Jack Henry Boosts Revenues, But Pushes Profits Up Faster in Q2

February 7, 2011 Timothy Prickett Morgan

Financial software and services provider Jack Henry and Associates has done well in its most recent quarter, pumping up both revenues and profits. As a dominant vendor in its financial niche, and one that is a big player in the IBM i ecosystem, the company is a good bellwether for the overall i ecosystem.

In the second quarter of fiscal 2011 ended December 31, Jack Henry had revenues of $242.6 million, up 15 percent. Software license fees grew 29 percent to $15.5 million, including some products that run on the OS/400 and i operating systems. Hardware sales, which include Power Systems boxes and other kinds of servers as well as various specialized equipment used in the banking industry, actually rose 1 percent to $14.8 million in fiscal Q2. Support and services revenues, which includes tech support for hardware and software sold by Jack Henry as well as processing services that it provides on behalf of companies, rose by 15 percent in the quarter, to $212.4 million. Gross profits at the company rose by 15 percent, to $102.9 million, and thanks to cost controls, net income rose by 20 percent, to $36 million.

“We continue to be pleased with the results generated this fiscal year as we completed another record quarter for revenue, gross profit and net income,” explained Jack Prim, the company’s chief executive officer, in a statement accompanying the financials. “The acquisitions that we completed last year continue to perform in line with our earnings expectations and contributed to our record in-house backlog at the end of the quarter. We are seeing what appears to be a gradual improvement in spending from our financial institution customers as the economy continues to slowly improve.”

Kevin Williams, chief financial officer at Jack Henry, said that the results in Q2 were ahead of internal budgets, with software license and hardware sales being slightly lower than expected, but with services more than filling in the gap.

In the quarter, sales of systems and services to banks rose by 11 percent, to $189 million, while sales to credit unions (where the AS/400 and its i progeny have always done well) increased 35 percent, to 53.6 million. However, the increase in the credit union business this time around is mostly attributed to the company’s acquisitions of PTSI and iPay. Jack Henry ended the quarter with $46.9 million in cash in the bank, almost double from a year ago. The company has paid off $130 million in debt, some of which was used to do acquisitions, and has a backlog of services and licensing revenues that have yet to be recognized that weighs in at $342.7 million, up 8 percent from a year ago.