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Jack Henry & Associates, Inc
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  1. Jack Henry & Associates, Inc Presented By: Matthew Thompson & Daniel DeRose Jr. Presented April 17, 2007

  2. Presentation Outline • Companyoverview • Industry Background • Firmstrategy and development • Acquisition Strategy • RCMP position • Stock Performance • Portfolio fit • FirmPerformance • Dupontanalysis • Valuation • DCF • Recommendation

  3. Company Overview • Founded in 1976 • Based in Monett, Mo. • Provides software and services for more than 8,700 financial institutions throughout the U.S.

  4. Company Overview • 3 Primary Brands: • Jack Henry & Associates • Sells core processing solutions and integrated complimentary products to US commercial banks with assets up to $30B • Symitar • Markets and sells same solutions to US credit unions • ProfitStars • Markets and sells specialized solutions to US banks and credit unions of all sizes, as well as international financial institutions and other diverse businesses • 3 Primary Sources of Revenue • Software licenses • Support and service fees which include implementation services • Hardware sales, which include all non-software remarketed products

  5. Company Overview Continued • Offer integrated suite of data processing system solutions to improve customers' management of internal/office applications and customer/member interaction processes, as well as specialized data processing solutions to meet specific business needs • Believe solutions enable customers to provide better service to their customers and compete more effectively against other banks, credit unions, and alternative financial institutions

  6. Customer Options • Install Jack Henry comprehensive system in house • Perform outsourcing services with the entire suite of products and services • 5-10 year contracts

  7. Industry Background • Financial Institutions (commercial banks, thrifts, and credit unions) have increased spending on hardware, software, services and telecommunications by an annual compound growth rate 6% from 2001 to 2005 • Industry spending increased 9.5% from 2004 to 2005

  8. 1) 2006 Form 10-K, p.8 2) 2006 Form 10-K, p.8 Industry Effect • Approx. 9,000 commercial and savings banks in the US, saw a 2% decline due to industry consolidation1 • 80% of JKHY total revenues • Number of credit unions has declined at a 3% compound annual rate from 2001 to 2005, however these institutions aggregate assets have increased at a 9% compound annual growth rate2 • 20% of JKHY total revenues

  9. Firm Strategy and Development • Offer the highest quality products and services • Developed reputation as premium brand name in the industry • Keep up with most cutting edge technology to continually serve clients with new products and services • Increase current customer relationships • Minimal marketing and sales costs • Increased product capability • Ability to integrate with other 3rd party services and products

  10. Firm S&D Continued • Increased customer base through sales and marketing campaigns • Increased 211% from ’02-’06 • Attract and retain high quality employees • Built into corporate culture • Make Strategic Acquisitions

  11. Acquisitions Strategy • Reasons for: • More products and services that compliment existing offerings • New customers • Enter new markets w/in financial services and other vertical markets • Additional outsourcing capabilities • Acquisition Focus: • Products in high demand • Strong management team • Excellent customer relationships

  12. Recent Key Acquisitions *Since 2002 JKHY has made 17 successful acquisitions

  13. RCMP Position • Entered Position November 11, 1999: • BOT: 200 shares @ $36.00/share • Stock splits: • March 3, 2000 (2:1); March 5, 2001 (2:1) • Sold 400 shares last semester, fall 2006 • Current Position: • Owned shares: 400 • Stock Price as of April 16: $24.91

  14. Stock Performance Mkt. Cap. - $2.24B 52 week range: $17.40 - $24.67

  15. Portfolio fit

  16. Correlation Matrix

  17. Firm Performance • Dupont Analysis

  18. Discounted Cash Flow Analysis • Basic assumptions • Revenues continue to grow at steady pace due to continued acquisitions • Revenues from Hardware to return to modest 1% growth per year. • Cost of Hardware as a % of Revenues remains almost flat in the future as the price of technology continues to fall • JKHY continues to pay a dividend of 20% of net income • Capital Expenditures stay in the $50 million range

  19. Discounted Cash Flow Analysis • Step 1 Free Cash Flow

  20. Step 2 Calculate WACC CAPM = 11.95% Beta = 1.2 Rm = 10.75% Rf = 4.75% WACC = 11.75 Tax Rate = 36% W(d) = 2.98% W(e) = 97.02% K(d) = 8.25% BUT equity holders (such as ourselves) have experienced a 15.65% CAGR from 1999 – 2007 We believe the CAPM is not an appropriate way to capture the entire expected return of stockholders A WACC of 13% is more appropriate Discounted Cash Flow Analysis

  21. Step 3 PV of FC Step 4 & 5 Terminal Value Discounted Cash Flow Analysis

  22. Step 6 Find Intrinsic Value Step 7 Price per Share Discounted Cash Flow Analysis

  23. Sensitivity Analysis • The stock price increases over 22% when using a WACC of 11.75% instead of a more conservative 13%

  24. Recommendation • HOLD all 400 shares • JKHY is a good diversifier in the portfolio and leads to exposure in both technology and financial sectors • We believe a strong management team and a pointed acquisition strategy will overcome the recent trend of consolidation in the industry

  25. Questions ???