Two industry leaders in banking software, Hogan Systems Inc. and Jack Henry & Associates Inc., announced higher quarterly earnings last week, both exceeding Wall Street's expectations.
The two firms provide core accounting systems to financial institutions, albeit to different segments of the market - Dallas-based Hogan focuses mainly on mainframe software used by some the nation's biggest banks, and Monett, Mo.-based Jack Henry develops systems that run on midrange computers used mostly by community banks with assets under $2 billion.
The upbeat earnings reports signaled a greater interest by banks of all sizes in purchasing packaged software to run their institutions, as opposed to developing these systems by themselves or outsourcing their data processing activities, analysts said.
"There's something great happening for both these companies," said M. Arthur Gillis, a New Orleans-based bank technology consultant. He noted that Hogan is profiting from growing maintenance and professional-services fees from its blue-chip client list, while Jack Henry has "nearly limitless" opportunities licensing its software to the 5,000 community banks that so far have been largely unaffected by the merger trend hitting larger institutions.
Hogan reported that it had net income of $2.3 million, or 15 cents a share, in its first quarter of fiscal 1996 that ended June 30. This compares with earnings of only $80,000, or a penny per share, a year earlier.
The software firm's profits also exceeded an analysts' consensus of 9 cents per share for the period, according to First Call Corp.
"The 15-cent-per-share record is even more impressive when you are reminded that Hogan closed fiscal 1995 earning 31 cents per share in the fourth quarter," said Michael Anderson, Hogan's chairman and chief executive officer. "I believe the past two quarters' results are a positive reflection of the decisions we've made and actions taken during the past two years. This solid start positions us well for fiscal 1996."
Revenues for the three-month period rose 26% from the year-earlier quarter, to $24.9 million. Expenses were up only 8.6% from the first quarter of fiscal 1995, resulting in an operating income of $3.5 million, or 14% of revenues, a record for the period, company officials said.
Jack Henry officials said it also set records for its fiscal 1995 fourth quarter ended June 30. Net income for the quarter was $2.4 million, or 19 cents per share, compared with $1.9 million, or 15 cents per share, in the same period last year, a 27% increase. Analysts were predicting that Jack Henry would earn 15 cents per share in the quarter, according to First Call.
Revenues for the quarter reached $14.7 million, compared with $10.2 million in the 1994 period.
Jack Henry officials said they had $16.4 million in backlog orders as of June 30, also a new record, reflecting a 56% increase from last year's level. They added that 40% of the backlog increase is attributed to growth in the company's core business, while the balance comes from the addition of the company's new Liberty division, purchased last month from Broadway & Seymour Inc. for $12 million.