Jack Henry & Associates Presented April 10, 2008 Jonathan Goh Dan Xu.

Jack Henry & AssociatesPresented April 10, 2008

Jonathan GohDan Xu

Agenda

I. Company OverviewII. Accounting AnalysisIII. Industry Analysis & Economic OutlookIV. Competitors V. Portfolio Fit & ValuationVI. Recommendation

Company OverviewBusiness Overview

Revenue Breakdown

Major Holders

Company Overview Jack Henry Banking

Banking solutions for business information and financial transactions

Expanded within the De-Novo and Mid-Tier Market Supports 15% of Mid-Tier Banks Assets from $1 billion to $30 billion

Capitalized on emerging shift from in-house to out-sourced solutions

Source: Jack Henry and Associates, 2007 Annual Report

Company Overview Symitar

Acquired by Jack Henry & Assoc. in 2000 Provides core processing solutions for credit

unions of all sizes 6 Corporate Credit Unions 36 of 123 Credit Unions with assets over $1billion

Market Leader in Core Processing Platforms for Credit Unions Leader in Credit Unions with assets over $25 million


Company Overview ProfitStars

Risk Mitigation and Control Solutions Fraud Detection and Prevention Enterprise Risk Management Identity Management and Control Business Continuity and Disaster Recovery Solutions


Revenue Streams


Revenue Breakdown


Management – Executive Committee John Prim – CEO, Director

Previously served as the President and COO Tony Wormington – President/COO

Key strengths in operational management and research Kevin Williams, CPA– CFO, Treasurer

Appointed as CFO in 2001 Joined as controller in 1998

Management Assessment No incumbent founding members Combination of operational and technological

expertise Maintained very strong financial health historically

Source: OneSource Business Browser, Reuters

Management – Board of Directors Michael Henry – Chairman

Son of late founder; director since 1986 Former CEO, SVP and Head of Research

Wesley Brown, since 2005 MD of St. Charles Capital, LLC (Denver, CO)

Craig Curry, since 2004 CEO of Central Bank (Lebanon, MO)

James Ellis, since 1985 Managing Partner of Ellis/Rosier Financial Services

Matthew Flanigan, since 2007 SVP and CFO of a Missourri based manufacturing

company


Management – Board of Directors Jerry Hall, since inception

Co-Founder of JKHY, former CEO John Prim, since 2004

Current CEO Marla Shepard, since 2007

President and CEO of First Future Credit Union (San Diego)

Board of Directors Assessment 5 out of 8 Independent directors Diverse experience in consumer banking and

operations Renewal of Directors in recent years


Major Shareholders

Source: Yahoo! Finance

Breakdown Proportion

% of Shares Held by All Insider and 5% Owners

10%

% of Shares Held by Institutional & Mutual Fund Owners

84%

Number of Institutions Holding Shares

235

Major Direct Shareholders Shares

Michael E. Henry 1,233,447

Jerry D. Hall 1,138,308

John W. Henry 1,004,727

Tony L. Wormington 510,075

James J. Ellis 300,000

Accounting Analysis

Earnings Quality Analysis

DuPont Analysis

Cash Flow Analysis

Summary of Accounting Analysis

Earnings Quality Analysis

Big Picture:Revenue, Assets, Net Income & Stockholder’s Equity have increased steadily in past three years.

Diluted EPS & Dividends declared per share have increased steadily in past three years.

Assets

•Assets grows steadily•Large and growing cash position

Liabilities & Equity

•No debt•Significant Increase in Free Cash Flow in 2006 over 2005, and in 2007, it decreased a little bit, but still acceptable

Income Statement

•Steady gains•Profits are generated from Continuing Operations•No non-recurring profits

DuPont Analysis

• Ratios are steadily increasing

• Asset Turnover is not increasing from2005, but not volatile

Cash Flow Profile

All numbers are in thousands * Data not availableSource: Forbes.com

• Positive CFO• Negative CFI• Negative CFF in

2006 and 2007

2005, JKHY acquired Tangent Analytics, LLC, (“Tangent”), RPM Intelligence, LLC, with payments $4,000and $6,241 in cash before any earn-out , respectively

Cash Flow Analysis

2005 2006 2007 1st quarter 2008

2nd quarter 2008

CFO + + + + +

CFI - - - - -

CFF + - - - -

StrongGrowing

2nd Quarter Earnings Review EPS GAAP of $0.32

Inline with Consensus Estimate

Earnings Guidance Strong growth in Support and Services

Outsourcing In-house maintenance ATM/Debit card processing

Improved Cost control

Back Log Measure of future business and revenue Current Quarter increase of 1% Increased 7% from a year ago

Share Repurchase Program Under authorization of the Board of Directors, the company may

repurchase shares with available cash and short term borrowings

On June 30, 2006, there were 2,766 shares in the treasury stock and the company had authority to repurchase up to 2,225 shares

On August 25, 2006, the Board approved an authorization for an additional 5,000 shares

During fiscal 2007, the Company repurchased 4,335 shares for $98,413

At June 30, 2007, there were 7,101 shares in treasury stock and the Company had the authority to repurchase up to 2,890 additional shares

On Feb 4th, the Board of Directors authorized another 5,000 shares bringing the total authorization to 15,000 shares

Summary of Accounting Analysis

• High-quality earnings can be characterized as repeatable, controllable and bankable

• Strong Cash Flow• Large and Growing Cash Position• Virtually no debt• Conservatively Capitalize• Minimal off-balance sheet commitments

Industry Analysis&

Economic Outlook

JKHY & Industry Past Performance

Industry Analysis Industry: Application Software ( GICS Industry Classification

45103010) JKHY is in an industry with a healthy number1 of competitors,

and looking at its sales, it is one of the smaller players Industry peers tend to fall in or around the small-cap growth

area Most stocks in the industry have seen steadily growing revenue

and earnings over the past three years

Company Outlook: The economy will finally improve in seeable future, possibly in 2009-20122, which should lead a rise in technology and information spending by banks and credit unions.

Even in the unlikely event of continuing economic downturn, JKHY’s ability to make profits from recurring continuing business operations can provide a cushion of support

1. Morningstar.com 2. Valueline.com

Economic Outlook Tighter consumer spending

More cash in savings and loans and credit unions Reversion to traditional lending standards

Potential slowdown in the Financial Services sector Tightening costs and consolidation amongst banks Shift from licensing software to outsourcing EFTs still show strong potential growth

Jack Henry’s Position in the Economy Well positioned in an economic slowdown

Good business mix Low Financial Leverage

Competitors

Past performance comparison

SWOT analysis

1. Numbers from Morningstar2. All the numbers are up to 4-1-2008 5. 5yr ROA and 5yr Average Net margin use fiscal year-end. TTM=trailing 12 months.

5. Numbers from Morningstar6.Industry Average is equal-weighted7.All the numbers are up to 4-1-2008

Past Performance Comparison

Source: Yahoo! Finance

Weakness & Threats Jack Henry competes with larger firms that have significantly

more resources to invest in upgrading their systems Consolidation in the banking industry is shrinking Jack

Henry's customer base, and the surviving banks are larger, potentially giving them greater bargaining power

Margins in Jack Henry's service and support segment are much lower than in its licensing segment. As service and support are accounting for an increasing portion of total revenue, this shift will pressure margins.

Ongoing declines in the price of computer hardware are driving down revenue and margins in Jack Henry's hardware segment

Substantial switching costs mean Jack Henry rarely loses customers, it also makes it difficult to take business from competitors and increase the top line.

Strength & Opportunity Banks are very reluctant to switch their core processing provider, creating a

wide economic moat for the company's business. Customers typically sign five- to seven-year contracts with Jack Henry, and attrition is very low--only about 3% annually--with the bulk of customer losses the result of customers being acquired by another bank

The breadth of Jack Henry's product portfolio and its focus on serving small banks leaves it well-positioned

Margins in the service and support segment, which accounts for 72% of revenue and 60% of gross profit, are much lower but still healthy is recurring and very stable because of low customer attrition

Banks' increasing preference toward purchasing integrated suites of products as opposed to buying products individually should increase cross-selling opportunities for core processors, such as Jack Henry1

Regulatory changes2 are forcing smaller banks to upgrade their systems, driving demand for Jack Henry's products

Unlike other core processors, Jack Henry has an unlevered balance sheet, giving it greater flexibility to pursue attractive acquisition opportunities as they arise

Below average Business risk Good history of dividends payment, unlike most peers in the industry

1. Morningstar2. Morningstar

Valuation &

Portfolio Fit

Projected Free Cash Flows

2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E

Net income 49,397 62,315 75,501 89,923 104,681 112,767 129,920 153,599 180,842 200,685 219,951

% Change YOY 26% 21% 19% 16% 8% 15% 18% 18% 11% 10%

+

Depreciation 24,025 26,790 29,795 33,442 36,427 36,448 41,580 47,901 54,627 63,137 74,786

+

Amortization 6,169 6,750 9,116 10,332 14,527 15,078 17,561 20,512 23,716 27,496 31,904

Change in Net Working Capital (1,098) 10,040 (39,433) (1,287) 28,935 (1,470) (2,064) (7,706) 7,662 12,160

Capital Expenditures 45,958 49,141 58,046 45,396 34,202 43,075 49,140 56,610 64,559 74,616 88,384

FCFF 33,633 47,812 46,326 127,734 122,720 92,284 141,391 167,465 202,332 209,038 250,418

Terminal Value 3,692,074

PV of FCFF 82,307 112,471 118,811 128,028 117,972 126,045

NPV(TV) 1,858,370

Sustainable Growth Rate 5%

Cost of Capital and Firm ValuationRisk Free Rate (10 Yr T-Bond) 3.51% W(Equity) 98.85%

Beta 1.47 W(Debt) 1.15%

Return on Market 9.47% W(Preferred) 0.00%

Cost of Equity (Ke) 12.25% Total 100%

Pre-Tax Cost of Debt (Kd) 3.45%

Effective Tax Rate 36.14%

After Tax Cost of Debt (Kd) 1.30%

WACC 12.12%

Firm Valuation

Value of Operations 2,544,005

Non-Operating Assets (Cash, etc) 209,055

Non-Equity Claims (Long Term Debt) 343

Stock Price 29.14

10% 32.06

-10% 26.23

Sensitivity Analysis

Sensitivity Analysis (WACC and SGR)

#REF! 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%10.00% 32.26 34.21 36.50 39.20 42.44 46.40 51.34 57.7111.00% 27.90 29.32 30.94 32.81 34.99 37.57 40.67 44.4512.00% 24.52 25.58 26.78 28.14 29.69 31.47 33.56 36.0313.00% 21.82 22.64 23.55 24.57 25.72 27.01 28.50 30.2114.00% 19.63 20.27 20.98 21.77 22.64 23.61 24.71 25.9515.00% 17.80 18.32 18.89 19.50 20.18 20.93 21.77 22.7016.00% 16.27 16.69 17.14 17.64 18.18 18.77 19.42 20.14

Market DataJack Henry and Associates Nasdaq

Current P/E (ttm) 21.60 Current P/E (ttm) 27.20

Forward P/E (1yr) 17.53 Forward P/E (1/yr) 20.30

Current EPS (ttm) $1.19 S&P 500

Last Close $25.70 Current P/E (ttm) 19.94

Implied Earnings

$1.47 Forward P/E (1/yr) 13.81

Earnings Growth

24% Industry

52 Week Range 22.22 - 29.24

Current P/E (ttm) 20.80

Historical P/E (4 yrs)

23.00

Current Portfolio Fit

Based on the close price at April 2, 2008

Jack Henry and Associates Overview

Company

Management B

Operations A

Financial Health A

Industry

Positioning A

Dividend Yield A

Return on Equity A

Economy

Leverage A

Business Mix A

Jack Henry and Associates Overview Current Price : $ 25.47 1

DCF price: $29.14 Fair Opinion: $26.23 - $32.06 Recommendation: HOLD

1. Closing price on April 7th 2008.

Jack Henry & Associates Presented April 10, 2008 Jonathan Goh Dan Xu.

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Transcript of Jack Henry & Associates Presented April 10, 2008 Jonathan Goh Dan Xu.