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jkhy-20221231
HENRY JACK & ASSOCIATES 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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 December 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 January 26, 2023, the Registrant had 72,990,727 shares of Common Stock outstanding ($0.01 par value).


TABLE OF CONTENTS
Page Reference
PART IFINANCIAL INFORMATION
ITEM 1.Condensed Consolidated Balance Sheets as of December 31, 2022, and June 30, 2022 (Unaudited)
Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2022 and 2021 (Unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended December 31, 2022 and 2021 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2022 and 2021 (Unaudited)
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
   
ITEM 3.Quantitative and Qualitative Disclosures about Market Risk
   
ITEM 4.Controls and Procedures
  
PART IIOTHER INFORMATION
ITEM 1.Legal Proceedings
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
ITEM 6.Exhibits
Signatures
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, 2022, 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.


2


PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
3
Table of Contents
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands, Except Share and Per Share Data)
 December 31,
2022		June 30,
2022
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$25,763 $48,787 
Receivables, net246,378 348,072 
Income tax receivable— 13,822 
Prepaid expenses and other127,785 125,537 
Deferred costs69,302 57,105 
Assets held for sale— 20,201 
Total current assets469,228 613,524 
PROPERTY AND EQUIPMENT, net203,360 211,709 
OTHER ASSETS:  
Non-current deferred costs152,991 143,750 
Computer software, net of amortization545,377 410,957 
Other non-current assets309,178 293,526 
Customer relationships, net of amortization70,179 69,503 
Other intangible assets, net of amortization23,167 25,137 
Goodwill804,797 687,458 
Total other assets1,905,689 1,630,331 
Total assets$2,578,277 $2,455,564 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Accounts payable$13,198 $21,034 
Accrued expenses147,908 192,042 
Accrued income taxes31,668 — 
Notes payable and current maturities of long-term debt21 67 
Deferred revenues214,742 330,687 
Total current liabilities407,537 543,830 
LONG-TERM LIABILITIES:  
Non-current deferred revenues70,101 71,485 
Deferred income tax liability265,019 292,630 
Debt, net of current maturities275,000 115,000 
Other long-term liabilities49,630 50,996 
Total long-term liabilities659,750 530,111 
Total liabilities1,067,287 1,073,941 
STOCKHOLDERS' EQUITY  
Preferred stock - $1 par value; 500,000 shares authorized, none issued
— — 
Common stock - $0.01 par value; 250,000,000 shares authorized;
     104,027,008 shares issued at December 31, 2022;
     103,921,724 shares issued at June 30, 2022
1,040 1,039 
Additional paid-in capital564,856 551,360 
Retained earnings2,752,212 2,636,342 
Less treasury stock at cost
     31,042,903 shares at December 31, 2022;
     31,042,903 shares at June 30, 2022
(1,807,118)(1,807,118)
Total stockholders' equity1,510,990 1,381,623 
Total liabilities and equity$2,578,277 $2,455,564 
See notes to condensed consolidated financial statements.
4
Table of Contents
    
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands, Except Per Share Data)
Three Months EndedSix Months Ended
 December 31,December 31,
 2022202120222021
REVENUE$505,314 $493,896 $1,034,516 $981,952 
EXPENSES    
Cost of Revenue304,589 282,825 602,849 559,460 
Research and Development36,561 29,916 69,554 56,670 
Selling, General, and Administrative56,788 55,493 114,013 106,565 
Total Expenses397,938 368,234 786,416 722,695 
OPERATING INCOME107,376 125,662 248,100 259,257 
INTEREST INCOME (EXPENSE)    
Interest Income1,240 6 1,392 13 
Interest Expense(3,406)(447)(4,982)(696)
Total Interest Income (Expense)(2,166)(441)(3,590)(683)
INCOME BEFORE INCOME TAXES105,210 125,221 244,510 258,574 
PROVISION FOR INCOME TAXES24,435 29,551 57,186 60,791 
NET INCOME$80,775 $95,670 $187,324 $197,783 
Basic earnings per share$1.11 $1.30 $2.57 $2.68 
Basic weighted average shares outstanding72,962 73,580 72,929 73,798 
Diluted earnings per share$1.10 $1.30 $2.56 $2.68 
Diluted weighted average shares outstanding73,144 73,697 73,141 73,920 















See notes to condensed consolidated financial statements.
5
Table of Contents
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(In Thousands, Except Share and Per Share Data)
Three Months EndedSix Months Ended
 December 31,December 31,
 2022202120222021
PREFERRED SHARES:— — — — 
COMMON SHARES: 
Shares, beginning of period103,953,128 103,822,265 103,921,724 103,795,169 
Shares issued for equity-based payment arrangements57,943 21,101 70,084 26,533 
Shares issued for Employee Stock Purchase Plan15,937 16,880 35,200 38,544 
Shares, end of period104,027,008 103,860,246 104,027,008 103,860,246 
COMMON STOCK - PAR VALUE $0.01 PER SHARE: 
Balance, beginning of period$1,040 $1,038 $1,039 $1,038 
Shares issued for Employee Stock Purchase Plan— 1 1 1 
Balance, end of period$1,040 $1,039 $1,040 $1,039 
ADDITIONAL PAID-IN CAPITAL: 
Balance, beginning of period$560,034 $527,255 $551,360 $518,960 
Tax withholding related to share-based compensation(5,174)(1,046)(6,731)(1,998)
Shares issued for Employee Stock Purchase Plan2,884 2,739 6,686 6,476 
Stock-based compensation expense7,112 6,545 13,541 12,055 
Balance, end of period$564,856 $535,493 $564,856 $535,493 
RETAINED EARNINGS: 
Balance, beginning of period$2,707,182 $2,480,574 $2,636,342 $2,412,496 
Net income80,775 95,670 187,324 197,783 
Dividends(35,745)(33,661)(71,454)(67,696)
Balance, end of period$2,752,212 $2,542,583 $2,752,212 $2,542,583 
TREASURY STOCK: 
Balance, beginning of period$(1,807,118)$(1,613,202)$(1,807,118)$(1,613,202)
Purchase of treasury shares— (193,917)— (193,917)
Balance, end of period$(1,807,118)$(1,807,119)$(1,807,118)$(1,807,119)
TOTAL STOCKHOLDERS' EQUITY$1,510,990 $1,271,996 $1,510,990 $1,271,996 
Dividends declared per share$0.49 $0.46 $0.98 $0.92 

See notes to condensed consolidated financial statements.

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
(Unaudited)
 Six Months Ended
 December 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net Income$187,324 $197,783 
Adjustments to reconcile net income from operations
     to net cash from operating activities:		  
Depreciation24,766 25,843 
Amortization68,946 62,610 
Change in deferred income taxes(27,611)11,573 
Expense for stock-based compensation14,544 13,027 
(Gain)/loss on disposal of assets(7,240)240 
Changes in operating assets and liabilities:  
Change in receivables  102,672 70,468 
Change in prepaid expenses, deferred costs and other(39,042)(39,991)
Change in accounts payable(7,696)2,995 
Change in accrued expenses(47,544)(35,814)
Change in income taxes47,025 8,439 
Change in deferred revenues(125,433)(119,822)
Net cash from operating activities190,711 197,351 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Payment for acquisitions, net of cash acquired(229,628)— 
Capital expenditures(17,376)(22,373)
Proceeds from dispositions27,885 38 
Purchased software(1,027)(7,364)
Computer software developed(81,046)(71,353)
Net cash from investing activities(301,192)(101,052)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Borrowings on credit facilities365,000 220,000 
Repayments on financing leases(205,042)(80,065)
Purchase of treasury stock— (193,917)
Dividends paid(71,454)(67,696)
Tax withholding payments related to share-based compensation(6,731)(1,998)
Proceeds from sale of common stock5,684 5,505 
Net cash from financing activities87,457 (118,171)
NET CHANGE IN CASH AND CASH EQUIVALENTS$(23,024)$(21,872)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD$48,787 $50,992 
CASH AND CASH EQUIVALENTS, END OF PERIOD$25,763 $29,120 







See notes to condensed consolidated financial statements.
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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Per Share Amounts)

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 well-rounded financial technology company. JKHY was founded in 1976 as a provider of core information processing solutions for banks. Today, the Company’s extensive array of products and services includes processing transactions, automating business processes, and managing information for approximately 7,800 financial institutions and diverse corporate entities.
Consolidation
The condensed consolidated financial statements include the accounts of JKHY and all of its subsidiaries, which are wholly owned, and all intercompany accounts and transactions have been eliminated.
Comprehensive Income
Comprehensive income for the three and six months ended December 31, 2022 and 2021, equals the Company’s net income.
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 periods ended December 31, 2022, and 2021:
Three Months Ended December 31,Six Months Ended December 31,
2022202120222021
Allowance for credit losses - beginning balance$8,030 $7,660 $7,616 $7,267 
Current provision for expected credit losses480 300 960 840 
Write-offs charged against allowance(325)(227)(390)(373)
Recoveries of amounts previously written off(1)— (2)(1)
Allowance for credit losses - ending balance$8,184 $7,733 $8,184 $8,184 $7,733 
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 December 31, 2022, totaled $461,010 and at June 30, 2022, totaled $454,879.
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 3 to 20 years.  Accumulated amortization of intangible assets totaled $1,078,867 and $1,030,800 at December 31, 2022, and June 30, 2022, respectively.
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Investments
At December 31, 2022, and June 30, 2022, the Company had an investment in the preferred stock of Automated Bookkeeping, Inc ("Autobooks") of $18,250, which represented a non-controlling share of the voting equity as of that 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 December 31, 2022, and June 30, 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 December 31, 2022, and June 30, 2022, was $1,807,118. During the first six months of fiscal 2023, the Company did not repurchase any shares of its common stock.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement 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 expenses 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.
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, 2022. 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, 2022, 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 December 31, 2022, the results of its operations for the three and six months ended December 31, 2022 and 2021, changes in stockholders' equity for the three and six months ended December 31, 2022 and 2021, and its cash flows for the six months ended December 31, 2022 and 2021. The condensed consolidated balance sheet at June 30, 2022, 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 six months ended December 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.
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Risks and Uncertainties
The Company has determined there was not a material impact to the Company’s condensed consolidated financial statements as of and for the quarter ended December 31, 2022, as a result of the continuing impact of the COVID-19 pandemic. However, the extent to which the COVID-19 pandemic may impact the Company's future operational and financial performance remains uncertain and difficult to predict. The Company will continue to monitor developments related to the COVID-19 pandemic.
NOTE 2.     RECENT ACCOUNTING PRONOUNCEMENTS
Not Yet Adopted
In October 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 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 11, 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 December 31,Six Months Ended December 31,
2022202120222021
Private and Public Cloud$153,130 $138,340 $302,129 $273,982 
Product Delivery and Services58,594 79,499 116,117 131,014 
On-Premise Support78,976 78,372 192,603 188,708 
Services & Support290,700 296,211 610,849 593,704 
Processing214,614 197,685 423,667 388,248 
Total Revenue$505,314 $493,896 $1,034,516 $981,952 
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.
December 31,
2022		June 30,
2022
Receivables, net$246,378 $348,072 
Contract Assets - Current24,136 24,447 
Contract Assets - Non-current68,092 68,261 
Contract Liabilities (Deferred Revenue) - Current214,742 330,687 
Contract Liabilities (Deferred Revenue) - Non-current70,101 71,485 
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.
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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 would adjust 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.
During the three months ended December 31, 2022, and 2021, the Company recognized revenue of $83,145 and $94,862, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. For the six months ended December 31, 2022, and 2021, the Company recognized revenue of $159,393 and $166,273, 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 December 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 $5,654,930. 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 $410,904 and $380,095, at December 31, 2022, and June 30, 2022, respectively.
For the three months ended December 31, 2022, and 2021, amortization of deferred contract costs totaled $34,861 and $32,154, respectively. During the six months ended December 31, 2022, and 2021, amortization of deferred contract costs totaled $76,841 and $67,998, respectively. There were no impairment losses in relation to capitalized costs for the periods presented.

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 MeasurementsTotal Fair
 Level 1Level 2Level 3Value
December 31, 2022   
Financial Assets:
 Certificates of Deposit$— $1,213 $— $1,213 
Financial Liabilities:
Revolving credit facility
$— $275,000 $— $275,000 
June 30, 2022   
Financial Assets:
 Certificates of Deposit$— $1,212 $— $1,212 
Financial Liabilities:
Revolving credit facility
$— $115,000 $— $115,000 
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 11 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 December 31, 2022, and June 30, 2022, the Company had operating lease assets of $43,743 and $46,869 and financing lease assets of $20 and $65, respectively. At December 31, 2022, total operating lease liabilities of $48,116 were comprised of current operating lease liabilities of $10,246 and noncurrent operating lease liabilities of $37,870. At December 31, 2022, total financing lease liabilities of $21 were all current liabilities. At June 30, 2022, total operating lease liabilities of $51,452 were comprised of current operating lease liabilities of $10,681 and noncurrent operating lease liabilities of $40,771. At December 31, 2022, total financing lease liabilities of $67 were all current financing lease liabilities.
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 $35,636 and $31,006 as of December 31, 2022, and June 30, 2022, 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 $295 and $255 as of December 31, 2022, and June 30, 2022, respectively.
Operating lease costs for the three months ended December 31, 2022, and 2021, were $3,029 and $3,327, respectively. Financing lease costs for the three months ended December 31, 2022, and 2021, were $20 and $27,
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respectively. Total operating and financing lease costs for the respective quarters included variable lease costs of $962 and $441, respectively. Operating lease costs for the six months ended December 31, 2022, and 2021, were $6,088 and $6,759, respectively. Financing lease costs for the six months ended December 31, 2022, and 2021, were $40 and $55, respectively. Total operating and financing lease costs for the respective fiscal year-to-date periods included variable lease costs of $1,890 and $840, respectively. Operating and financing lease expense are included within cost of services, research and development, and selling, general & administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of income.
For the six months ended December 31, 2022, and 2021, the Company had operating cash flows for payments on operating leases of $6,202 and $6,802, and ROU assets obtained in exchange for operating lease liabilities of $2,282 and $1,870, respectively. Operating cash flows for interest paid on financing leases for the six months ended December 31, 2022, and 2021, were $42 and $55, respectively.
As of December 31, 2022, and June 30, 2022, the weighted-average remaining lease term for the Company's operating leases was 72 months and 76 months, and the weighted-average discount rate was 2.59% and 2.58%, respectively. As of December 31, 2022, and June 30, 2022, the weighted-average remaining lease term for the Company's financing leases was 3 months and 9 months, respectively. The weighted-average discount rate for the Company's financing leases was 2.19% as of December 31, 2022, and 2.29% as of June 30, 2022.
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 December 31, 2022*:
Due Dates (fiscal year)Future Minimum Rental Payments
2023 (remaining period)$5,879 
202410,696 
20257,952 
20267,046 
20276,265 
Thereafter14,296 
Total lease payments$52,134 
Less: interest(4,018)
Present value of lease liabilities$48,116 
*Financing leases were immaterial to the quarter, so a maturity of lease liabilities table has only been included for operating leases.
Lease payments include $5,464 related to options to extend lease terms that are reasonably certain of being exercised. At December 31, 2022, there were $6,128 of legally binding lease payments for leases signed but not yet commenced.
NOTE 6.    DEBT
Credit facilities
On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced the prior credit facility described below. The credit agreement allows for borrowings of up to $600,000, which may be increased to $1,000,000 by the Company at any time until maturity. The credit agreement bears interest at a variable rate equal to (a) a rate based on an adjusted Secured Overnight Financing Rate ("SOFR") term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) 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 agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit agreement. As of December 31, 2022, the Company was in compliance with all such covenants. The amended and restated credit facility terminates
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August 31, 2027. There was $275,000 outstanding under the amended and restated credit facility at December 31, 2022.
On June 30, 2022, there was a $115,000 outstanding balance on the prior credit facility that was entered into on February 10, 2020. The prior credit facility was a five-year senior, unsecured revolving credit facility. The prior credit facility allowed for borrowings of up to $300,000, which could be increased by the Company to $700,000 at any time until maturity. The prior credit facility bore 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 prior credit facility was guaranteed by certain subsidiaries of the Company and was subject to various financial covenants that required the Company to maintain certain financial ratios as defined in the prior credit agreement. As of June 30, 2022, the Company was in compliance with all such covenants. The prior credit facility's termination date was February 10, 2025.
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 December 31, 2022, or June 30, 2022.
Interest
The Company paid interest of $2,724 and $604 during the six months ended December 31, 2022, and 2021, respectively.
NOTE 7.    INCOME TAXES
The effective tax rate decreased for the three months ended December 31, 2022, compared to the three months ended December 31, 2021, with an effective tax rate of 23.2% of income before income taxes, compared to 23.6% in the prior fiscal year quarter. The decrease in the effective tax rate was primarily due to a larger excess tax benefit received from share-based compensation in the current fiscal year quarter.
For the six months ended December 31, 2022, the effective tax rate decreased compared to the six months ended December 31, 2021, with an effective tax rate of 23.4% of income before taxes, compared to 23.5% for the same period last fiscal year.
The Company paid income taxes, net of refunds, of $37,213 and $40,687 in the six months ended December 31, 2022 and 2021, respectively.
At December 31, 2022, the Company had $10,214 of gross unrecognized tax benefits before interest and penalties, $9,083 of which, if recognized, would affect our effective tax rate. The Company had accrued interest and penalties of $1,546 and $1,425 related to uncertain tax positions at December 31, 2022, and 2021, respectively.
The U.S. federal income tax returns for fiscal 2019 and all subsequent years remain subject to examination as of December 31, 2022, under statute of limitations rules. The U.S. state income tax returns that remain subject to examination as of December 31, 2022, under the statute of limitation rules varies by state jurisdiction from fiscal 2016 through 2019 and all subsequent years. The Company anticipates potential changes due to lapsing of statutes of limitations, and examination closures could reduce the unrecognized tax benefits balance by $1,500 to $3,500 within twelve months of December 31, 2022.
NOTE 8.    STOCK-BASED COMPENSATION
Our operating income for the three months ended December 31, 2022, and 2021, included $7,545 and $6,956 of stock-based compensation costs, respectively. Our operating income for the six months ended December 31, 2022, and 2021, included $14,544 and $13,027 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 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. The options terminate upon surrender of the option, ninety days after termination of employment, upon the expiration of one year following notification of a deceased optionee, or ten years after grant.
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A summary of option plan activity under this plan is as follows:
 Number of SharesWeighted Average Exercise PriceAggregate
 Intrinsic
 Value
Outstanding July 1, 202212 $87.27  
Granted— —  
Forfeited— —  
Exercised— —  
Outstanding December 31, 202212 $87.27 $1,032 
Vested and Expected to Vest December 31, 202212 $87.27 $1,032 
Exercisable December 31, 202212 $87.27 $1,032 
At December 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 December 31, 2022, was 3.5 years.
Restricted Stock Unit Awards
The Company issues unit awards under the 2015 EIP. The following table summarizes non-vested restricted stock unit awards as of December 31, 2022:
Unit awardsUnitsWeighted Average Grant Date Fair ValueAggregate Intrinsic Value
Outstanding July 1, 2022303 $166.50 
Granted124 219.65 
Vested(91)167.18 
Forfeited(13)187.68 
Outstanding December 31, 2022323 $185.86 $56,803 
The 124 unit awards granted in fiscal 2023 had service requirements and performance measures, with 82 only having 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 42 unit awards granted in fiscal 2023 have performance measures along with service requirements. 17 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 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 25 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 utilize a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return ("TSR") in comparison to the compensation peer group made up of participants approved by the Compensation Committee of the Company's Board of Directors for fiscal year 2023. 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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Monte Carlo award inputs:Fiscal 2023
Compensation Peer Group:
Volatility29.4 %
Risk free interest rate2.96 %
Annual dividend based on most recent quarterly dividend$1.96
Dividend yield0.94 %
Beginning average percentile rank for TSR71.0 %
At December 31, 2022, there was $31,658 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 December 31,Six Months Ended December 31,
 2022202120222021
Net Income$80,775 $95,670 $187,324 $197,783 
Common share information:
Weighted average shares outstanding for basic earnings per share72,962 73,580 72,929 73,798 
Dilutive effect of stock options and restricted stock units182 117 212122
Weighted average shares outstanding for diluted earnings per share73,144 73,697 73,141 73,920 
Basic earnings per share$1.11 $1.30 $2.57 $2.68 
Diluted earnings per share$1.10 $1.30 $2.56 $2.68 
Per share information is based on the weighted average number of common shares outstanding for the three and six months ended December 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 31 and 25 anti-dilutive stock options or restricted stock units excluded for the three and six months ended December 31, 2022, respectively, and 28 and 23 were excluded for the three and six months ended December 31, 2021, respectively.
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NOTE 10.    BUSINESS ACQUISITION
Payrailz
On August 31, 2022, the Company acquired all of the equity interest in Payrailz, LLC ("Payrailz"). The final purchase price, following customary post-closing adjustments to the extent actual closing date working capital, cash, debt, and unpaid seller transaction expenses exceeded or were less than the amounts estimated at closing, was $230,205. Pursuant to the merger agreement for the transaction, $48,500 of the purchase price was placed in an escrow account at the closing, consisting of $2,500 for any final purchase price adjustments owed by the sellers, which amount was released to the sellers on December 15, 2022, in connection with post-closing adjustments, and $46,000 for indemnification matters under the merger agreement.
The primary reason for the acquisition was to expand the Company's digital financial management solutions and the purchase was funded by our revolving line of credit (Note 6) and cash generated from operations. Payrailz provides cloud-native, API-first, AI-enabled consumer and commercial digital payment solutions and experiences that enable money to be moved in the moment of need.
Management has completed a preliminary purchase price allocation and assessment of the fair value of acquired assets and liabilities assumed. The recognized amounts of identifiable assets acquired, and liabilities assumed, based on their fair values as of August 31, 2022, and taking into account the post-closing purchase price adjustment described above, are set forth below:
Current assets$1,851 
Identifiable intangible assets119,868 
Deferred revenue(8,104)
Total other liabilities assumed(749)
Total identifiable net assets112,866 
Goodwill117,339 
Net assets acquired$230,205 

The amounts shown above include a measurement period adjustment made during the second quarter of fiscal 2023 related to a working capital adjustment. The amounts shown above may change as management continues to evaluate the income tax implications of this business combination.
The goodwill of $117,339 arising from this acquisition consists largely of the growth potential, synergies, and economies of scale expected from combining the operations of the Company with those of Payrailz, together with the value of Payrailz's assembled workforce. The goodwill from this acquisition has been allocated to our Payments segment and $117,339 is expected to be deductible for income tax purposes.
Identifiable intangible assets from this acquisition consist of customer relationships of $6,109, computer software of $112,505, and other intangible assets of $1,254. The amortization period for acquired customer relationships, computer software, and other intangible assets is over a term of 15 years, 10 years, and 15 years, respectively.
Current assets were inclusive of cash acquired of $577. The fair value of current assets acquired included accounts receivable of $978, none of which were expected to be uncollectible.
Costs incurred related to the acquisition of Payrailz during the three and six months ended December 31, 2022, totaled $50 and $508, respectively, for administrative and professional services, travel, and other fees, and were expensed as incurred and reported within cost of revenue and selling, general, and administrative expense.
The Company's condensed consolidated statements of income for the three and six months ended December 31, 2022, included revenue of $2,578 and $3,316, respectively, and after-tax net loss of $5,387 and $7,251, respectively, resulting from Payrailz's operations.
The accompanying condensed consolidated statements of income for the three and six months ended December 31, 2022, and 2021, do not include any revenues and expenses related to this acquisition prior to the acquisition date. The following unaudited pro forma consolidated financial information for the six months ended December 31, 2022, and the three and six months ended December 31, 2021, is presented as if this acquisition had occurred at the beginning of the prior period presented. The pro forma net income includes estimated incremental amortization expense of $1,611 and $4,546 for the three and six months ended December 31, 2021, respectively, and $1,957 for the six months ended December 31, 2022. In addition, this unaudited pro forma financial information is provided for illustrative purposes only and should not be relied upon as necessarily being indicative of the
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historical results that would have been obtained if the acquisition had actually occurred during this period, or the results that may be obtained in the future as a result of the acquisition.
Three Months Ended December 31,Six Months Ended
December 31,
 2022202120222021
ActualPro formaPro formaPro forma
Revenue$505,314 $495,727 $1,036,143 $985,124 
Net Income80,775 92,793 182,787 189,890 
NOTE 11.    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 & 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 & Other segment includes hardware revenue and costs, as well as operating costs not directly attributable to the other three segments.
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.
Immaterial adjustments have been made to reclassify revenue that was recognized for the three and six months ended December 31, 2021, from the Complementary to the Payments and Corporate and Other segments. Immaterial adjustments were also made to reclassify cost of revenue from the Complementary to the Payments and Corporate and Other segments for the three and six months ended December 31, 2021. These reclasses were made to be consistent with the current allocation of revenue and cost of revenue by segment. Revenue reclassed for the three and six months ended December 31, 2021, from Complementary to Payments was $2,977 and $5,946, respectively, and from Complementary to Corporate and Other was $2,207 and $2,941, respectively. Cost of revenue reclassed for the three and six months ended December 31, 2021, from Complementary to Payments was $1,396 and $2,754, respectively, and from Complementary to Corporate and Other was $773 and $482, respectively.

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Three Months Ended
December 31, 2022
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support$145,650 $19,340 $110,380 $15,330 $290,700 
Processing9,740 172,147 31,915 812 214,614 
Total Revenue155,390 191,487 142,295 16,142 505,314 
Cost of Revenue68,324 108,071 59,270 68,924 304,589 
Research and Development36,561 
Selling, General, and Administrative56,788 
Total Expenses397,938 
SEGMENT INCOME$87,066 $83,416 $83,025 $(52,782)
OPERATING INCOME107,376 
INTEREST INCOME (EXPENSE)(2,166)
INCOME BEFORE INCOME TAXES$105,210 
Three Months Ended
December 31, 2021
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support$145,699 $25,294 $108,933 $16,285 $296,211 
Processing9,179 160,211 27,607 688 197,685 
Total Revenue154,878 185,505 136,540 16,973 493,896 
Cost of Revenue64,554 96,966 55,982 65,323 282,825 
Research and Development29,916 
Selling, General, and Administrative55,493 
Total Expenses368,234 
SEGMENT INCOME$90,324 $88,539 $80,558 $(48,350)
OPERATING INCOME125,662