Jack Henry & Associates (Nasdaq: JKHY), a leading provider of integrated technology solutions that performs data processing for financial institutions, today announced first quarter fiscal 2009 results with a 5% increase in revenue and an increase of 4% in gross profit over the first quarter of fiscal 2008.
Income from continuing operations decreased 5% and net income was down 4% compared to last year.
For the quarter ended September 30, 2008, the company generated total revenue of $183.1 million, compared to $174.9 million in the same quarter a year ago. Gross profit increased to $72.5 million compared to $69.6 million in the first quarter of fiscal 2008. Income from continuing operations decreased to $22.5 million compared to $23.8 million a year ago. Net income totaled $22.5 million, or $0.26 per diluted share, compared to $23.5 million, also $0.26 per diluted share in the same quarter a year ago.
According to Jack Prim, CEO, "While revenue was slightly below our expectations for the quarter, considering the current challenges presented by the economy and the related uncertainty in the marketplace, we are fairly pleased with our overall performance which saw total revenue growth of 5% and organic growth of over 3%. We continued to see continued steady growth in the recurring revenue components of our support and services offerings. With over 1,200 bankers in attendance at our National User Group meeting in Washington D.C. last month we were encouraged by both the attendance and the business outlook expressed by the attendees. Several new products and partnerships were introduced to this audience and received a strong reception which we believe bodes well for future sales, particularly in the second half of the fiscal year."
"Our support and services revenue continues to grow at a healthy pace of 10% for the quarter compared to the prior year, especially considering some of the headwinds in the market," stated Tony Wormington, President. "One time implementation revenues were down 5% for the quarter compared to last year, which is primarily due to the decreased convert merger activity of our customers acquiring other banks in the current environment. Our electronic payments revenue grew 16% for the quarter eeven witen witlectronic payments revenue grew 16% for the quarter even wit our customers acquiring other banks in the current environment. Our electronic payments revenue grew 16% for the quarter even with the impact of our customers continuing to elect to go directly to the FED for Check 21 check image exchange as we have discussed in the past. Our Check 21 image exchange revenue was down 61% this year compared to the same quarter a year ago; without this drag our electronic payments revenue would have grown over 19% for the quarter. We have continued to manage our costs, so our support and service margins remained steady at 37% compared to the same quarter last year."
License revenue decreased 2% to $13.3 million, or 7% of first quarter total revenue, compared to $13.5 million, or 8% of first quarter total revenue a year ago. Growth of in-house support fees, outsourcing, and EFT support contributed to the 10% increase in support and service revenue which expanded to $151.9 million in the first quarter of fiscal 2009 from $137.9 million for the same period a year ago. Support and service revenue grew to 83% of fiscal 2009 first quarter revenue from 79% of revenue last year. Hardware sales in the first quarter of fiscal 2009 decreased 24% to $17.9 million or 10% of first quarter total revenue, from $23.4 million, or 13% of total revenue for the first quarter of fiscal 2008.
Cost of sales for the first quarter increased 5%, from $105.3 million for the three months ended September 30, 2007 to $110.6 million for the same period in the current fiscal year. Gross profit in the current year first quarter increased 4% to $72.5 million compared to $69.6 million last year. Gross margin was 40% for both periods.
Gross margin on license revenue for the first quarter of fiscal 2009 was 92% compared to 94% a year ago for the same period. The decrease is primarily due to an increase in the amount of third party software delivered during the quarter. Support and service gross margins were 37% during both periods. Hardware gross margins were lower for the first quarter at 25% compared to 26% for the same quarter last year primarily due to the volume, sales mix of hardware sold, and vendor rebates.
Operating expenses increased 10% to $36.9 million for the first quarter of fiscal 2009 compared to $33.4 million for the same quarter a year ago primarily due to increased employee-related expenses. Selling and marketing expenses rose 2% in the first quarter to $13.9 million from $13.7 million in the prior year's quarter. Selling and marketing expenses were 8% of revenue for both years. Research and development expenses increased 16% to $11.5 million for the first quarter of fiscal 2009, from $10.0 million for the same quarter of fiscal 2008. Research and development expenses remained at 6% of revenue for both periods. General and administrative costs increased 17% to $11.5 million in the first quarter of fiscal year 2009, from $9.8 million for the same quarter a year ago. General and administrative costs remained at 6% of revenue for both periods.
Operating income decreased 2% to $35.6 million, or 19% of revenue for the first quarter of fiscal 2009, compared to $36.2 million, or 21% of revenue, a year ago. Provision for income taxes in the first quarter of fiscal 2009 was 37.0% compared to 36.5% in the same period a year ago. As of end of the second quarter of fiscal 2008, the Research and Experimentation Credit had expired and was not considered in determining the provision for income taxes for the current quarter; however, it was considered for prior year's first quarter. First quarter net income totaled $22.5 million, or $0.26 per diluted share, compared to $23.5 million, also $0.26 per diluted share, in the first quarter of fiscal 2008.
"Our managers continue to do a good job of controlling overall cost and specifically our headcount. Our people are not only our most important asset but at the same time our largest expense," stated Kevin Williams, CFO. "During the quarter we saw a dramatic increase in our health insurance cost as we had an unprecedented number of significant claims. While our total compensation expense is only up 9% this quarter compared to a year ago, our fringe expense was up 30%, which this is allocated to all the different cost areas and caused some larger than expected increases. We will continue to monitor this and make changes when and where they are appropriate."
For the first quarter of 2009, the bank systems and services segment revenue increased 4% to $149.9 million, with a gross margin of 39%, from $144.0 million in revenue with a gross margin of 40% in the first quarter in fiscal 2008. The credit union systems and services segment revenue increased 8% to $33.2 million for the first quarter of 2009 from revenue of $30.8 million for the same quarter a year ago. Gross margin for the credit union systems and services segment remained at 40% for both periods.
Balance Sheet, Cash Flow, and Backlog Review
Cash and cash equivalents decreased to $24.8 million from $54.5 million compared to September 30, 2007. During the first quarter, borrowings on the revolving debt facility decreased $50.0 million as balances were reduced with cash from operations. Most of the cash from operations in the first quarter resulted from a decrease in trade receivables of $88.0 million to $126.0 million compared to June 30, 2008 at $213.9 million. This decrease in trade receivables is typical for the first fiscal quarter as annual maintenance billings issued toward the end of the fourth quarter are largely collected.
Deferred revenue increased 7% to $188.2 million at September 30, 2008 compared to a year ago. Stockholders' equity decreased 5% to $587.9 million at September 30, 2008, from $616.6 million at September 30, 2007.
Cash provided by operations totaled $59.2 million in the current quarter compared to $69.1 million during last year's quarter. The following table summarizes net cash (in thousands) from operating activities:
Three months ended September 30,
Net income $22,509 $23,539
Non-cash expenses 17,398 15,586
Change in receivables 87,989 77,733
Change in deferred revenue (35,395) (38,926)
Change in other assets and liabilities (33,349) (8,804)
Net cash provided by operating activities $59,152 $69,128
Net cash used in investing activities in the current quarter was $13.3 million and primarily included cash outflows for the development of software totaling $6.1 million. Other major uses of cash included $4.2 million of capital expenditures for facilities and equipment and $3.0 million in acquisition-related payments. In the first quarter in fiscal 2008, net cash used in investing activities of $30.7 million primarily included acquisition activity, including the acquisition of Gladiator Technology Services, Inc., totaling $17.4 million. Other major uses of cash included $9.7 million of capital expenditures for facilities and equipment and $5.7 million for the development of software.
Net cash used in financing activities in the current quarter was $86.6 million and included net repayment of short-term borrowings of $50.0 million, payment of dividends of $6.4 million and the purchase of treasury stock of $31.3 million. Cash used was partially offset by proceeds of $1.1 million from the exercise of stock options, excess tax benefits from stock-based compensation and sale of common stock. In the first quarter of fiscal 2008, cash used in financing activities was $72.5 million and included repayment of a credit facility of $70.0 million, payment of dividends of $5.8 million and the purchase of treasury stock of $5.2 million. This cash used was offset by proceeds of $8.4 million from the exercise of stock options and sale of common stock.
Backlog, which is a measure of future business and revenue, increased 12% compared to year-ago levels to $266.2 million ($65.1 million in-house and $201.1 million outsourcing) at September 30, 2008. Backlog at September 30, 2007, was $237.6 million ($64.0 million in-house and $173.6 million outsourcing) and at June 30, 2007, it was $257.4 million ($63.1 million in- house and $194.3 million outsourcing).
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