116,896 | $ | 157,139 | |||||||
Cash provided by operating activities for the first three months of fiscal 2025 decreased 26% compared to the same period last year primarily due to the decrease in the change in receivables quarter over quarter. We collected significantly more annual maintenance dollars in the fourth quarter of fiscal 2024 than we have historically collected in the fourth quarter, leaving less to be collected in the current fiscal quarter. Cash from operations is primarily used to repay debt, pay dividends, repurchase stock, for capital expenditures, and acquisitions.
Cash used in investing activities for the first three months of fiscal 2025 totaled $58,736 and included: $42,259 for the ongoing enhancement and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $12,801; $2,676 for the purchase and development of internal use software; and the purchase of investment of $2,000. Cash uses were partially offset by proceeds from investments of $1,000. Cash used in investing activities for the first three months of fiscal 2024 totaled $50,526 and included: $41,486 for the development of software; $7,612 for capital expenditures; and $2,280 for the purchase and development of internal use software. Cash uses were partially offset by proceeds from dispositions of $852.
Financing activities used cash of $53,232 for the first three months of fiscal 2025 and included payments on credit facilities of $85,000, dividends paid to stockholders of $40,104, and a net cash outflow from the issuance of stock and tax withholding related to stock-based compensation of $3,128. Cash uses were partially offset by borrowings on credit facilities of $75,000. Financing activities used cash of $87,389 in the first three months of fiscal 2024 and included repayments on credit facilities of $165,000, $37,863 for the payment of dividends, and the purchase of treasury stock of $20,000. Cash uses were partially offset by borrowings on credit facilities of $135,000 and $474 net cash inflow from the issuance of stock and tax withholding related to stock-based compensation.
Capital Requirements and Resources
The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $12,801 and $7,612 for the three months ended September 30, 2024, and September 30, 2023, respectively, were made primarily for additional equipment and the improvement of existing facilities. These additions were funded from cash generated by operations. Total consolidated capital expenditures on facilities and equipment for the Company for fiscal year 2025 are expected to be approximately $68,000 and have been or will be funded from our credit facilities and cash generated by operations.
In July 2023, the Company conducted a voluntary separation program for certain eligible employees that included a VEDIP payment for the eligible employees who chose to participate in the program. The Company made payments associated with the VEDIP program in the approximate amount of $16,443 from July 2023 through December 2023, including immaterial payments continuing into calendar year 2024.
Contractual obligations are discussed in our Annual Report on Form 10-K for the year ended June 30, 2024. There have been no material contractual obligations added for the three months ended September 30, 2024
24
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or borrowings on its existing line of credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At September 30, 2024, there were 31,373 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,618 additional shares. The total cost of treasury shares at September 30, 2024, was $1,860,173, and the Company repurchased no shares during the first three months of fiscal 2025. At June 30, 2024, there were 31,373 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,618 additional shares. The total cost of treasury shares at June 30, 2024, was $1,860,173 and the Company repurchased 129 shares during the first three months of fiscal 2024.
Credit facilities
On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced a prior credit facility that was entered into on February 10, 2020. The credit agreement allows for borrowings of up to $600,000, which may be increased to $1,000,000 by the Company at any time until maturity. The credit agreement bears interest at a variable rate equal to (a) a rate based on an adjusted SOFR term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit agreement. As of September 30, 2024, the Company was in compliance with all such covenants. The amended and restated credit facility terminates August 31, 2027. There was $50,000 and $60,000 outstanding under the amended and restated credit facility at September 30, 2024 and June 30, 2024, respectively.
Term loan facility
On May 16, 2023, the Company entered into a term loan credit agreement with a syndicate of financial institutions, with an original principal balance of $180,000. Borrowings under the term loan facility bear interest at a variable rate equal to (a) a rate based on an adjusted SOFR term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars plus 0.75%), plus an applicable percentage in each case determined by the Company's leverage ratio. The term loan credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the term loan credit agreement. As of September 30, 2024, the Company was in compliance with all such covenants. The term loan credit agreement has a maturity date of May 16, 2025. There was 90,000 outstanding under the term loan at September 30, 2024 and June 30, 2024.
Other lines of credit
The Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate less 1%. The credit line expires on April 30, 2025. There was no balance outstanding at September 30, 2024, or June 30, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dollar amounts in this item are in thousands.
Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, volatilities, correlations or other market factors such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. We are currently exposed to credit risk on credit extended to clients and interest risk on outstanding debt. We do not currently use any derivative financial instruments. We actively monitor these risks through a variety of controlled procedures involving senior management.
Based on the controls in place and the credit worthiness of the client base, we believe the credit risk associated with the extension of credit to our clients will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
We had $140,000 outstanding debt with variable interest rates as of September 30, 2024, and a 1% increase in our borrowing rate would increase our annual interest expense by $1,400.
25
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including the Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation (required in Exchange Act Rules 13a-15(b) and 15d-15(b)), the CEO and CFO concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended September 30, 2024, there were no changes in the Company's internal control over financial reporting which were identified in connection with management’s evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various routine legal proceedings and claims arising in the ordinary course of our business. In the opinion of management, any liabilities resulting from current lawsuits are not expected, either individually or in the aggregate, to have a material adverse effect on our consolidated financial statements. In accordance with U.S. GAAP, we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These liabilities are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case or proceeding.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following shares of the Company were repurchased during the quarter ended September 30, 2024:
Total Number of Shares Purchased | Average Price of Share | Total Number of Shares Purchased as Part of Publicly Announced Plans | Maximum Number of Shares that May Yet Be Purchased Under the Plans (1) | ||||||||||||||||||||
| July 1 — July 31, 2024 | — | $ | — | — | 3,617,657 | ||||||||||||||||||
| August 1 — August 31, 2024 | — | — | — | 3,617,657 | |||||||||||||||||||
| September 1 — September 30, 2024 | — | — | — | 3,617,657 | |||||||||||||||||||
| Total | — | $ | — | — | 3,617,657 | ||||||||||||||||||
(1) Total stock repurchase authorizations approved by the Company's Board of Directors as of May 14, 2021, were for 35,000,000 shares. Under these authorizations, the Company has repurchased and not re-issued 31,372,959 shares and has repurchased and re-issued 9,384 shares. These authorizations have no specific dollar or share price targets and no expiration dates.
ITEM 5. OTHER INFORMATION
Rule 10b-5(1) Trading Plans
During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” non-Rule 10b5-1 trading arrangement
26
ITEM 6. EXHIBITS
101.INS* XBRL Instance Document- the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Furnished with this quarterly report on Form 10-Q are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2024, and June 30, 2024, (ii) the Condensed Consolidated Statements of Income for the three months ended September 30, 2024, and 2023, (iii) the Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended September 30, 2024, and 2023, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2024, and 2023, and (v) Notes to Condensed Consolidated Financial Statements.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| JACK HENRY & ASSOCIATES, INC. | |||||||||||
| Date: | November 8, 2024 | /s/ Gregory R. Adelson | |||||||||
| Gregory R. Adelson | |||||||||||
| Chief Executive Officer and President | |||||||||||
| Date: | November 8, 2024 | /s/ Mimi L. Carsley | |||||||||
| Mimi L. Carsley | |||||||||||
| Chief Financial Officer and Treasurer | |||||||||||
28