2008 Dynamic Dozen, No. 5: Jack Henry & Associates Inc.

The company posted 2007 revenues of $668 million, up from $592 million in 2006 and $535 million in 2005, and Prim’s optimistic for 2008.

“I think we’ve probably grown 15 percent year to date,” Prim said. Without including acquisitions, that’s just more than the 10 percent to 12 percent revenue growth forecast for the publicly held company (Nasdaq: JKHY) that provides integrated technology and data-processing services for financial institutions.

The addition last November of Atlanta-based US Banking Alliance brought the number of acquisitions the company has completed in the last four years to 16, enabling Jack Henry to offer add-on products to banks and credit unions.

That’s key, Prim said, given that there are about five companies, including Jack Henry, that offer accounting systems, which are an expensive investment. Once a bank or credit union chooses a provider, it is unlikely to change, because employees have to be retrained and customers have to get used to seeing their information in new formats.

If purchasing one of Jack Henry’s accounting systems were a requirement, “that’s a pretty hard bar to get over to do business with us,” Prim said.

“You have to have a really good reason to change out your accounting system,” he added.

Acquisitions and the add-on products they bring allow Jack Henry to pursue the 14,000 U.S. banks and credit unions that don’t use one of Jack Henry’s accounting systems, he said, noting that there are about 16,500 U.S. banks and credit unions.

“That’s why the startup companies are really important … because nobody’s going to make a living stealing customers,” Prim said.

Among the add-on products Jack Henry offers as a result of acquisitions is remote-deposit capture, which allows banks’ commercial customers to make paper-check deposits from their offices.

“That’s been one of the most successful products we’ve ever had. … It’s not a huge part of our total revenue, but it’s doubled in the past year and it will probably double again this year,” Prim said.

The next wave on that front will extend remote-deposit capability to consumers, which Prim expects will probably happen before the end of the year.

While Jack Henry continues to look for acquisition opportunities, Prim said there are challenges in that there are only so many companies to acquire, and because there’s more competition from private equity firms that have billions to invest in companies that are sold in just a few years.

He noted, however, that debt markets have become less favorable, making it harder for those private equity firms to borrow as much.

Eventually, Prim thinks Jack Henry will branch into areas not as clearly focused on banks and credit unions.

But in the meantime, Chief Financial Officer Kevin Williams is confident that most of the company’s services are recession-resistant.

Those services include electronic payments at 17 percent of total revenue and growing at 35 percent a year.

Data and item processing for customers in Jack Henry facilities constitute 17 percent of total revenue and are growing at 10 percent, while in-house maintenance support services to in-house customers make up 34 percent of total revenue and is growing at 13 percent.

“So all those combined represents 68 percent of our total revenues growing in the mid- to upper teens,” Williams said. “Above all … we are a pretty conservative company, and we run the company that way. And we are not going to do anything crazy just to grow the company.”