Jack Henry & Associates Inc. expects to save money in online bill payment by shifting to a new service provider and managing more of those payments itself.
Jack F. Prim, the Monett, Mo., core processor's chief executive officer, told analysts Tuesday that it sees an emerging opportunity in least-cost routing and that it wanted the room to work with a variety of payment processors rather than rely solely on its current provider, Online Resources Corp.
"We did not switch from ORCC for any performance-related reasons. They did a nice job for us, and that was not a factor," Mr. Prim said, referring to Online Resources by its ticker symbol.
Instead, Jack Henry wants to manage its own payment warehouse on behalf of its institutions, as the payments marketplace continues to evolve, Mr. Prim said on a conference call to discuss earnings for the company's 2008 fiscal first quarter, which ended Sept. 30. "We feel like that this will position us for two to three years down the road to be able to go to multiple end points wherever we can find lower-cost transactions."
Online Resources, of Chantilly, Va., disclosed the loss of Jack Henry as a client on its own earnings call last week. Executives said they believe this will be the last of several significant client losses after the company's July 2006 purchase of Princeton eCom Corp., the No. 3 provider of bill payment services.
Electronic transactions of all sorts are proving surprisingly strong at Jack Henry, Mr. Prim said, including debit card and check-image processing in addition to online bill payment.
Merchant capture of check images continues to grow rapidly. The company said the number of institutions using remote deposit processing as of Sept. 30 was up 12% from the June quarter and up 145% compared with the first quarter of fiscal 2007.
John Kraft, an analyst at D.A. Davidson & Co., said remote deposit of check images is proving lucrative for financial companies of all sizes.
"It has surpassed bill pay as the hottest subsegment in financial technology," Mr. Kraft said.
Net income at Jack Henry rose 9.9%, to $23.5 million, in the three months that ended Sept. 30. Revenue rose 16.4%, to $175.3 million. Earnings of 26 cents a share matched Wall Street's expectations.
Jack Henry reported organic revenue growth of more than 15%. It said some prospects delayed purchases of hardware and software, but more institutions with assets of $1 billion to $2 billion are outsourcing functions to it rather than performing them in-house.
Mr. Kraft said the shift toward outsourcing reduces the revenue surges that result from big licensing deals but provides the company with predictable, recurring revenue.
"That's a positive trend, but it keeps catching Wall Street by surprise," he said. Investors are taking such "contract slippage" as a sign of fallout from the credit crisis in the mortgage market, he said, "but for the most part, these financial technology companies have said no" to that assessment.
One of Jack Henry's principal rivals in core processing, Fidelity National Information Services Inc., announced plans last week to spin off its Lender Processing Services, because the market's reaction to the subprime crisis has pulled down the stock's price.
Mr. Prim said Jack Henry wants to use the turmoil in the market to make more acquisitions.
"We're certainly hopeful that with the issues in the debt market that maybe private equity will be calmed down a little bit," he said, "and we're hoping a couple of our competitors who are digesting a couple of large recent acquisitions have got enough to do to keep them busy for a while, so there will be opportunities. We continue to see a lot of deals."
