Core Processor Has Record Quarter

Jack Henry & Associates Inc. is among a handful of technology vendors profiting from unusually high demand for new core processing systems.

Year-2000 concerns "have forced a lot of banks to make a decision for immediate action," said Michael Henry, chairman and chief executive officer. "We are hearing it from our customers and feeling it from the regulators," he said.

This demand is reflected in Jack Henry's record financial results for the quarter that ended June 30, the fourth of its fiscal year. The Monett, Mo., software vendor said last week that its revenues rose 86% from a year earlier, to $37.8 million.

Earnings were up 66%, to $7.3 million. That was 37 cents a share, up from 23 cents and beating First Call's consensus estimate by 6 cents.

Fiscal-year revenues were up 37%, at $113.4 million. Net income grew 41%, to $22 million.

The favorable earnings have fueled the company's stock price, which increased $4.75 last week, to close Friday at $42.50. Since Jan. 1 the stock has risen 56%.

Jack Henry has sold its software to 1,550 community banks, or about 30% of the market, said Kevin Dyches, an analyst at Prudential Securities. Most of Jack Henry's customers run its software in-house.

The firm, which has 650 employees in nine states, has been cultivating a business in outsourcing since acquiring Liberty Banking Services from Broadway & Seymour Inc. in 1995.

Since then it has expanded that customer base from 40 to 85 and has a backlog of new outsourcing business worth $20.5 million in revenue.

Mr. Henry said the move into outsourcing was "a way to open up about 40% of the marketplace to our products rather than having to walk away whenever someone said they wanted to be outsourced."

Jack Henry's chief rival is Fiserv Inc., which supplies outsourcing services to about 35% of the community bank market, said Mr. Dyches of Prudential.

"It really is a duopoloy," he said. "The strong are getting stronger." Jack Henry and Fiserv "are going to get even greater market share gains."

Few vendors-if any-are as far along in year-2000 preparations as Jack Henry, Mr. Dyches said.

In addition to remedying its core banking software, the company has upgraded several ancillary software applications, such as check imaging, home banking, and teller software.

"There are a lot of people in industry asking how to fix the Y2K problem," he said, and many are turning to providers that are ready for it.

Rising interest in check processing and check imaging is also giving Jack Henry a boost. In fiscal 1998, Jack Henry sold 24 check imaging systems, eight more than a year earlier. It sold 75 systems for check proof of deposit last year, compared with 45 the previous year, Mr. Dyches said.

The company's backlog of projects is worth $56 million, compared with a normal backlog of $35 million to $40 million, Mr. Dyches said.

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