Jack Henry & Associates (NASDAQ:JKHY) provides small- and medium-sized commercial banks and credit unions -- those with up to $50 billion in assets -- with technological solutions that they need to compete in the modern era but that lack the resources to develop those things in-house. The company reported its fourth-quarter earnings last week, and with this once high-growth stock down more than 10% over the past year,  investors were anxious to see how the company fared. Let's take a closer look.

Jack Henry & Associates: The raw numbers

Metric Q4 2019 Q4 2018 Change (Loss)
Revenue $393.5 million $378.3 million 4%
Net Income $61.0 million $67.8 million (10%)
Diluted EPS $0.79 $0.87 (10%)
Operating margin 20% 22% (2 percentage points)

Data source: Jack Henry & Associates. 

Man holding tablet that reads FINTECH.

Jack Henry & Associates grew its customer base and revenue in its 2019 fourth quarter by continuing to provide technological solutions to smaller financial institutions. Image source: Getty Images.

What happened with Jack Henry this quarter?

  • Jack Henry's services and support revenue stream rose to $240.5 million, a 2% year-over-year increase, and good for 61% of the company's quarterly revenue. This segment consists of outsourcing and cloud fees, hardware sales, implementation, consulting, and in-house maintenance.  
  • The processing segment revenue grew to $153 million, a 7% increase over last year's fourth quarter, and representing the other 39% of the company's overall revenue in the quarter. This segment includes payment processing fees, card fees, and transaction revenue.
  • The company continues to see customers transitioning to the cloud. Of the 57 new core customers Jack Henry added this fiscal year, management said "the majority" chose the private cloud model, as did 25 existing core customers who also made the switch to the cloud this year. Predictably, this is leading to a decrease in license and on-premises implementation revenue, though accompanied by an increase in cloud and outsourcing revenue.
  • During the company's conference call, CEO David Foss said the traction the company is seeing with its Banno Digital Banking Suite, a suite of cloud-based solutions for digital and mobile banking platforms, was its most notable achievement of the quarter.
  • Jack Henry's operating margin slid down to 20%, as the cost of revenue rose 7% to $240 million, and increased 2% as a percentage of total revenue. The reasons ranged from an increase in compensation and costs related to new facilities to higher costs of products related to its credit and debit card platform expansions.

What management had to say

During the conference call, Foss said:

Overall, this was a very good year for our company. Our employee engagement and customer satisfaction scores remain very high. Our sales teams are performing extremely well and have positioned us for another successful year of selling, and overall demand for Jack Henry technology solutions remains very high in all segments of our business. As we begin the new fiscal year, I continue to be very optimistic about our future.

Looking forward

Investors will need to watch the integration of Geezeo, the acquisition Jack Henry announced in July. Since Jack Henry has worked with Geezeo in the past, there is at least some familiarity, and management was particularly excited to integrate Geezeo's personal-finance management tools and data analytics into its digital banking platforms. Shareholders should also monitor the progress of Jack Henry's payment processing customer migration to its new platform. Management said it expects to be able to complete the migration in the first half of 2021, which will result in significant cost savings.