JKHY Financial Analysis

Analysis Date: 2/6/2025

Business Model

Jack Henry & Associates, Inc. is a financial technology company generating revenue from providing technology solutions and payment processing services to financial institutions and corporate entities.

Revenue Sources

• Services and Support Revenue: Includes private and public cloud, product delivery and services, and on-premise support.
• Processing Revenue: Includes remittance, card, and transaction and digital revenues.

Income Statement Analysis

• Revenue increased by 5.2% year-over-year, driven by growth in data processing and hosting, card, and digital revenues. (Pro)
• Cost of revenue increased by 6.3%, slightly outpacing revenue growth, potentially indicating some pressure on gross margins. (Con)
• Research and Development expenses increased by 7.6%, reflecting continued investment in innovation. (Pro)
• Selling, General, and Administrative expenses decreased significantly by 15.5%, which is a positive sign for efficiency improvements, however, adjusted SG&A increased 6.9% excluding non-recurring items from previous year. (Pro/Neutral with adjustment context)
• Operating income increased by 14.0%, indicating improved profitability. (Pro)
• Interest income increased dramatically due to changes in average outstanding balances. (Pro)
• Interest expense decreased due to a decrease in outstanding debt. (Pro)
• Net income increased by 17.2%, showing strong bottom-line growth. (Pro)

Balance Sheet Analysis

• Cash and cash equivalents increased by 12.9%, indicating improved liquidity. (Pro)
• Receivables, net decreased by 8.0%, potentially suggesting better collection efficiency or slower sales growth in the very recent period. (Neutral to Pro if efficiency, Con if slower sales)
• Total current assets remained relatively stable. (Neutral)
• Property and equipment, net slightly decreased by 1.3% due to depreciation. (Neutral)
• Goodwill remained unchanged. (Neutral)
• Total assets remained stable. (Neutral)
• Accounts payable decreased by 19.1%, which could be due to better payment management or decreased purchasing. (Neutral to Pro if efficient management, Con if decreased activity)
• Accrued expenses decreased by 10.2%. (Neutral to Pro if better expense management)
• Total current liabilities decreased by 10.0%, improving short-term financial health. (Pro)
• Debt, net of current maturities decreased by 16.7%, reducing long-term liabilities. (Pro)
• Total liabilities decreased by 7.2%, strengthening the balance sheet. (Pro)
• Retained earnings increased by 2.6%, reflecting profitability. (Pro)
• Total stockholders' equity increased by 4.5%, enhancing financial stability. (Pro)

Capital Allocation

The company uses cash from operations to repay debt, pay dividends, repurchase stock, for capital expenditures, and acquisitions. In Q1 2025, dividends paid were $40.1 million and share repurchases were $0. Capital expenditures were $12.8 million, primarily for equipment and facility improvements. The company has authority to repurchase up to 3,618 additional shares as of September 30, 2024. They use available cash or credit lines for share repurchases. Capital expenditures for fiscal year 2025 are expected to be approximately $68 million, funded by credit facilities and cash from operations. In earnings call, management mentioned share repurchase to offset dilution from stock compensation. Dividend payout was also mentioned in earnings call as part of capital allocation strategy.

Management Commentary

We exceeded our second quarter outlook. We had non GAAP revenue growth of 6.1% in Q2, slightly ahead of the six percent anticipated on the November call.

Our non GAAP operating margin of 21.5% was also slightly better than expected.

After record sales attainment in Q1, we continued our positive momentum by setting a sales record in Q2 for the second consecutive year.

In Q2, we closed 28 core renewals bringing our total for the fiscal year to 46. That is up 21% over the first six months of last year.

Hardware revenue was down $2,000,000 for for the quarter and $7,000,000 year to date creating headwinds for services and support revenue.

Quarterly deconversion revenue of approximately $100,000 which we released prior to full earnings was down $5,000,000 compared to the same period last year, reflecting minimal consolidation of our clients.

Overall Sentiment: Positive. Management expresses confidence in exceeding Q2 outlook and achieving full-year guidance, highlighting record sales and strong renewal rates. They acknowledge headwinds from hardware revenue decline and deconversion revenue decrease but emphasize strong performance in key revenue areas and margin expansion.

Recommendation

Rating: Hold

Reason for Rating: Based on the mixed financial performance in Q1 2025 and Q2 2025, a Hold recommendation is appropriate. While revenue and net income are growing, operating cash flow decreased, and some expense growth is outpacing revenue growth. Management commentary is positive, but the financial data presents a mixed picture for short-term investment. Long-term prospects seem stable with ongoing technology modernization and strong market position, but near-term performance needs closer monitoring.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/6/2025, 4:44:23 AM