Bank technology vendors have gotten pricey, Jack Henry & Associates Inc.’s chief executive says, but he intends to keep buying this year anyway.
Prices have risen, Jack F. Prim said, because some competitors “went on a shopping spree in the last 24 months.” So did Jack Henry; it completed eight acquisitions in the past 12 months.
And though the Monette, Mo., core processing software and outsourcing vendor does not generally tell what it has paid, chief financial officer Kevin D. Williams said it spent $114 million on acquisitions last year.
He and Mr. Prim spoke Thursday during a conference call at which they also discussed the company’s results, announced Wednesday, for the latest quarter.
Mr. Williams also disclosed, as the quarterly report did not, that Jack Henry had drawn $10 million in the quarter against a $25 million credit line, which it may try to increase. “We will leverage our balance sheet as we see fit if the right acquisition comes along,” he said.
Mr. Prim said the spate of deals has helped the larger banking technology vendors fill gaps in their product lines and move into new markets.
Some smaller vendors still hope to sell themselves, he said. “This is either a good time for them to sell, or they may never be able to sell,” he said. Prices “are still pretty good for them.”
Competition for banks’ business is stiff, Mr. Prim said, and “the players that are left are stronger.”
“There are no slouches in the market that we’re competing in,” he said.
His company’s big rivals include the Marshall & Ilsley Corp. subsidiary Metavante Corp., which made seven acquisitions last year; Fidelity National Financial Inc. of Jacksonville, Fla., which has made eight since early 2003; and Fiserv Inc. of Brookfield, Wis., which has bought heavily for years but made only four acquisitions in 2004.
Jack Henry said net income in the December quarter, the second of its 2005 fiscal year, was up 22% from a year earlier, at $17.7 million, or 19 cents per share — which was also the average of analysts’ estimates. Revenue rose 21%, to $136 million; analysts had expected $131.3 million.
Licensing revenue surged 79%, but operating margins slipped as payroll growth from the acquisitions and the opening of a new facility in California added to costs.
Mr. Williams said Jack Henry’s acquisitions are all expected to add to earnings, if only slightly, in the current fiscal year.
He said he was comfortable with analysts’ estimates that the company will earn 21 to 22 cents a share in the current quarter and 83 cents for the fiscal year.
Carla Cooper, an analyst at Robert W. Baird & Co., called the results “solid.” She expressed some concerns about margins and expenses but added, “We view next year’s prospects as strong.” Ms. Cooper has an “outperform” rating on Jack Henry stock.
