Jack Henry Sees Steady Improvement In Fiscal Q3

June 4, 2012 Timothy Prickett Morgan

Banking software and services provider Jack Henry says that as far as it can tell, the economy continues to mend among the small and midrange banks that are its dominant customers. Many of Jack Henry’s customers are users of Power Systems running the IBM i operating system, so that is good news.

In the third quarter of fiscal 2012 ended in March (why do companies unnecessarily have fiscal years that don’t match calendar years?), the company’s software licensing revenues were up 15 percent, to just a hair over $15 million. Hardware sales, which have been on a downward trend for years thanks to Moore’s Law price/performance improvements as well as due to a shift to services instead of box sales at Jack Henry, were down 14 percent to $14.8 million. Support and services revenues rose by 8 percent, to $226.5 million, and within this category, electronic payment services (which includes ATM, debit, and credit card transaction processing as well as bill payment, remote deposit capture, and ACH transaction processing services), rose by 11 percent, to $78 million.

Add it all up, and sales came to $256.3 million in fiscal Q3, rising 7 percent. Even though Jack Henry spent $2 million more on sales and marketing in the current quarter compared to the year ago period, the company kept a tight rein on research, development, and other costs as well as having lower interest expenses and therefore brought $36.6 million to the bottom line, an increase of 11 percent over the third quarter of fiscal 2011.

“We continue to see an improved spending environment, favorably influenced by improving financial institution balance sheets and fee income that has been less negatively impacted than was expected a year ago,” explained Jack Prim, CEO at Jack Henry, in a statement accompanying the financial results. “In addition to the solid financial performance in the quarter our biennial employee engagement survey showed solid gains across the board, which we believe bodes well for our customers and our shareholders.”

Jack Henry ended the quarter with $89.8 million in cash in the bank at the end of fiscal Q3, and has dropped its debt substantially, from $244.7 million a year ago to $141.1 million as the quarter closed. This is one of the reasons why interest payments went down so much in the quarter, and why they will go down in the future if the economy keeps chugging along. Jack Henry ended the quarter with a software and services backlog of $397 million, up 18 percent from the year ago period.