10-Q 1 jkhy-20220331.htm 10-Q - JKHY 2022.03.31 Q3 FY2022 jkhy-20220331
3/31/2022HENRY 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 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 filerAccelerated filer
  
Non-accelerated filerSmaller 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).



TABLE OF CONTENTS
Page Reference
PART IFINANCIAL INFORMATION
ITEM 1.Condensed Consolidated Balance Sheets as of March 31, 2022, and June 30, 2021 (Unaudited)
Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2022, and 2021 (Unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended March 31, 2022, and 2021 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 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, 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.


2



PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
3

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, net222,696 306,564 
Income tax receivable4,958 30,243 
Prepaid expenses and other126,174 109,723 
Deferred costs57,072 46,215 
Assets held for sale20,201  
Total current assets470,898 543,737 
PROPERTY AND EQUIPMENT, net215,331 252,481 
OTHER ASSETS:  
Non-current deferred costs136,425 127,205 
Computer software, net of amortization398,760 368,094 
Other non-current assets263,937 249,210 
Customer relationships, net of amortization72,541 81,842 
Other intangible assets, net of amortization26,753 26,129 
Goodwill687,458 687,458 
Total other assets1,585,874 1,539,938 
Total assets$2,272,103 $2,336,156 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Accounts payable$14,415 $18,485 
Accrued expenses155,476 182,517 
Notes payable and current maturities of long-term debt101 110 
Deferred revenues150,169 319,748 
Total current liabilities320,161 520,860 
LONG-TERM LIABILITIES:  
Non-current deferred revenues67,444 75,852 
Deferred income tax liability276,439 260,758 
Debt, net of current maturities225,002 100,083 
Other long-term liabilities54,449 59,311 
Total long-term liabilities623,334 496,004 
Total liabilities943,495 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 capital543,077 518,960 
Retained earnings2,591,610 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' equity1,328,608 1,319,292 
Total liabilities and equity$2,272,103 $2,336,156 
See notes to condensed consolidated financial statements.
4

    
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months EndedNine Months Ended
 March 31,March 31,
 2022202120222021
REVENUE$478,260 $433,776 $1,460,212 $1,307,938 
EXPENSES    
Cost of Revenue282,339 267,770 841,799 788,481 
Research and Development30,725 27,395 87,394 80,233 
Selling, General, and Administrative53,607 47,408 160,172 136,801 
Total Expenses366,671 342,573 1,089,365 1,005,515 
OPERATING INCOME111,589 91,203 370,847 302,423 
INTEREST INCOME (EXPENSE)    
Interest Income3 24 16 144 
Interest Expense(691)(290)(1,387)(525)
Total Interest Income (Expense)(688)(266)(1,371)(381)
INCOME BEFORE INCOME TAXES110,901 90,937 369,476 302,042 
PROVISION FOR INCOME TAXES26,194 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 outstanding72,835 75,357 73,477 76,022 
Diluted earnings per share$1.16 $0.95 $3.84 $3.08 
Diluted weighted average shares outstanding73,019 75,431 73,619 76,141 














See notes to condensed consolidated financial statements.
5

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 EndedNine Months Ended
 March 31,March 31,
 2022202120222021
PREFERRED SHARES:    
COMMON SHARES: 
Shares, beginning of period103,860,246 103,736,703 103,795,169 103,622,563 
Shares issued for equity-based payment arrangements15,053 6,479 41,586 84,893 
Shares issued for Employee Stock Purchase Plan20,635 22,596 59,179 58,322 
Shares, end of period103,895,934 103,765,778 103,895,934 103,765,778 
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 Plan3,019 2,881 8,523 8,018 
Stock-based compensation expense6,276 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 income84,707 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.
6


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Nine Months Ended
 March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net Income$282,490 $234,607 
Adjustments to reconcile net income from operations
     to net cash from operating activities:
  
Depreciation38,339 39,816 
Amortization94,563 92,189 
Change in deferred income taxes15,681 13,205 
Expense for stock-based compensation19,303 14,959 
(Gain)/loss on disposal of assets301 (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 payable2,609 (1,529)
Change in accrued expenses(33,400)(19,164)
Change in income taxes26,885 13,629 
Change in deferred revenues(177,987)(177,021)
Net cash from operating activities301,397 266,315 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Payment for acquisitions, net of cash acquired (2,300)
Capital expenditures(28,386)(14,916)
Proceeds from dispositions38 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 facilities292,000 200,000 
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 stock8,524 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.
7

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,
2022202120222021
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 losses360 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,
2022202120222021
Private and Public Cloud1
$142,808 $128,703 $416,791 $374,160 
Product Delivery and Services62,349 49,235 193,363 154,547 
On-Premise Support2
77,764 76,701 266,471 257,802 
Services and Support282,921 254,639 876,625 786,509 
Processing195,339 179,137 583,587 521,429 
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 - Current19,899 22,884 
Contract Assets - Non-current59,601 52,920 
Contract Liabilities (Deferred Revenue) - Current150,169 319,748 
Contract Liabilities (Deferred Revenue) - Non-current67,444 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 MeasurementsTotal Fair
 Level 1Level 2Level 3Value
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.
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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 
202311,859 
202410,149 
20257,390 
20266,468 
Thereafter19,561 
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
14

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 SharesWeighted Average Exercise PriceAggregate
 Intrinsic
 Value
Outstanding July 1, 202122 $87.27  
Granted   
Forfeited   
Exercised(10)87.27  
Outstanding March 31, 202212 $87.27 $1,283 
Vested and Expected to Vest March 31, 202212 $87.27 $1,283 
Exercisable March 31, 202212 $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:
UnitsWeighted
Average
Grant Date
Fair Value
Aggregate Intrinsic Value
Outstanding July 1, 2021294 $160.22 
Granted133 178.36 
Vested(63)143.93 
Forfeited(50)191.11 
Outstanding March 31, 2022314 $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:
Volatility28.55 %
Risk free interest rate0.32 %
Annual dividend based on most recent quarterly dividend$1.84 
Beginning TSR65 %
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,
 2022202120222021
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 stock184 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
CorePaymentsComplementaryCorporate and OtherTotal
REVENUE
Services and Support$141,194 $22,455 $107,730 $11,542 $282,921 
Processing9,605 155,092 29,980 662 195,339 
Total Revenue150,799 177,547 137,710 12,204 478,260 
Cost of Revenue66,576 94,628 58,957 62,178 282,339 
Research and Development30,725 
Selling, General, and Administrative53,607 
Total Expenses366,671 
SEGMENT INCOME$84,223 $82,919 $78,753 $(49,974)
OPERATING INCOME111,589 
INTEREST INCOME (EXPENSE)(688)
INCOME BEFORE INCOME TAXES$110,901 

Three Months Ended
March 31, 2021
CorePaymentsComplementaryCorporate and OtherTotal
REVENUE
Services and Support$126,400 $15,978 $100,421 $11,840 $254,639 
Processing8,749 144,863 25,010 515 179,137 
Total Revenue135,149 160,841 125,431 12,355 433,776 
Cost of Revenue63,225 87,628 54,207 62,710 267,770 
Research and Development27,395 
Selling, General, and Administrative47,408 
Total Expenses342,573 
SEGMENT INCOME$71,924 $73,213 $71,224 $(50,355)
OPERATING INCOME91,203 
INTEREST INCOME (EXPENSE)(266)
INCOME BEFORE INCOME TAXES$90,937 
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Nine Months Ended
March 31, 2022
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support442,730 62,049 335,174 36,672 876,625 
Processing28,232 467,648 85,741 1,966 583,587 
Total Revenue470,962 529,697 420,915 38,638 1,460,212 
Cost of Revenue198,032 283,423 172,593 187,751 841,799 
Research and Development87,394 
Selling, General, and Administrative160,172 
Total Expenses1,089,365 
SEGMENT INCOME$272,930 $