Previewing Jack Henry & Associates'
- Revenue for the year came to $668 million, up 13% from fiscal 2006.
- Profits per share amounted to $1.14, a 19% improvement.
- Free cash flow proved the laggard metric, rising just 10% to $119.3 million.
- Free cash flow did, however, exceed net income reported under GAAP, which came to just $104.7 million.
Now, on to the (even more) important numbers.
Licensing revenues declined 9% in comparison to fiscal 2006, composing just 11% of total revenues, as opposed to last year's 14%. CEO Jack Prim painted this trend in a positive light, reassuring investors that "the increase in support and services and hardware revenue continued to offset any shortfall" in licensing. Still, let me illustrate how important getting a high proportion of revenue from licensing is to Jack Henry's business. In fiscal 2007:
- Licensing revenues brought with them a 94% gross margin. That's down from 97% last year, but still exceedingly lucrative.
- In contrast, support and services revenue grossed just 38%, up from last year's 36%.
- Hardware sales grossed a mere 26%, down from last year's 27%.
So you see, it's a matter of quality, not quantity. Prim's assertion that higher support and services revenue can truly "offset any shortfall" in licensing is a bit disingenuous. "Mitigate," yes. "Offset," no.
Now, I don't want to overdramatize this point. Jack Henry's monster 23.7% operating margin still handily beats those of rivals like Online Resources
The second factor I suggested you keep an eye out for -- the rate at which Jack Henry's clients renewed their contracts -- went missing. Unlike last quarter, when CFO Kevin Williams made a point of highlighting the firm's 90%-plus retention rate, he kept mum this quarter. Make of that omission what you will.
More from The Motley Fool
2 Companies Poised to Profit From Bank of America's Woes
For investors sick of problem loans and credit downgrades, software companies like Jack Henry Associates and Pegasystems could be an investment with all the upside and little of the downside.
U.S. Bank's $6.5 Million Is Just the Tip of the Iceberg
For banks, managing third-party vendors is becoming a key component of regulatory risk. The CFPB is zeroing in, armed with hefty fines.
How Jack Henry & Associates Got More Awesome Last Quarter
Keep your eye on margins.