• Year-to-date summary:
• GAAP revenue increased 2% and operating income remained consistent for the six months ended December 31 2020 compared to the prior-year period
• Non-GAAP adjusted revenue increased 4% and non-GAAP adjusted operating income increased 6% for the six months ended December 31 2020 compared to the prior-year period
• GAAP EPS was $213 per diluted share for the six months ended December 31 2020 compared to $210 in the prior-year period
• Cash at December 31 2020 was $1478 million an increase of 104% compared to December 31 2019
• Debt related to the revolving credit line and other lines of credit was zero at December 31 2020 and 2019
• Second quarter summary:
• GAAP revenue increased 1% and operating income remained consistent for the quarter compared to the prior-year quarter
• Non-GAAP adjusted revenue increased 2% and non-GAAP adjusted operating income increased 4% for the quarter compared to the prior-year quarter
• GAAP EPS was $094 per diluted share for the quarter compared to $094 in the prior-year quarter
• Full-year fiscal 2021 guidance:
• GAAP revenue $1760 million to $1770 million
• GAAP EPS $385 to $390
• Non-GAAP revenue $1730 million to $1740 million*

Jack Henry & Associates Inc (NASDAQ: JKHY) a leading provider of technology solutions and payment processing services primarily for the financial services industry today announces results for the second quarter of fiscal 2021 and discusses its continued response to the novel coronavirus (COVID-19) pandemic

According to David Foss President and CEO We are very pleased to report another solid quarter of revenue growth We continue to see very strong demand for Jack Henry technology solutions in the markets we serve Despite the ongoing impacts of the pandemic our sales teams had a  strong quarter and the sales pipeline is now very robust which bodes well for the remainder of our sales year

GAAP Results for the Quarter and Year to Date

Revenue for the quarter ended December 31 2020 increased to $4224 million which is 1% growth over the second quarter of fiscal 2020 and includes increased outsourcing and processing revenues partially offset by a decrease in deconversion fee revenue The overall growth in revenue for the quarter was more than offset by an increase in costs primarily related to our card processing platform and higher personnel costs partially offset by travel expense savings as a result of COVID-19 travel limitations (see COVID-19 Impact and Response section below) and a gain on disposal of assets net resulting in operating income of $936 million compared to $937 million in the second quarter of fiscal 2020  Net income remained consistent at $720 million or $094 per diluted share compared to the second quarter of fiscal 2020

For the six months ended December 31 2020 revenue increased to $8742 million which is 2% growth over the six months ended December 31 2019 and includes increased outsourcing and processing revenues partially offset by a decrease in deconversion fee revenue  The overall growth in revenue for the year-to-date period was more than offset by an increase in costs primarily related to our card processing platform and higher personnel costs partially offset by travel expense savings as a result of COVID-19 travel limitations a gain on disposal of assets net and lower professional fees resulting in operating income of $2112 million compared to $2119 million in the prior year-to-date period Net income increased 1% to $1632 million or $213 per diluted share compared to the six months ended December 31 2019 due to the above factors and a decrease in effective tax rate from the prior fiscal year-to-date period

Non-GAAP Results for the Quarter and Year to Date

For the quarter ended December 31 2020 non-GAAP adjusted revenue increased 2% to $4202 million due to the above factors excluding the effect of the change in deconversion fees and revenue in the prior year second quarter from our current year second quarter divestiture Non-GAAP adjusted operating income increased 4% to $897 million compared to the prior fiscal year quarter due to the above factors excluding the effect of the change in deconversion fees and related costs the gain on disposal of assets net and operating income in the prior year second quarter from our current fiscal year second quarter divestiture (see Non-GAAP Impact of Deconversion Fees Gain on Disposal of Assets and Operating Income from Divestitures on page 4)

For the six months ended December 31 2020 non-GAAP adjusted revenue increased 4% to $8661 million due to the above factors excluding the effect of the change in deconversion fees and revenue in the prior year-to-date period from our current year-to-date period divestiture Non-GAAP adjusted operating income increased 6% to $2020 million compared to the six months ended December 31 2019 due to the above factors excluding the effect of the change in deconversion fees and related costs the gain on disposal of assets net and operating income in the prior year-to-date period from our current fiscal year-to-date period divestiture (see Non-GAAP Impact of Deconversion Fees Gain on Disposal of Assets and Operating Income from Divestitures on page 4)

Operating Results

Revenue operating expenses operating income and net income for the three and six months ended December 31 2020 as compared to the three and six months ended December 31 2019 were as follows:

• Total revenue increased 1% for the second quarter of fiscal 2021 compared to the same quarter last fiscal year primarily due to an increase in processing revenue partially offset by a decrease in services and support revenue The increase in processing revenue for the second quarter of fiscal 2021 was primarily driven by increased Jack Henry digital and remittance revenue due to expanding volumes quarter over quarter The decrease in services and support revenue was primarily due to the decrease in deconversion fee revenue quarter over quarter partially offset by growth in data processing and hosting fees for the fiscal quarter Deconversion fee revenue decreased $56 million compared to the second quarter of fiscal 2020 Excluding deconversion fee revenue from both the current and prior fiscal year quarter and revenue from divestitures from the prior fiscal year quarter revenue increased 2% for the second quarter of fiscal 2021 compared to the same quarter of fiscal 2020
• Total revenue increased 2% for the six months ended December 31 2020 compared to the same period last fiscal year primarily due to an increase in processing revenue partially offset by a decrease in services and support revenue The increase in processing revenue for the six months ended December 31 2020 was primarily driven by increased card processing and Jack Henry digital revenue due to expanding volumes period over period The decrease in services and support revenue was primarily due to the decrease in deconversion fee revenue period over period partially offset by growth in data processing and hosting fees and software usage fees for the fiscal year-to-date period Deconversion fee revenue decreased $146 million compared to the six months ended December 31 2019 Excluding deconversion fee revenue from both the current and prior fiscal year-to-date periods and revenue from divestitures from the prior fiscal year-to-date period revenue increased 4% for the six months ended December 31 2020 compared to the same period of fiscal 2020
• For the second quarter of fiscal 2021 core segment revenue increased 1% to $1349 million compared to $1335 million in the second quarter of fiscal 2020 Payments segment revenue increased 2% to $1552 million from $1520 million in the same quarter last fiscal year Revenue from the complementary segment increased 3% to $1214 million in the second quarter of fiscal 2021 from $1183 million in the same quarter of fiscal 2020 Revenue in the corporate and other segment decreased to $108 million from $152 million in the second quarter of fiscal 2020
• For the six months ended December 31 2020 revenue in the core segment increased 1% to $2881 million compared to $2848 million for the six months ended December 31 2019 Payments segment revenue increased 3% to $3119 million from $3018 million in the prior year-to-date period Complementary segment revenue increased 5% to $2518 million up from $2402 million in the prior year-to-date period Revenue in the corporate and other segment decreased to $224 million for the six months ended December 31 2020 from $304 million for the six months ended December 31 2019

Operating Expenses and Operating Income

• Cost of revenue increased 3% for the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 and increased 2% as a percentage of revenue The increase was primarily due to higher costs associated with our card processing platform and higher personnel costs related to organic growth within our product lines partially offset by travel expense savings as a result of COVID-19 travel limitations (see COVID-19 Impact and Response section below) and a decrease in cost of hardware
• For the six months ended December 31 2020 cost of revenue increased 5% compared to the equivalent period of the prior fiscal year and increased 2% as a percentage of revenue Excluding costs related to deconversions from both fiscal year-to-date periods and costs related to the divestiture from the prior fiscal year-to-date period cost of revenue increased 6% This increase was primarily due to higher costs associated with our card processing platform and higher personnel costs partially offset by travel expense savings as a result of COVID-19 travel limitations (see COVID-19 Impact and Response section below)
• Research and development expense decreased 1% for the second quarter and increased 2% for the year-to-date period of fiscal 2021 compared to the same quarter and year-to-date period in the prior fiscal year The year-to-date increase reflected our focused continuing commitment to the development of strategic products Research and development expense for the current quarter and year-to-date fiscal periods remained consistent as a percentage of total revenue compared to the prior quarter and year-to-date fiscal periods
• Selling general and administrative expense decreased 10% for the second quarter of fiscal 2021 compared to the same quarter the prior fiscal year Selling general and administrative expense decreased 9% for the year-to-date period of fiscal 2021 compared to the same year-to-date period in the prior fiscal year Personnel cost increases for the fiscal quarter and year-to-date periods were more than offset by travel expense and other savings as a result of COVID-19 travel limitations and a gain on disposal of assets net For the quarter COVID-19 related savings included our Jack Henry Annual Conference (JAC) being held virtually For the year-to-date period COVID-19 related savings included our national sales meeting JAC and Symitar Education Conference being held virtually (see COVID-19 Impact and Response section below) Selling general and administrative expense for the quarter decreased 2% as a percentage of total revenue compared to the prior fiscal year quarter Selling general and administrative expense for the fiscal year-to-date period decreased 1% as a percentage of total revenue compared to the prior fiscal year-to-date period Excluding costs related to deconversions and divestitures and the gain on disposal of assets net from both the current and prior year fiscal quarters and year-to-date periods selling general and administrative expense decreased 5% and 7% for the respective fiscal quarter and fiscal year-to-date period comparisons
• For the second quarter of fiscal 2021 operating income was $936 million compared to $937 million for the same quarter in the prior fiscal year and remained consistent at 22% of revenue For the fiscal 2021 year-to-date period operating income was $2112 million which was 24% of revenue compared to operating income for the prior fiscal year-to-date period of $2119 million which was 25% of revenue

Net Income

• Provision for income taxes decreased in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 with an effective tax rate of 231% of income before income taxes compared to 232% in the prior fiscal year quarter
• For the six months ended December 31 2020 provision for income taxes decreased with an effective tax rate at 227% of income before income taxes compared to 240% for the same period last fiscal year The decrease in the Company's tax rate was primarily due to the difference in impact of share-based compensation that vested during each of the periods

According to Kevin Williams CFO and Treasurer Revenue from our private cloud card processing and digital offerings continue to grow nicely compared to the prior year Revenue headwinds in our services and support line of revenue are primarily due to the significant decreases in deconversion fees hardware revenue due to the continued shift of our existing customers moving to our private cloud and pass through revenue related to billable travel and moving our Banking and ProfitStars Education Conference to a virtual event this year compared to the prior year Operating margins were in line with expectations for all the operating segments with continued headwinds on the payments segment as we remain on schedule of the migration to the new processing platform I would like to thank all of our associates for their hard work to continue providing the highest level of care and support for our customers in these unprecedented times

Non-GAAP Impact of Deconversion Fees Gain on Disposal of Assets and Operating Income from Divestitures

The table below shows our revenue and operating income (in thousands) for the three and six months ended December 31 2020 compared to the three and six months ended December 31 2019 excluding the impacts of deconversion fees the gain on disposal of assets net and operating income from divestitures

The tables below show the segment break-out of revenue and cost of revenue for each period presented as adjusted for the items above and include a reconciliation to non-GAAP adjusted operating income presented above

Balance Sheet and Cash Flow Review

• At December 31 2020 cash and cash equivalents increased to $1478 million from $725 million at December 31 2019
• Trade receivables totaled $2129 million at December 31 2020 compared to $2047 million at December 31 2019
• The Company had no borrowings at December 31 2020 and December 31 2019
• Total deferred revenue decreased to $2629 million at December 31 2020 compared to $2770 million a year ago
• Stockholders' equity increased to $15452 million at December 31 2020 compared to $14867 million a year ago

Cash provided by operations totaled $1940 million for the six months ended December 31 2020 compared to $2150 million for the same period last fiscal year  The following table summarizes net cash from operating activities:

Cash used in investing activities for the six months ended December 31 2020 totaled $825 million compared to $1254 million for the same period last fiscal year and included the following:

• On July 1 2019 the Company acquired all of the equity interest of Geezeo for $30376 net of cash acquired Geezeo is a Boston-based provider of retail and business digital financial management solutions

Financing activities used cash of $1770 million in the six months ended December 31 2020 and $1107 million in the same period last fiscal year and included the following: 

Use of Non-GAAP Financial Information

Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting in the United States GAAP include the standards conventions and rules accountants follow in recording and summarizing transactions in the preparation of financial statements  In addition to reporting financial results in accordance with GAAP we have provided certain non-GAAP financial measures including adjusted revenue adjusted operating income adjusted segment income adjusted cost of revenue and adjusted operating expenses

We believe non-GAAP financial measures help investors better understand the underlying fundamentals and true operations of our business  The non-GAAP financial measures presented eliminate one-time deconversion fees contributions in the prior year of current year divestitures and gain on disposal of assets net all of which management believes are not indicative of the Company's operating performance  Such adjustments give investors further insight into our performance  For these reasons management also uses these non-GAAP financial measures in its assessment and management of the Company's performance

Any non-GAAP financial measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP measures  Reconciliations of the non-GAAP financial measures to related GAAP measures are included

*Revenue from deconversion fees and divestitures are the main components of reconciling fiscal year 2021 GAAP to non-GAAP guidance

COVID-19 Impact and Response

In March 2020 the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic and the President of the United States declared the outbreak as a national emergency As COVID-19 has rapidly spread federal state and local governments have responded by imposing varying degrees of restrictions including widespread stay-at-home orders social distancing requirements travel limitations quarantines and forced closures or limitations on operations of non-essential businesses Such restrictions have resulted in significant economic disruptions and uncertainty

The health safety and well-being of our employees and customers is of paramount importance to us In March 2020 we established an internal task force composed of executive officers and other members of management to frequently assess updates to the COVID-19 situation and recommend Company actions We offered remote working as a recommended option to employees whose job duties allow them to work off-site This recommended remote working option is currently extended until at least July 1 2021 and our internal task force will continue to evaluate recommending further extensions Based on guidance from the US Department of Homeland Security's Cybersecurity and Infrastructure Security Agency the Company was designated as essential critical infrastructure because of our support of the financial services industry As of February 1 2021 the majority of our employees were continuing to work remotely Our internal task force considers federal state and local guidance as well as employee-specific and facility-specific factors when recommending Company actions At such time that our internal task force recommends that our remote employees begin to return to our facilities we have prepared procedures to assist with a safe gradual and deliberate approach including a return-to-office training enhanced sanitation procedures and face mask requirements which are currently being utilized by our employees who are required to be on-site to perform their required job functions

We have suspended all non-essential business travel until at least July 1 2021 and our internal task force will continue to evaluate the need for further extensions We have put additional safety precautions into place for travel that is essential We have also updated the health benefits available to our employees by waiving out-of-pocket expenses related to testing and treatment of COVID-19 Despite the move to a principally remote workforce we honored our 2020 summer internship program through virtual methods

Customers

We are working closely with our customers who are scheduled for on-site visits to ensure their needs are met while taking necessary safety precautions when our employees are required to be at a customer site Delays of customer system installations due to COVID-19 have been limited and we have developed processes to handle remote installations when available We expect these processes to provide flexibility and value both during and after the COVID-19 pandemic However we have experienced delays related to continuing customer migrations to our new card processing platform We completed the migrations of our core customers and are on track for the revised schedule for non-core customers by March 31 2021 We continue to work with our customers to support them during this difficult time and to that end have waived certain late fees in connection with our products and services We have also enhanced our lending service offerings to support the Paycheck Protection Program (PPP) that was introduced by the Coronavirus Aid Relief and Economic Security (CARES) Act which was signed into law on March 27 2020 Even though a substantial portion of our workforce has worked remotely during the outbreak and business travel has been curtailed we have not yet experienced significant disruption to our operations We believe our technological capabilities are well positioned to allow our employees to work remotely for the foreseeable future without materially impacting our business

Financial impact

We have seen delays in certain product installations due to COVID-19 with the associated revenue pushed from the current period to future periods These headwinds may continue to impact our license hardware installation and pass-through revenues throughout fiscal 2021 Despite the changes and restrictions caused by COVID-19 the overall financial and operational impact on our business has been limited and our liquidity balance sheet and business trends remain strong We experienced positive operating cash flows during the first six months of fiscal 2021 and we do not expect that to change in the near term However we are unable to accurately predict the future impact of COVID-19 due to a number of uncertainties including further government actions; the duration severity and recurrence of the outbreak; the speed and effectiveness of vaccine and treatment developments; the speed of economic recovery; the potential impact to our customers vendors and employees; and how the potential impact might affect future customer services processing and installation-related revenue and processes and efficiencies within the Company directly or indirectly impacting financial results We will continue to monitor COVID-19 and its possible impact on the Company and to take steps necessary to protect the health and safety of our employees and customers

Quarterly Conference Call

The Company will hold a conference call on February 9 2021; at 7:45 am Central Time and investors are invited to listen at wwwjackhenrycom  

About Jack Henry & Associates Inc®

Jack Henry (NASDAQ: JKHY) is a leading provider of technology solutions primarily for the financial services industry We are an S&P 500 company that serves approximately 8500 clients nationwide through three divisions: Jack Henry Banking® supports banks ranging from community banks to multi-billion-dollar institutions; Symitar® provides industry-leading solutions to credit unions of all sizes; and ProfitStars® offers highly specialized solutions to financial institutions of every asset size as well as diverse corporate entities outside of the financial services industry With a heritage that has been dedicated to openness partnership and user centricity for more than 40 years we are well-positioned as a driving market force in future-ready digital solutions and payment processing services We empower our clients and consumers with the human-centered tech-forward and insights-driven solutions that will get them where they want to go Are you future ready? Additional information is available at wwwjackhenrycom

Statements made in this news release that are not historical facts 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  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 the Company's Securities and Exchange Commission filings including the Company's most recent reports on Form 10-K and Form 10-Q particularly under the heading Risk Factors Any forward-looking statement made in this news release speaks only as of the date of the news release 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