With its stock riding high and five new clients with combined assets of roughly $9 billion announced in the past two weeks, reasons to be thankful are piling up for Jack Henry & Associates Inc. (Nasdaq: JKHY) ahead of the November holiday.
Most notable among the new clients is First Commonwealth Bank, a Pennsylvania-based institution with $6.2 billion in assets that selected Jack Henry’s banking division to provide systemwide automation services through its SilverLake Systems platform.
Prior to the Nov. 5 announcement with First Commonwealth, the Monett-based technology company Oct. 31 announced its fourth deal in three days when Alexandria, Va.-based State Department Federal Credit Union contracted to use its Episys platform in the company’s Symitar division. State Department Federal holds $1.5 billion in assets.
A day earlier, Jack Henry said it had signed Quorum Federal Credit Union, which is based in Purchase, N.Y., and holds $782 million in assets, and on Oct. 29 deals were announced with $284 million Athens, Tenn.-based Athens Federal Community Bank and $192 million Tampa, Fla.-based NorthStar Bank.
The new clients underscore the positive direction of the technology firm’s financials in the quarter ending Sept. 30. Jack Henry – a provider of software to process financial transactions, automate business processes and manage information – started its first quarter of fiscal 2014 with earnings of $49.8 million, a 17 percent bump, compared to $42.3 million earned in the same quarter last year. Revenue jumped 9 percent to $295.7 million, according to public filings.
Following release of the quarterly results on Nov. 5, JKHY shares reached a 52-week high of $56.95. Jack Henry held assets of $1.6 billion as of Sept. 30.
Chief Financial Officer Kevin Williams said the recent client announcements reflect the work done behind the scenes.
“The typical sales cycle is close to a year from start to finish. From the time they put out (requests for proposals) and various vendors submit their responses to the RFPs and they narrow that down to the one or two finalists, go through all the demos and customer-site visits, it takes a good while to get all that done,” Williams said, adding new-client announcements don’t necessarily reflect when a deal was penned.
“All of these were competitive takeaways. A lot of times (clients) don’t want us to announce this until some point in the future when they feel it is appropriate to tell their current vendors.”
The banking software market comprises key players Fiserv, Fidelity National Information Services and Computer Services Inc., for smaller banks, Williams said.
On the credit union side, he said Jack Henry and Fiserv combined serve more than 60 percent of the market. With Episys, Jack Henry has contracts with 77 of the country’s 196 credit unions with more than $1 billion in assets.
“Any time a bank or credit union is looking to switch its core system out or even do a core-system evaluation, there are such a limited number of players out there anymore, that we are going to be included in every deal,” Williams said.
Norm Montgomery, First Commonwealth executive vice president of business integration, said the 110-branch bank signed on with Jack Henry in September. In all, he said he expects implementation of the SilverLake System to take nine to 12 months.
“We were just very impressed with the overall functionality of the SilverLake platform and felt the level of integration to other Jack Henry products could serve us well in the long term,” Montgomery said.
The bank also has contracted several complementary services for SilverLake, including online financial management, cash management, and data warehousing and analysis solutions.
About a year ago, he said First Commonwealth began to evaluate its legacy technology and explore its options. Montgomery declined to disclose the upfront costs associated with the adoption of SilverLake but said the banking system expects to save between $6 million and $8 million a year through efficiencies.
“That was a driver. All banks’ profitability continues to be squeezed by tight margins, so we felt it was necessary to figure out ways to not only build a technology infrastructure that can quickly and easily adapt in an ever-changing environment, but also do so efficiently,” Montgomery said.
SilverLake is designed for banks with $300 million to $30 billion in assets, Williams said.
CIF 20/20 is SilverLake’s little brother, serving bank customers with assets below $300 million. Last fiscal year, Jack Henry signed 25 new core bank clients with the majority using SilverLake.
Episys is the product of choice for credit unions with $50 million in assets and up, Williams said, while its Cruise.Net platform serves credit unions under $50 million. In fiscal 2013, Jack Henry signed on 35 new credit union core-system customers, mostly Episys users.
In all, the company serves more than 11,000 clients and 26 percent of all U.S. banks with assets above $1 billion.
Each year since 2000, when Jack Henry acquired Symitar, Williams said the company has recorded gains in its market share. At the time, Symitar had about 200 customers, and today Jack Henry claims more than 700 under the Symitar division, which is still based in San Diego.
With banking customers, he said swapping with competitors is fairly routine, but Jack Henry has been coming out ahead with the larger systems.
“It’s a trade off I’ll take every time to lose a small bank but gain a midsize bank,” Williams said, noting the process is generally a huge undertaking for customers. “To put it in medical terms, it is like having a liver, lung and heart transplant all at the same time.”
In fiscal 2012, the company founded in 1976 hit a major revenue milestone when it topped the $1 billion revenue threshold. In fiscal 2013, Jack Henry revenue increased 10 percent to $1.13 billion.
