Dec 4, 2014Yuan Chen, Refky Saputra, Yiqi (Delia) Ye

Where tradition meets technology

Agenda

Current Holdings & Relevant Stock Market Performance Company Overview Business Strategy & Management Outlook Macroeconomic Overview Industry Overview Financial Analysis Valuation Recommendation

Current share price = $61.90

Current holding value = $12,380

Constitutes 6.47% of invested holdings (without cash)

Constitutes 2.99% of invested holdings (with cash)

Initial investment: $7,200

Unrealized gain: $10,580

Source: Yahoo! Finance RCMP Portfolio (https://finance.yahoo.com/portfolio/pf_1)

Nov 11, 1999 Mar 2, 2000 Mar 4, 2001 Jan 15, 2007 Jan 15, 2007Nov 25, 2013

Purchased: 200 shares @ $36 per share

2 for 1 split: 400 shares @ $18 per share

2 for 1 split: 800 shares @ $9 per share

Sold: 200 shares @ $56.75 (realized gain of $9,550)

Sold: 400 shares @ $22.53 (realized gain of $5,412)

Hold: 200 shares @ $61.90

Current Holdings

ABBV ABT AEO AL COF JKHY LF NHC PETM SNA UNP WAG ZIXI

6.47%

Dec-12 Feb-13 Apr-13 Jun-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-140%

10%

20%

30%

40%

50%

60%

JKHY S&P 500 NYSE TMT Index

Source: Bloomberg Finance as of Dec 3, 2014

Market Cap (USD) 5,061.9M 52 Week High @ Dec 1, 2014 $62.46

Shares outstanding 81.8M 52 Week Low @ Oct 15, 2014 $51.86

Free float 98.69% YTD Change/% $2.69/4.54%

60%

47%

27%E

E

E

E

E E EE

Trading snapshot

2-year stock price movement against benchmarks & positive earnings release impact

Relevant stock market performance

Founded by Jack Henry and Jerry Hall in 1976 Headquartered in Monett, Missouri Listed on NASDAQ on October 29, 1985 Industry: Business Software & Services

Processing transactions Managing informationAutomating business process

Source: Jack Henry & Associates 10K 2014 Page 4

Serves nearly 11,300 financial institutions and diverse corporate entities

Providing three arrays of products and services within information processing

Key facts and brief history

Company overview

Provides enterprise-wide automation and data services to commercial banks

Clients include 1,200+ banks ranging from community institutions to mid-tier banks with assets of up to $30 billion

Founded in 1985 and acquired by JKHY in 2000 Provides core data processing solutions for credit unions Serves credit unions of all sizes, with 780+ credit union customers

Provides specialized products and services to financial institutions that are non-core customers

Serves financial services organizations of all asset sizes and charters, and diverse corporate entities with approximately 10,800 domestic and international customers

Source: Jack Henry & Associates 10K 2014 Page 7

Business segments

Jack Henry Banking

Symitar

ProfitStars

Others7400

JKHY1200

# Banks with $30.0 billion in assets

# Credit unions of all size

Others6020

JKHY780

11%

14%

Revenue breakdown over time

Source: Jack Henry & Associates 10K 2014 Page 20 - 21

2010 2011 2012 2013 20140

200

400

600

800

1,000

1,200

86%88% 89%

90%91%

8%

6% 6%

5% 5%

6%

5% 5%

5% 4%

837

967 1,027

1,129 1,210

Support and service Hardware sale LicenseSeries4

Revenue(m)

License Sale and delivery of

proprietary application software systems contracted with the firm by customers

Hardware Sale Agreements with hardware

manufacturers to sell computer hardware, maintenance and related services to customers

Support and service Annual support to assist the

customer in operating their systems and to enhance and update the software

CAGR of 10%

Revenue sources

Source: Jack Henry & Associates 10K 2014 Page 6

Expanding each core customer relationship by cross-selling complementary products and services to enhance functionality

Maintaining a company-wide commitment to customer service and generates high levels of customer retention

Providing commercial banks and credit unions with core software systems that provide excellent functionality

Supporting in-house and outsourced operating environments with identical functionality

Business Strategy

Generate organic revenue and earnings growth through enhancing functionality

Maintain in-depth and sustainable customer relationship

Fiscal Year Company or Product Name Products and Services

2014 Mobile banking, web development and data-enriched marketing technology

2010 Internet and telephone bill payment services

2010 Payment processing solutions for credit unions

2010 Integrated technology and payment processing solutions

Source: Jack Henry & Associates 10K 2014 Page 6

Started acquiring other companies in 1992, gone through 28 material acquisitions since fiscal end of 1999

Increasingly difficult to find targets given the comprehensive products offering after 38 years in business

Alternative ways of leveraging cash, including repurchase

Business Strategy

Continue seeking opportunities to capitalize on diversification and strategic acquisitions

Recent acquisitions

Source: Jack Henry & Associates 10K 2014 Page 19

Management Outlook

Anticipation about the future market environment

Cautiously optimistic about future business operation

Continued consolidation within the financial services industry

Intensified regulatory conditions and legislation such as Dodd-Frank and Consumer Protection Act

Motivation for some financial institutions to postpone discretionary spending

Revenue growth coupled with company’s continued focus on cost management Gross margin expected to be driven up gradually

Recurring revenue and healthy sales pipeline continue to drive majority of business

Customers continue to face regulatory and operational challenges Greater need for solutions addressing institutional profitability and efficiency

Strong balance sheet, access to extensive lines of credit Position the firm well to address current and future opportunities

Source: U.S. Bureau of Economic Analysis (http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm) Bureau of Labor Statistics (http://data.bls.gov/timeseries/LNS14000000)

Macroeconomic Overview

Quarter to Quarter GDP Growth Monthly Unemployment Rate

Note: Real GDP growth is measured at seasonally adjusted annual rates.

In general, the economy has shown a great performance. GDP has grown 5.9% in the last quarter and the unemployment rate went down to 5.8% on October

Banking and credit union industry is expected to grow along with the recovery of the economy. However, they are still finding trouble with the existing regulation

2011 Q4

2012 Q1

2012 Q2

2012 Q3

2012 Q4

2013 Q1

2013 Q2

2013 Q3

2013 Q4

2014 Q1

2014 Q2

2014 Q3

7,000

7,200

7,400

7,600

7,800

8,000

8,200

8,400Total Loans

lOAN

($ b

ILLI

ON

)

2011 Q1

2011 Q2

2011 Q3

2011 Q4

2012 Q1

2012 Q2

2012 Q3

2012 Q4

2013 Q1

2013 Q2

2013 Q3

2013 Q4

2014 Q1

2014 Q2

2014 Q3

200

220

240

260

280

300 Consumer Loan Outstanding (by Credit Union)$

Billi

on

Banking Improvement in the job market has created a

bigger demand for consumption loan Numerous banks are doing consolidation to

become a larger banks Dodd-Frank has put lots of limitations on

Product and Services development

Credit Union Auto loan is starting to revive for the past

couple of months Housing loan is up ticking slowly but steadily Investment loan is still not growing as its

expected New regulations that are more difficult to

comply with

Macroeconomic Overview

Source: Federal Reserve Bank of St. Louis (http://research.stlouisfed.org/fred2/graph/?id=TOTALTCU)

Source: World Retail Banking Report 2013, Capgemini Analysis

Macroeconomic Overview

Big Data Technology and Customer Relationship Management are very important part in modern banking business. Outsourcing the business would be much more efficient for the company

Big data technology for enhancing customer centricity in banking

Knowledge of Customer

Consistent Multi-Channel

Experience

Product-Channel Fit

Intimacy and Relationship

Building

Trust and Confidence

Customer BankRelationship

External Unstructured

Data

Internal Unstructured

Data

Structured Data

Big Data

Analytical CRM

Operational CRM

Customer Relationship Management

(CMR)

A combination of structured and unstructured data that represents the entire field of data the firm can utilize to increase its understanding of its customers

A customer-centric tool which helps banks to optimize costs, increase revenues and enhance customer satisfaction

Porter Five Forces

Innovative technology is important for banking industry

Bigger banks tend to internalize the service

Bargaining Power of BuyersLow-Medium

Hardware and software markets are very competitive

Bargaining Power of SuppliersLow

CompetitionMedium

Innovative product Brand advantage Consolidations in

software industry

Bank consolidations High switching cost

Threat of SubstitutesMedium

Barriers to entryHigh

Difficulty to get a new client Economies of Scale

Weakness

Relatively small to competitors Past innovations are based on

acquisitions

Strength

Consistent stream of cash flow Strong free cash flow for

repurchase and acquisitions Good management team Strong market share

Opportunities

Banking and credit union industry is growing and restructuring towards more efficient IT systems

More banks and credit unions are thinking of IT system outsourcing

Regulation creates new demand

Threat

Larger banks may internalize IT systems

Uncertainty in the economy High dependence on banking

industry and its regulation

SWOT Analysis

Technical Analysis

Source: Bloomberg Finance as of Dec 3, 2014

Recent Financial Information

Operating Efficiency

2011 2012 2013 201410%

15%

20%

25%

30%

Operating Profit Margin Net Margin

Share repurchase & Dividends

2011 2012 2013 20140

50

100

150

0%

10%

20%

30%

40%

Dividends paid Stock RepurchaseDividend Payout Ratio

Source: Jack Henry & Associates 10K 2014 Item 8

Improving Profitability Increasing cash distribution to shareholders through dividends and repurchase

Ratio Analysis

2011 2012 2013 20140%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Tax Burden Operating Profit Margin

ROE Interest Burden

Asset Turnover Leverage

Dupont Analysis

2011 2012 2013 2014 0.18

0.23

0.28

0.33

EBIT/Tangible AssetsEBIT/EV

Greenblatt Ratios

Stable Revenue Stream Low Volatility Decreasing Debt Consistent Growth

Debt/Asset Ratio

2011 2012 2013 20140%

3%

6%

9%

Debt/Assets

Source: Jack Henry & Associates 10K 2014 Item 8

Comparable Analysis

Source: Capital IQ, Yahoo Finance: http://finance.yahoo.com/q/co?s=JKHY+Competitors

Target Company Ticker Symbol (Exchange)

Price at 12/03/14 Close

Shares Outstanding (millions) Equity Value Enterprise Value

Price/Book Value

TEV/Total Revenues LTM - Latest

TEV/EBITDA LTM - Latest Forward P/E

Jack Henry & Associates Inc. NasdaqGS:JKHY 61.90$ 81.80 5,038.20$ 5,009.80$ 4.97x 4.10x 11.80x 22.92x

Comparable CompanyFidelity National Information Services, Inc. NYSE:FIS 61.43$ 283.80 17,430.80$ 21,930.50$ 2.69x 3.50x 13.70x 18.13x Total System Services, Inc. NYSE:TSS 32.97$ 185.90 6,129.10$ 7,355.40$ 3.65x 3.00x 12.60x 15.38x Euronet Worldwide Inc. NasdaqGS:EEFT 57.11$ 52.60 3,003.90$ 2,933.40$ 4.19x 1.90x 14.00x 19.90x Global Payments Inc. NYSE:GPN 83.32$ 67.60 5,635.50$ 7,240.00$ 6.20x 2.80x 13.40x 17.76x DST Systems Inc. NYSE:DST 98.33$ 38.10 3,742.40$ 4,267.10$ 3.34x 1.60x 9.30x 16.78x CoreLogic, Inc. NYSE:CLGX 32.75$ 89.70 2,939.00$ 4,212.30$ 2.88x 3.20x 15.50x 20.43x Heartland Payment Systems, Inc. NYSE:HPY 54.59$ 36.20 1,977.30$ 2,451.30$ 7.31x 1.10x 15.10x 18.79x WEX Inc. NYSE:WEX 103.02$ 38.80 3,993.90$ 4,592.90$ 4.24x 5.80x 13.90x 20.70x

Multiple Low Median High Mean Low Median High Mean Price/Book Value 2.69 3.92 7.31 4.31 33.50 48.82 91.04 53.71 TEV/Sales 1.10 2.90 5.80 2.86 16.39 43.27 86.59 42.71 TEV/EBITDA 9.30 13.80 15.50 13.44 48.22 71.58 80.40 69.70 Forward P/E 15.38 18.46 20.70 18.48 41.54 49.85 55.90 49.92

Multiple Statistics Implied Jack Henry Share Price

Multiple WeightImplied JKHY Price

Price/Book Value 20% 53.71 TEV/Sales 20% 42.71 TEV/EBITDA 50% 69.70 Forward P/E 10% 49.92 Jack Henry Implied Stock Price 59.13$

Revenue Projections

Source: Jack Henry & Associates 10K 2014 Financial Statements

Income Statement (in millions)2010 2011 2012 2013 2014 2015 2016 2017 2018

REVENUELicense 52.2 53.1 54.8 54.8 53.0 52.5 52.0 52.0 52.0

yoy growth 1.6% 3.3% 0.0% -3.3% -1.0% -1.0% 0.0% 0.0%Support and service 720.5 852.3 909.2 1015.2 1098.4 1296.1 1490.5 1669.4 1836.3

yoy growth 18.3% 6.7% 11.7% 8.2% 18.0% 15.0% 12.0% 10.0%Hardware 63.9 61.6 63.1 59.4 58.7 58.1 57.5 57.5 57.5

yoy growth -3.6% 2.5% -6.0% -1.2% -1.0% -1.0% 0.0% 0.0%Total revenue 836.6 966.9 1027.1 1129.4 1210.1 1406.6 1600.0 1778.8 1945.8

yoy growth 15.6% 6.2% 10.0% 7.1% 16.2% 13.7% 11.2% 9.4%

COST OF SALESCost of license 5.8 6.29 6.11 4.82 4.27 4.20 4.16 3.64 3.64

yoy growth 8.4% -2.8% -21.1% -11.4% -1.7% -1.0% -12.5% 0.0%Cost of support and service 438.5 515.92 551.29 603.92 643.44 751.74 857.04 951.54 1,037.51

yoy growth 17.7% 6.9% 9.5% 6.5% 16.8% 14.0% 11.0% 9.0%Cost of hardware 47.2 45.36 45.98 43.65 43.71 42.80 42.37 42.37 42.37

yoy growth -3.9% 1.4% -5.1% 0.1% -2.1% -1.0% 0.0% 0.0%Total cost of sales 491.5 567.563 603.379 652.394 691.424 798.73 903.57 997.55 1,083.52

yoy growth 15.5% 6.3% 8.1% 6.0% 15.5% 13.1% 10.4% 8.6%

GROSS PROFIT 345.09 399.33 423.73 476.99 518.63 607.92 696.39 781.27 862.23yoy growth 15.7% 6.1% 12.6% 8.7% 17.2% 14.6% 12.2% 10.4%% of revenue 41.3% 41.3% 42.2% 42.9% 43.2% 43.5% 43.9% 44.3%

ForecastFor Period Ending June 30,

Projected Income Statement for JKHY

Discounted Cash Flow Analysis

Source: Jack Henry & Associates 10K 2014 Item 8

CAPM Cost of Equity Weight

Beta 0.95 7Risk-Free 1.54% 5 YrMarket Risk Premium 6%CAPM Cost of Equity 7.22%

Cost of Equity CalculationCAPM Cost of Equity 7.22% 80%Realized Return 22.35% 20%

Cost of Equity 10.25% 98%Cost of Debt 4.58% 2%

Business Risk Premium 0.20%

Discount rate: 10.32%

WACC Calculation

Weighted Average Cost of Capital

10.12%

Discounted Cash Flow for Jack Henry & Associates

2014 2015 2016 2017 2018 TerminalEBIT 372.4 431.7 490.5 546.1

Less: Cash Paid for Taxes (131.3) (151.9) (172.0) (191.5) NOPAT 241.1 279.7 318.5 354.6

Add: Depreciation 53.1 53.7 56.9 57.5 Capital Expenditures (58.3) (66.3) (73.7) (80.6) Change in Net Working Capital 23.0 16.3 10.5 5.2

Free Cash Flow 258.9 283.5 312.2 336.8 5,109.3 Present Value of Free Cash Flow 234.7 232.9 232.5 227.4 3,449.1

Implied EV 4,377 Discount rate 10.32% Less Debt (4)

Terminal Growth 3.50% Implied Market Cap 4,373

Shares Outstanding 81.800 Implied Share Price 53.46$

VALUATION

Free Cash Flow Analysis

Recommendation

• Weight: 40%• Price: $53.46 DCF Method

• Weight: 60%• Price: $59.13

Comparable Multiples Method

HOLD

Implied Price: $56.86Current Price: $61.90

Valuation Summary

Questions?

Where tradition meets technology