Jack Henry Boosts Profits Lots More Than Sales In Fiscal Q3

June 3, 2013 Timothy Prickett Morgan

Every time the Jack Henry & Associates comes around on the news cycle, it is amazing that no one has tried to acquire the banking software and services provider. It has been on a very long winning streak of pushing up revenues and extracting profits at an even faster rate.

In its third quarter of fiscal 2013 ended in March, Jack Henry boasted sales up 10 percent to $281.5 million. Net income was up 25 percent to just a hair under $46 million, which means the company brought 16.3 percent of sales to the bottom line. That is really not bad at all for an established set of banking and financial services applications that have plenty of competition.

Software license revenues were up 11 percent to $16.7 million and support and services revenues rose by the same 11 percent to $250.4 million. Jack Henry is also a seller of servers and other gear–including Power Systems machines running IBM i–and like other server makers and resellers, this business did not grow in the quarter. But Jack Henry only saw hardware sales drop by 2 percent to $14.5 million, and that is a heck of a lot better than a lot of other companies did. The company’s software gross margins jumped to 92 percent of revenues in the quarter, up six full points, and services margins were steady at 38 percent; hardware gross margins rose one point to 27 percent. The company’s hardware, software, and implementation services backlog was also up 22 percent as it exited fiscal Q3, to $100.5 million, and the financial outsourcing services backlog was a much larger $359.5 million, up 14 percent. That is a pretty hefty wad of biz on the books. And Jack Henry has $182 million in cash in the bank, too.

Small wonder that Jack Henry has a $4 billion market capitalization, and the hefty price tag it would require for the publicly traded company to be taken over would be quite large–maybe on the order of $4.5 billion to $5 billion. Very few companies have that kind of dough lying around to do an acquisition on that scale. You know the usual suspects: IBM, Oracle, Microsoft, SAP, and maybe the private equity firms behind Infor.