Jack Henry & Associates’ middle-market bank clients “aren’t worried” and are still driving healthy demand for the company’s technology and payments services despite its rivals’ softening sales, the company’s CEO said last week.

The company is gaining share from competitors, CEO and Chairman David Foss asserted at the Nasdaq Investor Conference on Dec. 6. And the pipeline for more business is also positive, Foss noted at the conference. 

“We've heard a lot of folks in our space talking about lengthening sales cycles, or their challenges in selling — Jack Henry has not seen that at all,” Foss said at the investor conference. “Our sales pipeline right now (is) larger than it's ever been in the history of the company.”

Monett, Missouri-based Jack Henry targets its core processing and payments services to mid-sized banks and credit unions based in the U.S., and it side-steps the biggest banks in the country and the smallest ones as well. Those target customers haven’t complained at all about their businesses slowing, and on the contrary, most of them are doing well, Foss said.

“What I'm hearing from all these (bank CEOs) is, number one, they're not wringing their hands right now,” Foss said. “They understand what's going on in the overall economy, but I think they feel like they're well capitalized today. They don't feel like they have a lot of risky credits on the balance sheet. So they're not facing a whole bunch of defaults.”

The Jack Henry bank clients are making money now for the first time in years because of the spread between lending and deposit rates, Foss said. And they’re using technology to make their businesses more efficient, he added. “Most bankers that I talked to really aren't worried right now,” the CEO said.

In an example of a recent new client win, Jack Henry said earlier this month that it landed new work from The Independent BankersBank, also known as TIB, to improve its technology infrastructure, according to a press release. 

The comments from Foss come as U.S. business faces a slowdown. The Federal Reserve’s efforts to tame inflation by increasing interest rates this year have also thrown cold water on the U.S. economy by reducing the availability of cheap capital that had been fueling corporate growth and investments.

Despite the purposed positive outlook of Jack Henry’s bank clients, some big banks, including Morgan Stanley and JPMorgan Chase, have been bracing for a potential recession by cutting hundreds of workers in recent weeks.

Cost-cutting at the big banks hasn’t been helpful for Jack Henry rivals that cater to those larger financial institutions. Indeed, Jack Henry has been bucking the trend.

Rival Fidelity National Information Services, known as FIS in the industry, has instituted a $500 million cost-cutting plan after delivering disappointing third-quarter financial results, saying that sales have softened with elongated sales cycles. Meanwhile, competitor Fiserv has been cutting workers as the company attempts to bolster its profit margins. 

Jack Henry provides services, including bill-pay and ACH payments, to about 8,000 of the country’s 11,000 banks and credit unions, with about 1,700 buying into the company’s core processing package.

Baird Equity Research, which follows the company’s stock and has a “neutral” rating on it, has picked up on Jack Henry’s positive momentum, noting its recurring revenue and customer retention are both 90% or higher. The company has “consistently gained market share,” Baird’s analyst said in a Sunday note to investor-clients. Jack Henry’s employee turnover is also about half that of the broader tech industry, the analysts estimated.

By Lynne Marek on Dec 12, 2022
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