All fiscal year long, Jack Henry & Associates (NASDAQ:JKHY) has put Wall Street's finest to shame, beating every consensus earnings estimate the Street could throw at it. But can the financial data-cruncher end its year with a bang? We'll find out when Jack Henry reports its fiscal Q4 and full-year 2007 earnings Tuesday afternoon.

What analysts say:

  • Buy, sell, or waffle? Nine analysts follow Jack Henry. Twice as many rate it a hold as do a buy.
  • Revenues. On average, they're looking for 10% sales growth to $178.6 million.
  • Earnings. Profits are predicted to rise 18% to $0.32 per share.

What management says:
CEO Jack Prim pronounced himself "very pleased" with last quarter's revenue and earnings growth. (Investors, it seems, have been less enthusiastic -- the stock trades today for nearly the same price it did just prior to last quarter's earnings report.) Although Jack Henry didn't bring in as much licensing revenue as it had been expecting, Prim noted that "increases in support and service revenue more than offset any shortfall," and that "our business continues to be less dependent on license fees to drive revenue growth while still providing upside opportunities when larger license transactions do occur in a particular quarter."

All true, of course, but it does seem to skip over one important fact: Jack Henry makes better margins on licensing than it does on support and service. As a result, while support and service may have made up the potential revenue shortfall, profits did not grow quite as fast as did sales last quarter (12% vs. 16%.)

What management does:
Now, this was just a single quarter's relative performance, and so pretty insignificant in the larger scheme of things (like, for example, the year-to-date performance, where we've watched profits rise faster than sales). Still, it's worth pointing out, if only to explain why Jack Henry's gross and net margins got dinged last quarter. Bigger picture, you should probably focus on the trend toward generally stable-to-rising margins, and the fact that Jack Henry earns better margins on its revenue than do competitors Online Resources (NASDAQ:ORCC) and CheckFree (NASDAQ:CKFR), which is soon to be acquired by yet a third competitor, Fiserv (NASDAQ:FISV).





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Once upon a time, I devoted a good portion of my research efforts to Jack Henry and the other companies in its industry niche. Problem is, the industry has shrunk so much, and so quickly, that there are precious few companies left to research here. And what competitors do remain are in large part now larger operations, which have incorporated the niche players into their network of subsidiaries -- like Intuit (NASDAQ:INTU), which bought Digital Insight, or CheckFree, which bought Corillian before being bought in turn by Fiserv, and so on. Today, the only really independent players (of which I'm aware) are Online Resources, S1 (NASDAQ:SONE) and Jack Henry.

Still, in the little time I was afforded to get to know this industry, I managed to learn that there are a few key differences that make one company better than another. Margins, of course. Growth, naturally. But two statistics are most important of all: licensing revenue, which brings with it higher margins, and recurring revenue. The best firms in this industry, such as Digital Insight once was, were able to boast 90%-plus retention rates on their clients -- rates sufficient to make growth and value investors alike drool.

So rather than worry on Tuesday about how well Jack Henry performed last quarter with regard to earnings or sales, I'd suggest you focus instead on CFO Kevin Williams' comments regarding how much of the firm's support and services revenue was "recurring." (Hint: At last report, it was on the rise.) And of course, how the licensing arm of the business did. In the long term, these are the statistics to watch.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.