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January 19
Jack Henry & Associates Inc. said its latest acquisitions will deliver new opportunities while existing financial clients remain cautious about their technology spending.
The Monett, Mo., company announced last week that it had purchased Pemco Technologies, the payment processing unit of Pemco Corp. of Seattle; that transaction followed its October acquisition of the payments software vendor Goldleaf Financial Solutions Inc.
Jack Henry said that with the acquisitions it will be able to cross-sell its own products to new types of customers and pitch new products to its current customers.
Overall, the company said, the steps it has taken to survive the ongoing economic downturn are working.
"We are confident that our business model will perform well in the current environment and very strongly in a more normalized business environment," Jack Prim, Jack Henry's chief executive, said in a conference call with analysts Wednesday to discuss its latest financial results. "The outlook for 2010 is better than the outlook for 2009."
In its fiscal first quarter, which ended Sept. 30, Jack Henry's revenue dropped less than one-half of 1% from a year earlier, to $182.3 million. Its net income rose 17%, to $26.3 million. Prim credited the rise in net income laregly to the company's cost-control efforts.
The Pemco and Goldleaf businesses are expected to augment the strongest areas of Jack Henry's payments operations.
Pemco is "highly complementary to our existing PassPort ATM debit business" and brings Jack Henry a new credit card transaction switching service that it can offer its clients, Prim said. The ATM business made up 70% of the revenue for Jack Henry's payments business.
Goldleaf, by contrast, complements Jack Henry's remote deposit capture offerings, the "fastest-growing component of our payment solutions," Prim said. That business grew 54% in the past year, he said.
Goldleaf is expected to generate $48 million in revenue this fiscal year and $65 million to $67 million every year thereafter, Prim said. Pemco is expected to generate $26 million this fiscal year and about $40 million every year thereafter.
John Kraft, an analyst at D.A. Davidson & Co., said Jack Henry's acquisitions are a high point of its recent activities.
"They've done a good job with the acquisitions," he said. "Cross-selling an additional product to your existing customer base is a strategy that works."
Kraft said it is a good sign to see momentum with acquisitions, both at Jack Henry and at rival vendors. After a very active 2007, acquisition activity in the banking technology market all but dried up last year, he said, but seems to have picked up in 2009.
Jack Henry is wise to be a part of this resurgence, Kraft said. "They're a pretty opportunistic bunch, those guys at Jack Henry," he said.
Besides that, he said, there was not much else to get excited about in the most recent earnings reports — at Jack Henry or its rivals.
"It's the same trend we saw from all their peers," Kraft said, notably Fiserv Inc. and Fidelity National Information Services Inc. (Fidelity acquired Metavante Technologies Inc. last month.)
"They all came in light on the revenue and did OK on the bottom line," he said. "That's just become the standard."
He described this trend as "somewhat discouraging," because although companies in this space are not doing worse, they are not as strong in their recoveries as Kraft said he would have liked to see. Still, he said the banking technology market has been "interesting to watch."
Greg Smith, the managing director for the equity capital markets group at Duncan-Williams Inc., wrote in a research note published Wednesday that Jack Henry's "quarterly results paint an incrementally more negative view of the current environment," though Jack Henry has responded well to this concern by pursuing the Pemco and Goldleaf acquisitions.
Smith praised the company's "disciplined approach to expenses," which he said led to increased income even though revenue was lower than he had anticipated.
