SEC Filing | Jack Henry & Associates, Inc.

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jkhy-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ______________ to ________________

Commission file number 0-14112

JACK HENRY & ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)


Delaware						43-1128385
(State or Other Jurisdiction of Incorporation)						(I.R.S Employer Identification No.)

663 Highway 60, P.O. Box 807, Monett, MO 65708

(Address of Principle Executive Offices)

(Zip Code)

417-235-6652

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock ($0.01 par value)	JKHY	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

As of April 28, 2022, the Registrant had 72,861,807 shares of Common Stock outstanding ($0.01 par value).

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		Page Reference

PART I	FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Balance Sheets as of March 31, 2022, and June 30, 2021 (Unaudited)	4

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2022, and 2021 (Unaudited)	5

	Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended March 31, 2022, and 2021 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2022, and 2021 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	29

ITEM 4.	Controls and Procedures	29

PART II	OTHER INFORMATION	29

ITEM 1.	Legal Proceedings	29



ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

ITEM 6.	Exhibits	31

	Signatures	32

In this report, all references to "Jack Henry," “JKHY,” the “Company,” “we,” “us,” and “our,” refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.

FORWARD LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “seek,” “anticipate,” “estimate,” “future,” “intend,” “plan,” “strategy,” “predict,” “likely,” “should,” “will,” “would,” “could,” “can,” “may,” and similar expressions. Forward-looking statements are based only on management’s current beliefs, expectations and assumptions regarding the future of the Company, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
	March 31, 2022		June 30, 2021

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	39,797	$	50,992
Receivables, net	222,696		306,564
Income tax receivable	4,958		30,243
Prepaid expenses and other	126,174		109,723
Deferred costs	57,072		46,215
Assets held for sale	20,201		—
Total current assets	470,898		543,737
PROPERTY AND EQUIPMENT, net	215,331		252,481
OTHER ASSETS:
Non-current deferred costs	136,425		127,205
Computer software, net of amortization	398,760		368,094
Other non-current assets	263,937		249,210
Customer relationships, net of amortization	72,541		81,842
Other intangible assets, net of amortization	26,753		26,129
Goodwill	687,458		687,458
Total other assets	1,585,874		1,539,938
Total assets	$	2,272,103	$	2,336,156
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	14,415	$	18,485
Accrued expenses	155,476		182,517


Notes payable and current maturities of long-term debt	101		110
Deferred revenues	150,169		319,748
Total current liabilities	320,161		520,860
LONG-TERM LIABILITIES:
Non-current deferred revenues	67,444		75,852
Deferred income tax liability	276,439		260,758
Debt, net of current maturities	225,002		100,083
Other long-term liabilities	54,449		59,311
Total long-term liabilities	623,334		496,004
Total liabilities	943,495		1,016,864
STOCKHOLDERS' EQUITY
Preferred stock -$1 par value; 500,000 shares authorized, none issued	—		—
Common stock - $0.01 par value; 250,000,000 shares authorized; 103,895,934 shares issued at March 31, 2022; 103,795,169 shares issued at June 30, 2021	1,039		1,038
Additional paid-in capital	543,077		518,960
Retained earnings	2,591,610		2,412,496
Less treasury stock at cost 31,042,903 shares at March 31, 2022; 29,792,903 shares at June 30, 2021	(1,807,118)		(1,613,202)
Total stockholders' equity	1,328,608		1,319,292
Total liabilities and equity	$	2,272,103	$	2,336,156

See notes to condensed consolidated financial statements.

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021

REVENUE	$	478,260	$	433,776	$	1,460,212	$	1,307,938

EXPENSES
Cost of Revenue	282,339		267,770		841,799		788,481
Research and Development	30,725		27,395		87,394		80,233
Selling, General, and Administrative	53,607		47,408		160,172		136,801

Total Expenses	366,671		342,573		1,089,365		1,005,515

OPERATING INCOME	111,589		91,203		370,847		302,423

INTEREST INCOME (EXPENSE)
Interest Income	3		24		16		144
Interest Expense	(691)		(290)		(1,387)		(525)
Total Interest Income (Expense)	(688)		(266)		(1,371)		(381)

INCOME BEFORE INCOME TAXES	110,901		90,937		369,476		302,042

PROVISION FOR INCOME TAXES	26,194		19,528		86,986		67,435

NET INCOME	$	84,707	$	71,409	$	282,490	$	234,607

Basic earnings per share	$	1.16	$	0.95	$	3.84	$	3.09
Basic weighted average shares outstanding	72,835		75,357		73,477		76,022

Diluted earnings per share	$	1.16	$	0.95	$	3.84	$	3.08
Diluted weighted average shares outstanding	73,019		75,431		73,619		76,141

See notes to condensed consolidated financial statements.

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
(Unaudited)
	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
PREFERRED SHARES:	—		—		—		—

COMMON SHARES:
Shares, beginning of period	103,860,246		103,736,703		103,795,169		103,622,563
Shares issued for equity-based payment arrangements	15,053		6,479		41,586		84,893
Shares issued for Employee Stock Purchase Plan	20,635		22,596		59,179		58,322
Shares, end of period	103,895,934		103,765,778		103,895,934		103,765,778

COMMON STOCK - PAR VALUE $0.01 PER SHARE:
Balance, beginning of period	$	1,039	$	1,037	$	1,038	$	1,036
Shares issued for equity-based payment arrangements	—		—		—		1
Shares issued for Employee Stock Purchase Plan	—		1		1		1
Balance, end of period	$	1,039	$	1,038	$	1,039	$	1,038

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	535,493	$	503,205	$	518,960	$	495,005
Shares issued for equity-based payment arrangements	—		—		—		(1)
Tax withholding related to share-based compensation	(1,711)		(493)		(3,709)		(7,181)
Shares issued for Employee Stock Purchase Plan	3,019		2,881		8,523		8,018
Stock-based compensation expense	6,276		5,207		19,303		14,959
Balance, end of period	$	543,077	$	510,800	$	543,077	$	510,800

RETAINED EARNINGS:
Balance, beginning of period	$	2,542,583	$	2,332,509	$	2,412,496	$	2,235,320
Cumulative effect of Accounting Standards Update adoption (Note 1)	—		—		—		(493)
Net income	84,707		71,409		282,490		234,607
Dividends	(35,680)		(34,262)		(103,376)		(99,778)
Balance, end of period	$	2,591,610	$	2,369,656	$	2,591,610	$	2,369,656

TREASURY STOCK:
Balance, beginning of period	$	(1,807,118)	$	(1,291,572)	$	(1,613,202)	$	(1,181,673)
Purchase of treasury shares	—		(274,479)		(193,916)		(384,378)
Balance, end of period	$	(1,807,118)	$	(1,566,051)	$	(1,807,118)	$	(1,566,051)

TOTAL STOCKHOLDERS' EQUITY	$	1,328,608	$	1,315,443	$	1,328,608	$	1,315,443

Dividends declared per share	$	0.49	$	0.46	$	1.41	$	1.32

See notes to condensed consolidated financial statements.

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
	Nine Months Ended
	March 31,
	2022		2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	282,490	$	234,607
Adjustments to reconcile net income from operations to net cash from operating activities:
Depreciation	38,339		39,816
Amortization	94,563		92,189
Change in deferred income taxes	15,681		13,205
Expense for stock-based compensation	19,303		14,959
(Gain)/loss on disposal of assets	301		(2,206)
Changes in operating assets and liabilities:
Change in receivables	83,868		92,716
Change in prepaid expenses, deferred costs and other	(51,255)		(34,886)
Change in accounts payable	2,609		(1,529)
Change in accrued expenses	(33,400)		(19,164)
Change in income taxes	26,885		13,629
Change in deferred revenues	(177,987)		(177,021)
Net cash from operating activities	301,397		266,315

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired	—		(2,300)
Capital expenditures	(28,386)		(14,916)

Proceeds from dispositions	38		6,187

Purchased software	(7,726)		(5,820)
Computer software developed	(108,950)		(95,991)
Purchase of investments	—		(13,300)
Net cash from investing activities	(145,024)		(126,140)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities	292,000		200,000
Repayments on credit facilities and financing leases	(167,091)		(86)

Purchase of treasury stock	(193,916)		(384,378)
Dividends paid	(103,376)		(99,778)
Proceeds from issuance of common stock upon exercise of stock options	—		1
Tax withholding payments related to share-based compensation	(3,709)		(7,182)
Proceeds from sale of common stock	8,524		8,019
Net cash from financing activities	(167,568)		(283,404)
NET CHANGE IN CASH AND CASH EQUIVALENTS	$	(11,195)	$	(143,229)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	$	50,992	$	213,345
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	39,797	$	70,116

See notes to condensed consolidated financial statements.

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Company

Jack Henry & Associates, Inc. and subsidiaries ("Jack Henry," "JKHY," or the "Company") is a leading provider of technology solutions and payment processing services primarily for the financial services industry. The Company has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide, by providing the conversion and implementation services for financial institutions to utilize JKHY systems, and by providing payment processing and other related services. JKHY also provides continuing support and services to customers using on-premise or JKHY private and public cloud-based systems.

Consolidation

The condensed consolidated financial statements include the accounts of JKHY and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.

Comprehensive Income

Comprehensive income for the three and nine months ended March 31, 2022, and 2021, equals the Company’s net income.

Change in Accounting Policy

The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses, ("CECL") with an adoption date of July 1, 2020. As a result, the Company changed its accounting policy for allowance for credit losses. The accounting policy pursuant to CECL is disclosed below. The adoption of CECL resulted in an immaterial cumulative effect adjustment recorded in retained earnings as of July 1, 2020.

Allowance for Credit Losses

The Company monitors trade and other receivable balances and contract assets and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events.

The following table summarizes allowance for credit losses activity for the fiscal quarter and year-to-date period ended March 31, 2022, and 2021:


	Three Months Ended March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
Allowance for credit losses - beginning balance	$	7,733	$	6,830	$	7,267	$	6,719
Cumulative effect of accounting standards update adoption	—		—		—		493
Current provision for expected credit losses	360		540		1,200		1,450
Write-offs charged against allowance	(381)		(252)		(754)		(1,538)
Recoveries of amounts previously written off	—		—		(1)		(4)
Other	—		—		—		(2)
Allowance for credit losses - ending balance	$	7,712	$	7,118	$	7,712	$	7,118

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Property and Equipment

Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Accumulated depreciation at March 31, 2022, totaled $445,706 and at June 30, 2021, totaled $435,169.

During the three months ended March 31, 2022, the Company received an offer to purchase one of its facilities and management has committed to a plan to sell the facility. At March 31, 2022, the facility included assets with a carrying value of approximately $20,201. Although management has not committed to a sale, a sale of the facility is likely, and the Company expects to record a gain on the sale upon closing. Total assets held for sale by the Company at March 31, 2022 and June 30, 2021 were $20,201 and zero, respectively, and were included in assets held for sale on the Company's balance sheets and were not included in property and equipment, net.

Intangible Assets

Intangible assets consist of goodwill, customer relationships, computer software, and trade names acquired in business acquisitions in addition to internally developed computer software. The amounts are amortized, with the exception of those intangible assets with an indefinite life (such as goodwill), over an estimated economic benefit period, generally three to twenty years. Accumulated amortization of intangible assets totaled $998,527 and $921,050 at March 31, 2022, and June 30, 2021, respectively.

Purchase of Investments

At March 31, 2022, and June 30, 2021, the Company had an investment in the preferred stock of Automated Bookkeeping, Inc. ("Autobooks") of $13,250, which represented a non-controlling share of the voting equity as of each date. The total investment was recorded at cost and is included within other non-current assets on the Company's balance sheet. There have been no events or changes in circumstances that would indicate an impairment and no price changes resulting from observing a similar or identical investment. An impairment and/or an observable price change would be an adjustment to recorded cost. Fair value will not be estimated unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

Common Stock

The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or borrowings on its existing line-of-credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At March 31, 2022, there were 31,043 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,948 additional shares. The total cost of treasury shares at March 31, 2022, was $1,807,118. During the first nine months of fiscal 2022, the Company repurchased 1,250 shares. At June 30, 2021, there were 29,793 shares in treasury stock and the Company had authority to repurchase up to 5,198 additional shares. The total cost of treasury shares at June 30, 2021, was $1,613,202. During the first nine months of fiscal 2021, the Company repurchased 2,500 shares.

Income Taxes

Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement basis and tax basis of assets and liabilities. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest and penalties expense are recognized on the full amount of unrecognized benefits for uncertain tax positions. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.

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Interim Financial Statements

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission ("SEC") and in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") applicable to interim condensed consolidated financial statements and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended June 30, 2021. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K for the fiscal year ended June 30, 2021, with updates to certain policies included in this Note 1.

In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly in all material respects the financial position of the Company as of March 31, 2022, the results of its operations for the three and nine months ended March 31, 2022, and 2021, changes in stockholders' equity for the three and nine months ended March 31, 2022, and 2021, and its cash flows for the nine months ended March 31, 2022, and 2021. The condensed consolidated balance sheet at June 30, 2021, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.

The results of operations for the three and nine months ended March 31, 2022, are not necessarily indicative of the results to be expected for the entire fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Risks and Uncertainties

The extent to which the COVID-19 pandemic will directly or indirectly impact our business and financial results, including revenue, expenses, cost of revenues, research and development, and selling, general and administrative expenses, will depend on future developments that are highly uncertain, such as new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 (including the efficacy of vaccines against new variants and the development and effectiveness of treatments), as well as the economic impact on local, regional, national and international customers and markets. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of March 31, 2022, and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, as well as the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s condensed consolidated financial statements as of and for the fiscal quarter ended March 31, 2022, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s condensed consolidated financial statements in future reporting periods.

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Guidance

In December of 2019, the FASB issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions and simplifies other requirements of Topic 740 guidance. The ASU was effective for the Company on July 1, 2021. The Company adopted ASU 2019-12 effective July 1, 2021 with no material impact on its condensed consolidated financial statements.

Not Yet Adopted

In October of 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue

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recognized by the acquirer. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company plans to adopt the ASU effective July 1, 2023, and will apply it prospectively to business combinations occurring on or after that date.

NOTE 3. REVENUE AND DEFERRED COSTS

Revenue Recognition

The Company generates revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales.

Disaggregation of Revenue

The tables below present the Company's revenue disaggregated by type of revenue. Refer to Note 10, Reportable Segment Information, for disaggregated revenue by type and reportable segment. The majority of the Company’s revenue is earned domestically, with revenue from customers outside the United States comprising less than 1% of total revenue.


	Three Months Ended March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
Private and Public Cloud1	$	142,808	$	128,703	$	416,791	$	374,160
Product Delivery and Services	62,349		49,235		193,363		154,547
On-Premise Support2	77,764		76,701		266,471		257,802
Services and Support	282,921		254,639		876,625		786,509

Processing	195,339		179,137		583,587		521,429

Total Revenue	$	478,260	$	433,776	$	1,460,212	$	1,307,938

1 The name of this revenue stream was changed in fiscal 2021 from "outsourcing and cloud" to "private and public cloud" to better reflect the nature of the related revenue. However, the nature of the revenue included within this caption has not changed and is the same in the current fiscal quarter as it was in the comparative quarter of fiscal 2021 and prior.

2 The name of this revenue stream was changed in fiscal 2021 from "in-house support" to "on-premise support" to better reflect the nature of the related revenue. However, the nature of the revenue included within this caption has not changed and is the same in the current fiscal quarter as it was in the comparative quarter of fiscal 2021 and prior.

Contract Balances

The following table provides information about contract assets and contract liabilities from contracts with customers.


	March 31, 2022		June 30, 2021
Receivables, net	$	222,696	$	306,564
Contract Assets - Current	19,899		22,884
Contract Assets - Non-current	59,601		52,920
Contract Liabilities (Deferred Revenue) - Current	150,169		319,748
Contract Liabilities (Deferred Revenue) - Non-current	67,444		75,852

Contract assets primarily result from revenue being recognized when or as control of a solution or service is transferred to the customer, except where invoicing is contingent upon the completion of other performance obligations or payment terms differ from the provisioning of services. The current portion of contract assets is reported within prepaid expenses and other in the condensed consolidated balance sheet, and the non-current portion is included in other non-current assets. Contract liabilities (deferred revenue) primarily relate to consideration received from customers in advance of delivery of the related goods and services to the customer. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.

The Company analyzes contract language to identify if a significant financing component does exist and adjusts the transaction price for any material effects of the time value of money if the timing of payments provides either party to the contract with a significant benefit of financing the transaction.

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During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $92,147 and $80,722, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. For the nine months ended March 31, 2022 and 2021, the Company recognized revenue of $225,424 and $211,735, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.

Amounts recognized that relate to performance obligations satisfied (or partially satisfied) in prior periods were immaterial for each period presented. These adjustments are primarily the result of transaction price re-allocations due to changes in estimates of variable consideration.

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2022, estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period totaled $5,187,412. The Company expects to recognize approximately 25% over the next 12 months, 20% in 13-24 months, and the balance thereafter.

Contract Costs

The Company incurs incremental costs to obtain a contract as well as costs to fulfill contracts with customers that are expected to be recovered. These costs consist primarily of sales commissions, which are incurred only if a contract is obtained, and customer conversion or implementation-related costs. Capitalized costs are amortized based on the transfer of goods or services to which the asset relates, in line with the percentage of revenue recognized for each performance obligation to which the costs are allocated.

Capitalized costs totaled $354,373 and $314,807 at March 31, 2022 and June 30, 2021, respectively.

For the three months ended March 31, 2022 and 2021, amortization of deferred contract costs was $31,444 and $29,384, respectively. During the nine months ended March 31, 2022, and 2021, amortization of deferred contract costs totaled $99,441 and $92,004, respectively.

NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

For cash equivalents, certificates of deposit, amounts receivable or payable, and short-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities.

The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:

Level 1: inputs to the valuation are quoted prices in an active market for identical assets

Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly

Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset

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Fair value of financial assets included in current assets is as follows:


	Estimated Fair Value Measurements						Total Fair
	Level 1		Level 2		Level 3		Value
March 31, 2022
Financial Assets:

Certificates of Deposit	$	—	$	1,212	$	—	$	1,212
Financial Liabilities:
Revolving credit facility	$	—	$	225,000	$	—	$	225,000
June 30, 2021
Financial Assets:
Certificates of Deposit	$	—	$	1,200	$	—	$	1,200

Financial Liabilities:
Revolving credit facility	$	—	$	100,000	$	—	$	100,000

NOTE 5. LEASES

The Company determines if an arrangement is a lease at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases and equipment leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the Company’s leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based upon the information available at commencement date. The determination of the incremental borrowing rate requires judgment and is determined by using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease.

The Company leases certain office space, data centers and equipment with remaining terms of 1 to 12 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. Variable lease costs are recognized as a variable lease expense when incurred.

At March 31, 2022, and June 30, 2021, the Company had operating lease assets of $49,170 and $55,977 and financing lease assets of $100 and $188, respectively. At March 31, 2022, total operating lease liabilities of $53,845 were comprised of current operating lease liabilities of $10,938 and noncurrent operating lease liabilities of $42,907, and total financing lease liabilities of $103 were comprised of current financing lease liabilities of $101 and noncurrent financing lease liabilities of $2. At June 30, 2021, total operating lease liabilities of $60,828 were comprised of current operating lease liabilities of $11,460 and noncurrent operating lease liabilities of $49,368, and total financing lease liabilities of $193 were comprised of current financing lease liabilities of $110 and noncurrent financing lease liabilities of $83.

Operating lease assets are included within other non-current assets and operating lease liabilities are included within accrued expenses (current portion) and other long-term liabilities (noncurrent portion) in the Company’s condensed consolidated balance sheet. Operating lease assets were recorded net of accumulated amortization of $29,413 and $23,813 as of March 31, 2022, and June 30, 2021, respectively. Financing lease assets are included within property and equipment, net and financing lease liabilities are included within notes payable (current portion) and long-term debt (noncurrent portion) in the Company’s condensed consolidated balance sheet. Financing lease assets were recorded net of accumulated amortization of $231 and $153 as of March 31, 2022, and June 30, 2021, respectively.

Operating lease costs for the three months ended March 31, 2022, and 2021, were $3,182 and $3,573, respectively. Financing lease costs for the three months ended March 31, 2022, and 2021, were $25 and $30, respectively. Total operating and financing lease costs for the respective quarters included variable lease costs of approximately $640 and $1,015, respectively. Operating lease costs for the nine months ended March 31, 2022, and 2021, were $9,942 and $11,312, respectively. Financing lease costs for the nine months ended March 31, 2022, and 2021, were $80 and $92, respectively. Total operating and financing lease costs for the respective fiscal year-to-date periods included variable lease costs of approximately $1,480 and $3,205. Operating and financing lease expense are included within cost of services, research and development, and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of income.

For the nine months ended March 31, 2022, and 2021, the Company had operating cash flows for payments on operating leases of $9,947 and $10,121, respectively, and ROU assets obtained in exchange for operating lease liabilities of $1,985 and $4,746, respectively. Financing cash flows for payments on financing leases for the nine months ended March 31, 2022, and 2021, were $83 and $91, respectively.

As of March 31, 2022, and June 30, 2021, the weighted average remaining lease term for the Company's operating leases was 77 months and 81 months, respectively, and the weighted average discount rate was 2.61% and 2.67%, respectively. As of March 31, 2022, and June 30, 2021, the weighted average remaining lease term for the Company's financing leases was 12 months and 21 months, respectively. The weighted average discount rate for the Company's financing leases was 2.36% and 2.39% as of March 31, 2022, and June 30, 2021, respectively.

Maturity of Lease Liabilities under ASC 842

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at March 31, 2022*:


Due Dates (fiscal year)	Future Minimum Rental Payments

2022 (remaining period)	$	3,169
2023	11,859
2024	10,149
2025	7,390
2026	6,468
Thereafter	19,561
Total lease payments	$	58,596
Less: interest	(4,751)
Present value of lease liabilities	$	53,845

*Financing leases were immaterial to the fiscal quarter, so a maturity of lease liabilities table has only been included for operating leases.

Lease payments included $5,464 related to options to extend lease terms that are reasonably certain of being exercised. At March 31, 2022, the Company had approximately $1,418 in legally binding lease payments for two leases that were signed but not yet commenced. The lease commencement dates are July 1, 2022 and November 1, 2022, and the lease terms are 84 months and 60 months, respectively.

NOTE 6. DEBT

Revolving credit facility

On February 10, 2020, the Company entered into a five-year senior, unsecured revolving credit facility. The credit facility allows for borrowings of up to $300,000, which may be increased by the Company at any time until maturity to $700,000. The credit facility bears interest at a variable rate equal to (a) a rate based on a eurocurrency rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% and (iv) the eurocurrency rate for a one-month interest period on such day for dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit facility is guaranteed by certain subsidiaries of the Company and is subject to various

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financial covenants that require the Company to maintain certain financial ratios as defined in the credit facility agreement. As of March 31, 2022, the Company was in compliance with all such covenants. The revolving credit facility terminates February 10, 2025. There was $225,000 outstanding under the credit facility at March 31, 2022, and $100,000 outstanding balance at June 30, 2021.

Other lines of credit

The Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate less 1%. The credit line expires on April 30, 2023. There was no balance outstanding at March 31, 2022, or June 30, 2021.

Interest

The Company paid interest of $1,235 and $525 during the nine months ended March 31, 2022, and 2021, respectively.

NOTE 7. INCOME TAXES

Provision for income taxes increased for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, with an effective tax rate of 23.6% of income before income taxes, compared to 21.5% in the prior-year fiscal quarter. The increase in the effective tax rate comparing the three-month periods ended March 31 was primarily due to differences in the impact of increases in operating income relative to the impact of other items affecting the effective tax rate in the current period, the most significant of which are federal and state income tax credits.

For the nine months ended March 31, 2022, provision for income taxes increased compared to the nine months ended March 31, 2021, with an effective tax rate of 23.5% of income before income taxes, compared to 22.3% for the same period last fiscal year. The increase in the effective tax rate comparing the fiscal year-to-date periods ended March 31 was primarily due to the relative impact of the increase in operating income in the current fiscal year-to-date period and a larger excess tax benefit received from share-based compensation in the prior fiscal year-to-date period.

The Company paid income taxes, net of refunds, of $44,245 and $40,440 in the nine months ended March 31, 2022, and 2021, respectively.

At March 31, 2022, the Company had $10,000 of gross unrecognized tax benefits before interest and penalties, $9,267 of which, if recognized, would affect our effective tax rate. The Company had accrued interest and penalties of $1,542 and $2,035 related to uncertain tax positions at March 31, 2022, and 2021, respectively.

The U.S. federal and state income tax returns for fiscal 2018 and all subsequent years remain subject to examination as of March 31, 2022, under statute of limitations rules. The Company anticipates reductions of the unrecognized tax benefits balance of $3,500 to $4,500 within twelve months of March 31, 2022, due to potential changes from lapsing statutes of limitations and examination closures.

NOTE 8. STOCK-BASED COMPENSATION

Our operating income for the three months ended March 31, 2022, and 2021, included $6,276 and $5,207 of stock-based compensation costs, respectively. Our operating income for the nine months ended March 31, 2022, and 2021, included $19,303 and $14,959 of stock-based compensation costs, respectively.

Stock Options

On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan ("2015 EIP") for its employees and non-employee directors. The plan allows for grants of stock options, stock appreciation rights, restricted stock shares or units, and performance shares or units. The maximum number of shares authorized for issuance under the plan is 3,000. For stock options, terms and vesting periods of the options are determined by the Compensation Committee of the Board of Directors when granted. The option period must expire not more than ten years from the option grant date. The options terminate upon surrender of the option, ninety days after termination of employment, or upon the expiration of one year following notification of a deceased optionee. The options granted under this plan are exercisable beginning three years after the grant date at an exercise price equal to 100% of the fair market value of the stock at the grant date.

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A summary of option plan activity under this plan is as follows:


	Number of Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding July 1, 2021	22	$	87.27
Granted	—	—
Forfeited	—	—
Exercised	(10)	87.27
Outstanding March 31, 2022	12	$	87.27	$	1,283
Vested and Expected to Vest March 31, 2022	12	$	87.27	$	1,283
Exercisable March 31, 2022	12	$	87.27	$	1,283

At March 31, 2022, there was no compensation cost yet to be recognized related to outstanding options. For options currently exercisable, the weighted average remaining contractual term (remaining period of exercisability) as of March 31, 2022, was 4.25 years.

The Company issues unit awards under the 2015 EIP. The following table summarizes non-vested performance and restricted stock unit awards as of March 31, 2022:


	Units	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding July 1, 2021	294	$	160.22
Granted	133	178.36
Vested	(63)	143.93
Forfeited	(50)	191.11
Outstanding March 31, 2022	314	$	166.25	$	61,821

The 133 unit awards granted in fiscal 2022 had service requirements and performance targets, with 85 having only service requirements. The unit awards with only service requirements were valued at the weighted average fair value of the non-vested units based on the fair market value of the Company’s equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period, consistent with the methodology for calculating compensation expense on such awards.

The remaining 48 unit awards granted in fiscal 2022 have performance targets along with service requirements. 19 of these performance and service requirement unit awards were valued at grant by estimating 100% payout at release and using the fair market value of the Company equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period. The payout at release of approximately half of these unit awards will be determined based on the Company's compound annual growth rate (CAGR) for revenue (excluding adjustments) for the three-year vesting period compared against goal thresholds as defined in the award agreement. The performance payout at release of the other half of these unit awards will be determined based on the expansion of the Company's non-GAAP operating margin over the three-year vesting period compared against goal thresholds as defined in the award agreement. The other 29 performance and service requirement unit awards were valued at grant using a Monte Carlo pricing model as of the measurement date customized to the specific provisions of the Company’s plan design. Per the Company's award vesting and settlement provisions, the awards that utilized a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return (TSR) in comparison to the custom peer group comprised of participants approved by the Compensation Committee of the Company's Board of Directors for fiscal year 2022. The Monte Carlo inputs used in the model to estimate fair value at the measurement date and resulting values for these performance unit awards are as follows.

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Fiscal year 2022 Monte Carlo award inputs:
Volatility	28.55		%
Risk free interest rate	0.32		%
Annual dividend based on most recent quarterly dividend	$	1.84
Beginning TSR	65		%

At March 31, 2022, there was $23,813 of compensation expense, excluding forfeitures, that has yet to be recognized related to non-vested restricted stock unit awards, which will be recognized over a weighted average period of 1.32 years.

NOTE 9. EARNINGS PER SHARE

The following table reflects the reconciliation between basic and diluted earnings per share.


	Three Months Ended March 31,				Nine Months Ended March 31,
	2022		2021		2022		2021
Net Income	$	84,707	$	71,409	$	282,490	$	234,607
Common share information:
Weighted average shares outstanding for basic earnings per share1	72,835		75,357		73,477		76,022
Dilutive effect of stock options and restricted stock	184		74		142		119
Weighted average shares outstanding for diluted earnings per share1	73,019		75,431		73,619		76,141
Basic earnings per share2	$	1.16	$	0.95	$	3.84	$	3.09
Diluted earnings per share2	$	1.16	$	0.95	$	3.84	$	3.08

1The change in weighted average shares outstanding is primarily due to the weighted effect of the Company's repurchase of 2,800 shares of common stock during all of fiscal 2021 (2,500 shares repurchased during the first three quarters of fiscal 2021) and the repurchase of 1,250 shares during fiscal year-to-date 2022.

2Common stock repurchases during the trailing twelve months contributed $0.02 to diluted earnings per share for the third fiscal quarter and $0.05 for year-to-date fiscal 2022.

Per share information is based on the weighted average number of common shares outstanding for the three and nine months ended March 31, 2022, and 2021. Stock options and restricted stock units have been included in the calculation of earnings per share to the extent they are dilutive. There were nominal and 10 anti-dilutive stock options or restricted stock units excluded for the three and nine months ended March 31, 2022, respectively, and there were none excluded for both the three and nine months ended March 31, 2021.

NOTE 10. REPORTABLE SEGMENT INFORMATION

The Company is a provider of integrated computer systems that perform data processing (available for on-premise installations or JKHY cloud-based services) for banks and credit unions.

The Company’s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate and Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card transaction processing services, online and mobile bill pay solutions, Automated Clearing House ("ACH") origination and remote deposit capture processing, and risk management products and services. The Complementary segment provides additional software and services that can be integrated with our core solutions, and many can be used independently. The Corporate and Other segment includes hardware revenue and costs, as well as operating costs not directly attributable to the other three segments.

Immaterial adjustments were made to reclassify cost of revenue in the quarter and year-to-date periods of fiscal 2021 from the Core segment to the Corporate and Other segment to be consistent with the current allocation of cost

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of revenue by segment. The amounts reclassified for the three and nine months ended March 31, 2021 were $34 and $97, respectively.

The Company evaluates the performance of its segments and allocates resources to them based on various factors, including performance against trend, budget, and forecast. Only revenue and costs of revenue are considered in the evaluation for each segment.


	Three Months Ended
	March 31, 2022
	Core		Payments		Complementary		Corporate and Other		Total
REVENUE
Services and Support	$	141,194	$	22,455	$	107,730	$	11,542	$	282,921
Processing	9,605		155,092		29,980		662		195,339
Total Revenue	150,799		177,547		137,710		12,204		478,260

Cost of Revenue	66,576		94,628		58,957		62,178		282,339
Research and Development									30,725
Selling, General, and Administrative									53,607


Total Expenses									366,671

SEGMENT INCOME	$	84,223	$	82,919	$	78,753	$	(49,974)

OPERATING INCOME									111,589

INTEREST INCOME (EXPENSE)									(688)

INCOME BEFORE INCOME TAXES									$	110,901


	Three Months Ended
	March 31, 2021
	Core		Payments		Complementary		Corporate and Other		Total
REVENUE
Services and Support	$	126,400	$	15,978	$	100,421	$	11,840	$	254,639
Processing	8,749		144,863		25,010		515		179,137
Total Revenue	135,149		160,841		125,431		12,355		433,776

Cost of Revenue	63,225		87,628		54,207		62,710		267,770
Research and Development									27,395
Selling, General, and Administrative									47,408


Total Expenses									342,573

SEGMENT INCOME	$	71,924	$	73,213	$	71,224	$	(50,355)

OPERATING INCOME									91,203

INTEREST INCOME (EXPENSE)									(266)

INCOME BEFORE INCOME TAXES									$	90,937

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	Nine Months Ended
	March 31, 2022
	Core		Payments		Complementary		Corporate & Other		Total
REVENUE
Services and Support	442,730		62,049		335,174		36,672		876,625
Processing	28,232		467,648		85,741		1,966		583,587
Total Revenue	470,962		529,697		420,915		38,638		1,460,212

Cost of Revenue	198,032		283,423		172,593		187,751		841,799
Research and Development									87,394
Selling, General, and Administrative									160,172


Total Expenses									1,089,365

SEGMENT INCOME	$	272,930	$	246,274	$	248,322	$	(149,113)

OPERATING INCOME									370,847

INTEREST INCOME (EXPENSE)									(1,371)

INCOME BEFORE INCOME TAXES									$	369,476

Nine Months Ended

March 31, 2021

Core

Payments

Complementary

Corporate & Other

Total

REVENUE

Services and Support

397,744