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 MarchDecember 31, 2023 | | | | | |
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.SI.R.S. Employer Identification No.) |
663 Highway 60, P.O. Box 807, Monett, MO 65708
(Address of Principal Executive Offices)
(Zip Code)
417-235-6652
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock ($0.01 par value) | JKHY | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ☐ No ☒
As of April 24, 2023,January 26, 2024, the Registrant had 72,875,30572,867,678 shares of Common Stock outstanding ($0.01 par value).
TABLE OF CONTENTS | | | | | | | | |
| | Page Reference |
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PART I | FINANCIAL INFORMATION | |
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ITEM 1. | Condensed Consolidated Balance Sheets as of MarchDecember 31, 2023, and June 30, 20222023 (Unaudited) | |
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| Condensed Consolidated Statements of Income for the Three and NineSix Months Ended MarchDecember 31, 2023 and 2022 (Unaudited) | |
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| Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and NineSix Months Ended MarchDecember 31, 2023 and 2022 (Unaudited) | |
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| Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended MarchDecember 31, 2023 and 2022 (Unaudited) | |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) | |
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ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | |
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ITEM 4. | Controls and Procedures | |
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PART II | OTHER INFORMATION | |
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ITEM 1. | Legal Proceedings | |
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
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ITEM 5. | Other Information | |
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ITEM 6. | Exhibits | |
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| Signatures | |
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In this report, all references to "Jack“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"“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, 2022,2023, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
| JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
(In Thousands, Except Share and Per Share Data) | (In Thousands, Except Share and Per Share Data) | (In Thousands, Except Share and Per Share Data) |
| | | March 31, 2023 | | June 30, 2022 |
| | | December 31, 2023 | | June 30, 2023 |
| ASSETS | |
ASSETS | |
ASSETS | ASSETS | | | | | | |
CURRENT ASSETS: | CURRENT ASSETS: | | | | CURRENT ASSETS: | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 26,552 | | | $ | 48,787 | |
Receivables, net | Receivables, net | 238,364 | | | 348,072 | |
Income tax receivable | Income tax receivable | 1,882 | | | 13,822 | |
Prepaid expenses and other | Prepaid expenses and other | 153,492 | | | 125,537 | |
Deferred costs | Deferred costs | 67,904 | | | 57,105 | |
Assets held for sale | — | | | 20,201 | |
| Total current assets | |
Total current assets | |
Total current assets | Total current assets | 488,194 | | | 613,524 | |
PROPERTY AND EQUIPMENT, net | PROPERTY AND EQUIPMENT, net | 199,787 | | | 211,709 | |
OTHER ASSETS: | OTHER ASSETS: | | | | OTHER ASSETS: | | | |
Non-current deferred costs | Non-current deferred costs | 156,245 | | | 143,750 | |
Computer software, net of amortization | Computer software, net of amortization | 556,596 | | | 410,957 | |
Other non-current assets | Other non-current assets | 312,458 | | | 293,526 | |
Customer relationships, net of amortization | Customer relationships, net of amortization | 67,854 | | | 69,503 | |
Other intangible assets, net of amortization | Other intangible assets, net of amortization | 21,666 | | | 25,137 | |
Goodwill | Goodwill | 804,797 | | | 687,458 | |
Total other assets | Total other assets | 1,919,616 | | | 1,630,331 | |
Total assets | Total assets | $ | 2,607,597 | | | $ | 2,455,564 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
CURRENT LIABILITIES: | CURRENT LIABILITIES: | | | | CURRENT LIABILITIES: | | | |
Accounts payable | Accounts payable | $ | 13,789 | | | $ | 21,034 | |
Accrued expenses | Accrued expenses | 150,005 | | | 192,042 | |
| Accrued income taxes | |
Accrued income taxes | |
Accrued income taxes | |
| Notes payable and current maturities of long-term debt | 1 | | | 67 | |
Deferred revenues | |
Deferred revenues | |
Deferred revenues | Deferred revenues | 156,761 | | | 330,687 | |
Total current liabilities | Total current liabilities | 320,556 | | | 543,830 | |
LONG-TERM LIABILITIES: | LONG-TERM LIABILITIES: | | | | LONG-TERM LIABILITIES: | | | |
Non-current deferred revenues | Non-current deferred revenues | 69,385 | | | 71,485 | |
Deferred income tax liability | Deferred income tax liability | 256,260 | | | 292,630 | |
Debt, net of current maturities | Debt, net of current maturities | 375,000 | | | 115,000 | |
Other long-term liabilities | Other long-term liabilities | 48,087 | | | 50,996 | |
Total long-term liabilities | Total long-term liabilities | 748,732 | | | 530,111 | |
Total liabilities | Total liabilities | 1,069,288 | | | 1,073,941 | |
STOCKHOLDERS' EQUITY | STOCKHOLDERS' EQUITY | | | | STOCKHOLDERS' EQUITY | | | |
Preferred stock - $1 par value; 500,000 shares authorized, none issued | Preferred stock - $1 par value; 500,000 shares authorized, none issued | — | | | — | |
Common stock - $0.01 par value; 250,000,000 shares authorized; 104,060,645 shares issued at March 31, 2023; 103,921,724 shares issued at June 30, 2022 | 1,040 | | | 1,039 | |
Common stock - $0.01 par value; 250,000,000 shares authorized; 104,181,060 shares issued at December 31, 2023; 104,088,784 shares issued at June 30, 2023 | |
Additional paid-in capital | Additional paid-in capital | 573,518 | | | 551,360 | |
Retained earnings | Retained earnings | 2,795,869 | | | 2,636,342 | |
Less treasury stock at cost 31,194,351 shares at March 31, 2023; 31,042,903 shares at June 30, 2022 | (1,832,118) | | | (1,807,118) | |
Less treasury stock at cost 31,323,119 shares at December 31, 2023; 31,194,351 shares at June 30, 2023 | |
Total stockholders' equity | Total stockholders' equity | 1,538,309 | | | 1,381,623 | |
Total liabilities and equity | Total liabilities and equity | $ | 2,607,597 | | | $ | 2,455,564 | |
See notes to condensed consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | |
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
(In Thousands, Except Per Share Data) |
|
| Three Months Ended | | Nine Months Ended |
| March 31, | | March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
REVENUE | $ | 508,552 | | | $ | 478,260 | | | $ | 1,543,069 | | | $ | 1,460,212 | |
| | | | | | | |
EXPENSES | | | | | | | |
Cost of Revenue | 307,345 | | | 282,339 | | | 910,195 | | | 841,799 | |
Research and Development | 34,625 | | | 30,725 | | | 104,179 | | | 87,394 | |
Selling, General, and Administrative | 58,192 | | | 53,607 | | | 172,205 | | | 160,172 | |
| | | | | | | |
Total Expenses | 400,162 | | | 366,671 | | | 1,186,579 | | | 1,089,365 | |
| | | | | | | |
OPERATING INCOME | 108,390 | | | 111,589 | | | 356,490 | | | 370,847 | |
| | | | | | | |
INTEREST INCOME (EXPENSE) | | | | | | | |
Interest Income | 2,391 | | | 3 | | | 3,783 | | | 16 | |
Interest Expense | (4,666) | | | (691) | | | (9,649) | | | (1,387) | |
Total Interest Income (Expense) | (2,275) | | | (688) | | | (5,866) | | | (1,371) | |
| | | | | | | |
INCOME BEFORE INCOME TAXES | 106,115 | | | 110,901 | | | 350,624 | | | 369,476 | |
| | | | | | | |
PROVISION FOR INCOME TAXES | 24,566 | | | 26,194 | | | 81,751 | | | 86,986 | |
| | | | | | | |
NET INCOME | $ | 81,549 | | | $ | 84,707 | | | $ | 268,873 | | | $ | 282,490 | |
| | | | | | | |
Basic earnings per share | $ | 1.12 | | | $ | 1.16 | | | $ | 3.69 | | | $ | 3.84 | |
Basic weighted average shares outstanding | 72,935 | | | 72,835 | | | 72,931 | | | 73,477 | |
| | | | | | | |
Diluted earnings per share | $ | 1.12 | | | $ | 1.16 | | | $ | 3.68 | | | $ | 3.84 | |
Diluted weighted average shares outstanding | 73,074 | | | 73,019 | | | 73,119 | | | 73,619 | |
| | | | | | | | | | | | | | | | | | | | | | | |
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
(In Thousands, Except Per Share Data) |
|
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
REVENUE | $ | 545,701 | | | $ | 505,314 | | | $ | 1,117,069 | | | $ | 1,034,516 | |
| | | | | | | |
EXPENSES | | | | | | | |
Cost of Revenue | 320,979 | | | 304,589 | | | 643,981 | | | 602,849 | |
Research and Development | 35,478 | | | 36,561 | | | 72,370 | | | 69,554 | |
Selling, General, and Administrative | 70,277 | | | 56,788 | | | 149,051 | | | 114,013 | |
| | | | | | | |
Total Expenses | 426,734 | | | 397,938 | | | 865,402 | | | 786,416 | |
| | | | | | | |
OPERATING INCOME | 118,967 | | | 107,376 | | | 251,667 | | | 248,100 | |
| | | | | | | |
INTEREST INCOME (EXPENSE) | | | | | | | |
Interest Income | 5,121 | | | 1,240 | | | 9,866 | | | 1,392 | |
Interest Expense | (3,865) | | | (3,406) | | | (8,062) | | | (4,982) | |
Total Interest Income (Expense) | 1,256 | | | (2,166) | | | 1,804 | | | (3,590) | |
| | | | | | | |
INCOME BEFORE INCOME TAXES | 120,223 | | | 105,210 | | | 253,471 | | | 244,510 | |
| | | | | | | |
PROVISION FOR INCOME TAXES | 28,258 | | | 24,435 | | | 59,827 | | | 57,186 | |
| | | | | | | |
NET INCOME | $ | 91,965 | | | $ | 80,775 | | | $ | 193,644 | | | $ | 187,324 | |
| | | | | | | |
Basic earnings per share | $ | 1.26 | | | $ | 1.11 | | | $ | 2.66 | | | $ | 2.57 | |
Basic weighted average shares outstanding | 72,838 | | | 72,962 | | | 72,854 | | | 72,929 | |
| | | | | | | |
Diluted earnings per share | $ | 1.26 | | | $ | 1.10 | | | $ | 2.65 | | | $ | 2.56 | |
Diluted weighted average shares outstanding | 72,984 | | | 73,144 | | | 72,999 | | | 73,141 | |
See notes to condensed consolidated financial statements.
| JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES | JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) | CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) |
(In Thousands, Except Share and Per Share Data) | (In Thousands, Except Share and Per Share Data) | (In Thousands, Except Share and Per Share Data) |
| | Three Months Ended | | Nine Months Ended |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | | | Six Months Ended |
| | March 31, | | March 31, | | December 31, | | December 31, |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
PREFERRED SHARES: | PREFERRED SHARES: | — | | | — | | | — | | | — | |
| COMMON SHARES: | COMMON SHARES: | | | |
COMMON SHARES: | |
COMMON SHARES: | |
Shares, beginning of period | |
Shares, beginning of period | |
Shares, beginning of period | Shares, beginning of period | 104,027,008 | | | 103,860,246 | | | 103,921,724 | | | 103,795,169 | |
Shares issued for equity-based payment arrangements | Shares issued for equity-based payment arrangements | 9,660 | | | 15,053 | | | 59,177 | | | 41,586 | |
Shares issued for Employee Stock Purchase Plan | Shares issued for Employee Stock Purchase Plan | 23,977 | | | 20,635 | | | 79,744 | | | 59,179 | |
Shares, end of period | Shares, end of period | 104,060,645 | | | 103,895,934 | | | 104,060,645 | | | 103,895,934 | |
| COMMON STOCK - PAR VALUE $0.01 PER SHARE: | COMMON STOCK - PAR VALUE $0.01 PER SHARE: | | | |
COMMON STOCK - PAR VALUE $0.01 PER SHARE: | |
COMMON STOCK - PAR VALUE $0.01 PER SHARE: | |
Balance, beginning of period | Balance, beginning of period | $ | 1,040 | | | $ | 1,039 | | | $ | 1,039 | | | $ | 1,038 | |
| Balance, beginning of period | |
Balance, beginning of period | |
Shares issued for equity-based payment arrangements | |
Shares issued for Employee Stock Purchase Plan | Shares issued for Employee Stock Purchase Plan | — | | | — | | | 1 | | | 1 | |
Balance, end of period | Balance, end of period | $ | 1,040 | | | $ | 1,039 | | | $ | 1,040 | | | $ | 1,039 | |
| ADDITIONAL PAID-IN CAPITAL: | ADDITIONAL PAID-IN CAPITAL: | | | |
ADDITIONAL PAID-IN CAPITAL: | |
ADDITIONAL PAID-IN CAPITAL: | |
Balance, beginning of period | |
Balance, beginning of period | |
Balance, beginning of period | Balance, beginning of period | $ | 564,856 | | | $ | 535,493 | | | $ | 551,360 | | | $ | 518,960 | |
| Tax withholding related to share-based compensation | |
Tax withholding related to share-based compensation | |
Tax withholding related to share-based compensation | Tax withholding related to share-based compensation | (1,575) | | | (1,711) | | | (8,306) | | | (3,709) | |
Shares issued for Employee Stock Purchase Plan | Shares issued for Employee Stock Purchase Plan | 3,322 | | | 3,019 | | | 9,005 | | | 8,523 | |
Stock-based compensation expense | Stock-based compensation expense | 6,915 | | | 6,276 | | | 21,459 | | | 19,303 | |
Balance, end of period | Balance, end of period | $ | 573,518 | | | $ | 543,077 | | | $ | 573,518 | | | $ | 543,077 | |
| RETAINED EARNINGS: | RETAINED EARNINGS: | | | |
RETAINED EARNINGS: | |
RETAINED EARNINGS: | |
Balance, beginning of period | |
Balance, beginning of period | |
Balance, beginning of period | Balance, beginning of period | $ | 2,752,212 | | | $ | 2,542,583 | | | $ | 2,636,342 | | | $ | 2,412,496 | |
| Net income | |
Net income | |
Net income | Net income | 81,549 | | | 84,707 | | | 268,873 | | | 282,490 | |
Dividends | Dividends | (37,892) | | | (35,680) | | | (109,346) | | | (103,376) | |
Balance, end of period | Balance, end of period | $ | 2,795,869 | | | $ | 2,591,610 | | | $ | 2,795,869 | | | $ | 2,591,610 | |
| TREASURY STOCK: | TREASURY STOCK: | | | |
TREASURY STOCK: | |
TREASURY STOCK: | |
Balance, beginning of period | |
Balance, beginning of period | |
Balance, beginning of period | Balance, beginning of period | $ | (1,807,118) | | | $ | (1,807,118) | | | $ | (1,807,118) | | | $ | (1,613,202) | |
Purchase of treasury shares | Purchase of treasury shares | (25,000) | | | — | | | (25,000) | | | (193,916) | |
Balance, end of period | Balance, end of period | $ | (1,832,118) | | | $ | (1,807,118) | | | $ | (1,832,118) | | | $ | (1,807,118) | |
| TOTAL STOCKHOLDERS' EQUITY | TOTAL STOCKHOLDERS' EQUITY | $ | 1,538,309 | | | $ | 1,328,608 | | | $ | 1,538,309 | | | $ | 1,328,608 | |
TOTAL STOCKHOLDERS' EQUITY | |
TOTAL STOCKHOLDERS' EQUITY | |
| Dividends declared per share | Dividends declared per share | $ | 0.52 | | | $ | 0.49 | | | $ | 1.50 | | | $ | 1.41 | |
Dividends declared per share | |
Dividends declared per share | |
See notes to condensed consolidated financial statements.
| | | | | | | | | | | |
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
(In Thousands) |
|
| Six Months Ended |
| December 31, |
| 2023 | | 2022 |
| | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Income | $ | 193,644 | | | $ | 187,324 | |
Adjustments to reconcile net income from operations to net cash from operating activities: | | | |
Depreciation | 23,765 | | | 24,766 | |
Amortization | 75,366 | | | 68,946 | |
Change in deferred income taxes | (16,532) | | | (27,611) | |
Expense for stock-based compensation | 15,480 | | | 14,544 | |
(Gain)/loss on disposal of assets | 213 | | | (7,240) | |
Changes in operating assets and liabilities: | | | |
Change in receivables | 90,702 | | | 102,672 | |
Change in prepaid expenses, deferred costs and other | (52,969) | | | (39,042) | |
Change in accounts payable | 277 | | | (7,696) | |
Change in accrued expenses | 15,463 | | | (47,544) | |
Change in income taxes | 23,792 | | | 47,025 | |
Change in deferred revenues | (130,529) | | | (125,433) | |
Net cash from operating activities | 238,672 | | | 190,711 | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Payment for acquisitions, net of cash acquired | — | | | (229,628) | |
Capital expenditures | (24,458) | | | (17,376) | |
| | | |
Proceeds from dispositions | 878 | | | 27,885 | |
| | | |
Purchased software | (2,971) | | | (1,027) | |
Computer software developed | (83,408) | | | (81,046) | |
Purchase of investment | (1,000) | | | — | |
Net cash from investing activities | (110,959) | | | (301,192) | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings on credit facilities | 220,000 | | | 365,000 | |
Repayments on credit facilities and financing leases | (240,000) | | | (205,042) | |
Purchase of treasury stock | (20,000) | | | — | |
Dividends paid | (75,722) | | | (71,454) | |
| | | |
Tax withholding payments related to share-based compensation | (3,561) | | | (6,731) | |
Proceeds from sale of common stock | 6,036 | | | 5,684 | |
Net cash from financing activities | (113,247) | | | 87,457 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | $ | 14,466 | | | $ | (23,024) | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | $ | 12,243 | | | $ | 48,787 | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 26,709 | | | $ | 25,763 | |
| | | | | | | | | | | |
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
(In Thousands) |
|
| Nine Months Ended |
| March 31, |
| 2023 | | 2022 |
| | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Income | $ | 268,873 | | | $ | 282,490 | |
Adjustments to reconcile net income from operations to net cash from operating activities: | | | |
Depreciation | 36,740 | | | 38,339 | |
Amortization | 105,609 | | | 94,563 | |
Change in deferred income taxes | (36,370) | | | 15,681 | |
Expense for stock-based compensation | 21,459 | | | 19,303 | |
(Gain)/loss on disposal of assets | (7,234) | | | 301 | |
Changes in operating assets and liabilities: | | | |
Change in receivables | 110,686 | | | 83,868 | |
Change in prepaid expenses, deferred costs and other | (68,885) | | | (51,255) | |
Change in accounts payable | (5,654) | | | 2,609 | |
Change in accrued expenses | (48,319) | | | (33,400) | |
Change in income taxes | 14,256 | | | 26,885 | |
Change in deferred revenues | (184,130) | | | (177,987) | |
Net cash from operating activities | 207,031 | | | 301,397 | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Payment for acquisitions, net of cash acquired | (229,628) | | | — | |
Capital expenditures | (27,237) | | | (28,386) | |
| | | |
Proceeds from dispositions | 27,885 | | | 38 | |
| | | |
Purchased software | (1,471) | | | (7,726) | |
Computer software developed | (124,110) | | | (108,950) | |
Purchase of investments | (1,000) | | | — | |
Net cash from investing activities | (355,561) | | | (145,024) | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings on credit facilities | 550,000 | | | 292,000 | |
Repayments on credit facilities and financing leases | (290,059) | | | (167,091) | |
Purchase of treasury stock | (25,000) | | | (193,916) | |
Dividends paid | (109,346) | | | (103,376) | |
| | | |
Tax withholding payments related to share-based compensation | (8,306) | | | (3,709) | |
Proceeds from sale of common stock | 9,006 | | | 8,524 | |
Net cash from financing activities | 126,295 | | | (167,568) | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | $ | (22,235) | | | $ | (11,195) | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | $ | 48,787 | | | $ | 50,992 | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 26,552 | | | $ | 39,797 | |
See notes to condensed consolidated financial statements.
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"“Company”) is a well-rounded financial technology company. JKHYJack Henry 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 7,7007,500 financial institutions and diverse corporate entities.
Consolidation
The condensed consolidated financial statements include the accounts of JKHYJack Henry 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 ninesix months ended MarchDecember 31, 2023 and 2022, 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 quarterthree and year-to-date periodssix months ended MarchDecember 31, 2023, and 2022: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Allowance for credit losses - beginning balance | $ | 8,184 | | | $ | 7,733 | | | $ | 7,616 | | | $ | 7,267 | |
| | | | | | | |
Current provision for expected credit losses | 420 | | | 360 | | | 1,380 | | | 1,200 | |
Write-offs charged against allowance | (444) | | | (381) | | | (834) | | | (754) | |
Recoveries of amounts previously written off | — | | | — | | | (2) | | | (1) | |
| | | | | | | |
Allowance for credit losses - ending balance | $ | 8,160 | | | $ | 7,712 | | | $ | 8,160 | | | $ | 7,712 | |
| | | | | | | |
2023: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Six Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Allowance for credit losses - beginning balance | $ | 8,204 | | | $ | 8,030 | | | $ | 7,955 | | | $ | 7,616 | |
| | | | | | | |
Current provision for expected credit losses | 480 | | | 480 | | | 960 | | | 960 | |
Write-offs charged against allowance | (552) | | | (325) | | | (783) | | | (390) | |
Recoveries of amounts previously written off | — | | | (1) | | | — | | | (2) | |
| | | | | | | |
Allowance for credit losses - ending balance | $ | 8,132 | | | $ | 8,184 | | | $ | 8,132 | | | $ | 8,184 | |
| | | | | | | |
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 MarchDecember 31, 2023, totaled $468,650$464,879 and at June 30, 2022,2023, totaled $454,879.$466,711.
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 $1,114,890$1,201,636 and $1,030,800$1,149,913 at MarchDecember 31, 2023, and June 30, 2022,2023, respectively.
InvestmentsInvestment
At MarchDecember 31, 2023, and June 30, 2022,2023, the Company had an investment in the preferred stock of Autobooks, Inc ("Autobooks"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 MarchDecember 31, 2023, there were 31,323 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,667 additional shares. The total cost of treasury shares at December 31, 2023, was $1,852,118. During the first six months of fiscal 2024, the Company repurchased 129 shares. At June 30, 2023, there were 31,194 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,796 additional shares. The total cost of treasury shares at March 31,June 30, 2023, was $1,832,118. During$1,832,118 and the Company repurchased no shares during the first ninesix months of fiscal 2023, the Company repurchased 151 shares. At 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 June 30, 2022, was $1,807,118. During the first nine months of fiscal 2022, the Company repurchased 1,250 shares.2023.
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"(“SEC”) and in accordance with accounting principles generally accepted in the United States of America ("(“U.S. GAAP"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 1.2023.
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 MarchDecember 31, 2023, the results of its operations for the three and ninesix months ended MarchDecember 31, 2023 and 2022, changes in stockholders' equity for the three and ninesix months ended MarchDecember 31, 2023 and 2022, and its cash flows for the ninesix months ended MarchDecember 31, 2023 and 2022. The condensed consolidated balance sheet at June 30, 2022,2023, 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 ninesix months ended MarchDecember 31, 2023, 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.
Significant Accounting Policies
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, 2023. For the three and six months ended December 31, 2023, there have been no new or material changes to the significant accounting policies discussed in the Company’s Form 10-K for the fiscal year ended June 30, 2023, that are of significance, or potential significance, to the Company.
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 March 31, 2023, 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 YetRecently Adopted Accounting Guidance
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 adoptadopted the ASU effective July 1, 2023, and will apply it prospectively to business combinations occurring on or after that date.
Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves the disclosures about a public entity's reportable segments through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The ASU requires additional disclosure related to rate reconciliation, income taxes paid, and other disclosures to improve the effectiveness of income tax disclosures. The ASU is effective for annual periods beginning after December 15, 2024, and applied on a prospective basis. Early adoption and retrospective application is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
NOTE 3. REVENUE AND DEFERRED COSTS
Revenue Recognition
The Company generates revenue from data processing and hosting, 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 March 31, | | Nine Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Three Months Ended December 31, | | | Three Months Ended December 31, | | Six Months Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2023 | | 2022 |
Private and Public Cloud | Private and Public Cloud | $ | 158,228 | | | $ | 142,808 | | | $ | 460,357 | | | $ | 416,791 | |
Product Delivery and Services | Product Delivery and Services | 56,372 | | | 62,349 | | | 172,489 | | | 193,363 | |
On-Premise Support | On-Premise Support | 77,322 | | | 77,764 | | | 269,925 | | | 266,471 | |
Services & Support | 291,922 | | | 282,921 | | | 902,771 | | | 876,625 | |
Services and Support | |
| Processing | |
Processing | |
Processing | Processing | 216,630 | | | 195,339 | | | 640,298 | | | 583,587 | |
| Total Revenue | Total Revenue | $ | 508,552 | | | $ | 478,260 | | | $ | 1,543,069 | | | $ | 1,460,212 | |
Total Revenue | |
Total Revenue | |
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.
| | March 31, 2023 | | June 30, 2022 |
| December 31, 2023 | | | December 31, 2023 | | June 30, 2023 |
Receivables, net | Receivables, net | $ | 238,364 | | | $ | 348,072 | |
Contract Assets - Current | Contract Assets - Current | 23,933 | | | 24,447 | |
Contract Assets - Non-current | Contract Assets - Non-current | 71,799 | | | 68,261 | |
Contract Liabilities (Deferred Revenue) - Current | Contract Liabilities (Deferred Revenue) - Current | 156,761 | | | 330,687 | |
Contract Liabilities (Deferred Revenue) - Non-current | Contract Liabilities (Deferred Revenue) - Non-current | 69,385 | | | 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.
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 MarchDecember 31, 2023, and 2022, the Company recognized revenue of $83,179$85,458 and $92,147,$83,145, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. For the ninesix months ended MarchDecember 31, 2023, and 2022, the Company recognized revenue of $215,263$167,671 and $225,424,$159,393, 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 MarchDecember 31, 2023, 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 $5,884,965.$6,446,023. The Company expects to recognize approximately 25%24% over the next 12 months, 20%19% 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 $417,407$460,686 and $380,095,$442,012, at MarchDecember 31, 2023, and June 30, 2022,2023, respectively.
For the three months ended MarchDecember 31, 2023, and 2022, amortization of deferred contract costs totaled $37,381$41,552 and $31,444,$34,861, respectively. During the ninesix months ended MarchDecember 31, 2023, and 2022, amortization of deferred contract costs totaled $114,222$92,088 and $99,441,$76,841, 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
Fair value of financial assets included in current assets is as follows:
| | | Estimated Fair Value Measurements | | | | Estimated Fair Value Measurements | | Total Fair |
| | Estimated Fair Value Measurements | | Total Fair | | | Level 1 | | Level 2 | | Level 3 | | Value |
| | Level 1 | | Level 2 | | Level 3 | | Value |
March 31, 2023 | | | | | | | | |
December 31, 2023 | | December 31, 2023 | | | | | | | | |
Financial Assets: | Financial Assets: | |
| Certificates of Deposit | Certificates of Deposit | | $ | — | | | $ | 2,213 | | | $ | — | | | $ | 2,213 | |
| Certificates of Deposit | |
| Certificates of Deposit | |
Financial Liabilities: | Financial Liabilities: | |
Revolving credit facility | | $ | — | | | $ | 375,000 | | | $ | — | | | $ | 375,000 | |
June 30, 2022 | | | | | | |
Credit facilities | |
Credit facilities | |
Credit facilities | |
June 30, 2023 | | June 30, 2023 | | | | | | | | |
Financial Assets: | Financial Assets: | |
Certificates of Deposit | |
Certificates of Deposit | |
Certificates of Deposit | Certificates of Deposit | | $ | — | | | $ | 1,212 | | | $ | — | | | $ | 1,212 | |
| Financial Liabilities: | Financial Liabilities: | |
Revolving credit facility | | $ | — | | | $ | 115,000 | | | $ | — | | | $ | 115,000 | |
Financial Liabilities: | |
Financial Liabilities: | |
Credit facilities | |
Credit facilities | |
Credit facilities | |
NOTE 5. LEASES
The Company determines if an arrangement is a lease, or contains 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 month to 1110 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 MarchDecember 31, 2023, and June 30, 2022,2023, the Company had operating lease assets of $40,867$58,480 and $46,869 and financing lease assets of $1 and $65,$43,662, respectively. At MarchDecember 31, 2023, total operating lease liabilities of $45,094$63,797 were comprised of current operating lease liabilities of $9,548$9,268 and noncurrent operating lease liabilities of $35,546.$54,529. At March 31,June 30, 2023, total financing operating
lease liabilities of $1 were all current liabilities. At June 30, 2022, total operating lease liabilities of $51,452$50,269 were comprised of current operating lease liabilities of $10,681$9,776 and noncurrent operating lease liabilities of $40,771. At June 30, 2022, total financing lease liabilities of $67 were all current financing lease liabilities.$40,493.
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 $36,611$29,984 and $31,006$34,973 as of MarchDecember 31, 2023, 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 $310 and $255 as of March 31, 2023, and June 30, 2022, respectively.
Operating lease costs for the three months ended MarchDecember 31, 2023, and 2022, were $2,903$2,229 and $3,182,$3,029, respectively. Financing lease costs for the three months ended March 31, 2023, and 2022, were $15 and $25, respectively. Total
operating and financing lease costs for the respective quarters included variable lease costs of $851$1,709 and $640,$957, respectively. Operating lease costs for the ninesix months ended MarchDecember 31, 2023, and 2022, were $8,991$4,698 and $9,942, respectively. Financing lease costs for the nine months ended March 31, 2023, and 2022, were $56 and $80,$6,088, respectively. Total operating and financing lease costs for the respective fiscal year-to-date periods included variable lease costs of $2,741$2,253 and $1,480,$1,881, respectively. Operating and financing lease expense areis 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 statements of income.
For the ninesix months ended MarchDecember 31, 2023, and 2022, the Company had operating cash flows for payments on operating leases of $9,230$4,422 and $9,947,$6,202, and ROU assets obtained in exchange for operating lease liabilities of $2,354$18,935 and $1,985, respectively. Operating cash flows for interest paid on financing leases for the nine months ended March 31, 2023, and 2022, were $59 and $83,$2,282, respectively.
As of MarchDecember 31, 2023, and June 30, 2022,2023, the weighted-average remaining lease term for the Company's operating leases was 7182 months and 7678 months, and the weighted-average discount rate was 2.59%2.68% and 2.58%2.14%, respectively. As of March 31, 2023, and June 30, 2022, the weighted-average remaining lease term for the Company's financing leases was 1 month and 9 months, respectively. The weighted-average discount rate for the Company's financing leases was 1.68% as of March 31, 2023, 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 MarchDecember 31, 2023*:2023:
| Due Dates (fiscal year) | Due Dates (fiscal year) | | Future Minimum Rental Payments | Due Dates (fiscal year) | | Future Minimum Rental Payments |
| 2023 (remaining period) | | $ | 2,833 | |
2024 | | 10,716 | |
2024 (remaining period) | |
2024 (remaining period) | |
2024 (remaining period) | |
2025 | 2025 | | 7,973 | |
2026 | 2026 | | 7,068 | |
2027 | 2027 | | 6,276 | |
2028 | |
Thereafter | Thereafter | | 14,296 | |
Total lease payments | Total lease payments | | $ | 49,162 | |
Less: interest | Less: interest | | (4,068) | |
Present value of lease liabilities | Present value of lease liabilities | | $ | 45,094 | |
*Financing leases were immaterial to the quarter, so a maturity ofFuture 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 MarchDecember 31, 2023, there were $6,128 ofno legally binding lease payments for leases signed but not yet commenced.
On September 30, 2023, the Company entered into an agreement with a third party to sublease a portion of its Elizabethtown, Kentucky facility. The commencement date of the sublease was October 1, 2023, and has a term of 57 months. Sublease income for the three and six months ended December 31, 2023 was $132 and is included within revenue on the Company's condensed consolidated statements of income. There have been no indications of impairment related to the underlying right-of-use asset.
Minimum Sublease Payments
At December 31, 2023, the future total minimum sublease payments to be received were as follows:
| | | | | | | | |
Due Dates (fiscal year) | | Future Minimum Sublease Receipts |
| | |
2024 (remaining period) | | $ | 395 | |
2025 | | 807 | |
2026 | | 831 | |
2027 | | 856 | |
2028 | | 882 | |
Total sublease receipts | | $ | 3,771 | |
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 thea prior credit facility described below.that was entered into on February 10, 2020. 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"(“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 MarchDecember 31, 2023, the Company was in compliance with all such covenants. The amended and restated credit facility terminates
August 31, 2027. There was $375,000$75,000 and $95,000 outstanding under the amended and restated credit facility at MarchDecember 31, 2023.2023 and June 30, 2023, respectively.
Term loan facility
On June 30, 2022, there was a $115,000 outstanding balance onMay 16, 2023, the prior credit facility that wasCompany entered into on February 10, 2020. The priora term loan credit agreement with a syndicate of financial institutions, with an original principal balance of $180,000. Borrowings under the term loan 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 borebear interest at a variable rate equal to (a) a rate based on a eurocurrencyan adjusted SOFR term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime ratePrime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the eurocurrency rateAdjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one-month interest periodone month Interest Period on such day for dollarsDollars plus 1.0%0.75%), plus an applicable percentage in each case determined by the Company's leverage ratio. The priorterm loan credit facility wasagreement is guaranteed by certain subsidiaries of the Company and wasis subject to various financial covenants that requiredrequire the Company to maintain certain financial ratios as defined in the priorterm loan credit agreement. As of June 30, 2022,December 31, 2023, the Company was in compliance with all such covenants. The priorterm loan credit facility's terminationagreement has a maturity date of May 16, 2025. There was February 10, 2025.$180,000 outstanding under the term loan at December 31, 2023 and June 30, 2023.
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%1.0%. The credit line expires on April 30, 2024.2025. There was no balance outstanding at MarchDecember 31, 2023, or June 30, 2022.2023.
Interest
The Company paid interest of $6,871$6,802 and $1,235$2,724 during the ninesix months ended MarchDecember 31, 2023, and 2022, respectively.
NOTE 7. INCOME TAXES
The effective tax rate decreasedincreased for the three months ended MarchDecember 31, 2023, compared to the three months ended MarchDecember 31, 2022, with an effective tax rate of 23.2%23.5% of income before income taxes, compared to 23.6%23.2% in the prior fiscal year quarter. The decrease in the effective tax rate was primarily due to greater benefits received from tax credits during the current fiscal year quarter.
For the ninesix months ended MarchDecember 31, 2023, the effective tax rate decreasedincreased compared to the ninesix months ended MarchDecember 31, 2022, with an effective tax rate of 23.3%23.6% of income before taxes, compared to 23.5%23.4% for the same
period last fiscal year. The increase in the effective tax rate for the three and six months ended December 31, 2023, was primarily due to the difference in impact of share-based compensation that vested during each of the periods.
The Company paid income taxes, net of refunds, of $103,251$52,018 and $44,245$37,213 in the ninesix months ended MarchDecember 31, 2023, and 2022, respectively. The increase in cashpaid income taxes paid isfor the six months ended December 31, 2023 over the six months ended December 31, 2022 was primarily the result of certain law changes included in the Tax Cuts and Jobs Acttiming of 2017 effectivepayments, with a greater portion of the anticipated equivalent annual amounts being paid in the current fiscal year.year-to-date period.
At MarchDecember 31, 2023, the Company had $10,905$13,414 of gross unrecognized tax benefits before interest and penalties, $9,702$11,702 of which, if recognized, would affect our effective tax rate. The Company had accrued interest and penalties of $1,635$2,317 and $1,542$1,546 related to uncertain tax positions at MarchDecember 31, 2023, and 2022, respectively.
The U.S. federal income tax returns for fiscal 20192020 and all subsequent years remain subject to examination as of MarchDecember 31, 2023, under statute of limitations rules. The U.S. state income tax returns that remain subject to examination as of MarchDecember 31, 2023, 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$4,500 within twelve months of MarchDecember 31, 2023.
NOTE 8. STOCK-BASED COMPENSATION
Our operating income for the three months ended MarchDecember 31, 2023, and 2022, included $6,915$8,333 and $6,276$7,545 of stock-based compensation costs, respectively. Our operating income for the ninesix months ended MarchDecember 31, 2023, and 2022, included $21,459$15,480 and $19,303$14,544 of stock-based compensation costs, respectively.
Stock Options
On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan ("(“2015 EIP"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,
Stock option awards
Under the 2015 EIP, 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.
A summaryDuring the six months ended December 31, 2023, there were no options granted, forfeited, or exercised. At December 31, 2023, 12 options were outstanding at a weighted average exercise price of option plan activity under this plan is as follows:
| | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value |
Outstanding July 1, 2022 | 12 | | | $ | 87.27 | | | |
Granted | — | | | — | | | |
Forfeited | — | | | — | | | |
Exercised | — | | | — | | | |
Outstanding March 31, 2023 | 12 | | | $ | 87.27 | | | $ | 741 | |
Vested and Expected to Vest March 31, 2023 | 12 | | | $ | 87.27 | | | $ | 741 | |
Exercisable March 31, 2023 | 12 | | | $ | 87.27 | | | $ | 741 | |
$87.27 with an aggregate intrinsic value of $890.At MarchDecember 31, 2023, there was no compensation cost yet to be recognized related to outstanding options. ForAll of the options are currently exercisable, thewith a weighted average remaining contractual term (remaining period of exercisability) of 2.5 years as of MarchDecember 31, 2023, was 3.25 years.2023.
Restricted Stock Unit Awardsstock unit and performance unit awards
The Company issues unit awards under the 2015 EIP. Restricted stock unit awards (which are unit awards that have service requirements only and are not tied to performance measures) generally vest over a period of 1 to 3 years. Performance unit awards are awards that have performance measures in addition to service requirements.
The following table summarizes non-vested restricted stock unit awards and performance awards as of MarchDecember 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
Unit awards | | Units | | Weighted Average Grant Date Fair Value | | Aggregate Intrinsic Value |
Outstanding July 1, 2022 | | 303 | | | $ | 166.50 | | | |
Granted | | 136 | | | 214.91 | | | |
Vested | | (116) | | | 158.37 | | | |
Forfeited | | (14) | | | 186.82 | | | |
Outstanding March 31, 2023 | | 309 | | | $ | 189.92 | | | $ | 46,546 | |
| | | | | | | | | | | | | | | | | | | | |
Unit awards | | Units | | Weighted Average Grant Date Fair Value | | Aggregate Intrinsic Value |
Outstanding July 1, 2023 | | 303 | | | $ | 190.08 | | | |
Granted1 | | 153 | | | 178.63 | | | |
Vested | | (69) | | | 183.35 | | | |
Forfeited2 | | (33) | | | 197.38 | | | |
Outstanding December 31, 2023 | | 354 | | | $ | 185.77 | | | $ | 57,773 | |
The 1361Granted includes restricted stock unit awards and performance unit awards at 100% achievement.
2Forfeited includes restricted stock unit awards and performance unit awards forfeited for service requirements not met and performance unit awards not settled due to underachievement of performance measures.
Of the 153 unit awards granted in fiscal 2023 had service requirements and performance measures, with 90 only having service requirements. The2024, 95 were restricted stock unit awards with only service requirementsand 58 were performance unit awards. The restricted stock unit awards 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 4623 of the performance unit awards granted in fiscal 2023 have performance measures along with service requirements. 17 of these performance and service requirement unit awards2024 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 performance 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 performance 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. 2535 of thesethe performance and service requirement unit awards have market conditions and 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. The remaining 4 performance and service requirement unit awards had other performance targets. Per the Company's award vesting and settlement provisions, the performance unit awards that utilize a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return ("TSR"(“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 2023.2024. 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 20232024 | | | | |
Compensation Peer Group: | | | | | |
Volatility | 29.425.6 | % | | | | |
Risk free interest rate | 2.964.48 | % | | | | |
Annual dividend based on most recent quarterly dividend | $1.962.08 | | | | |
Dividend yield | 0.941.23 | % | | | | |
Beginning average percentile rank for TSR | 71.074.0 | % | | | | |
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At MarchDecember 31, 2023, there was $26,880$31,275 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 1.241.35 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, |
| Three Months Ended December 31, | | | Three Months Ended December 31, | | Six Months Ended December 31, |
| | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Net Income | Net Income | $ | 81,549 | | | $ | 84,707 | | | $ | 268,873 | | | $ | 282,490 | |
Common share information: | Common share information: | |
Weighted average shares outstanding for basic earnings per share | Weighted average shares outstanding for basic earnings per share | 72,935 | | | 72,835 | | | 72,931 | | | 73,477 | |
Dilutive effect of stock options and restricted stock units | 139 | | | 184 | | | 188 | | 142 |
Weighted average shares outstanding for basic earnings per share | |
Weighted average shares outstanding for basic earnings per share | |
Dilutive effect of stock options, restricted stock units, and performance units | | Dilutive effect of stock options, restricted stock units, and performance units | 146 | | | 182 | | | 145 | | 212 |
Weighted average shares outstanding for diluted earnings per share | Weighted average shares outstanding for diluted earnings per share | 73,074 | | | 73,019 | | | 73,119 | | | 73,619 | |
Basic earnings per share | Basic earnings per share | $ | 1.12 | | | $ | 1.16 | | | $ | 3.69 | | | $ | 3.84 | |
Diluted earnings per share | Diluted earnings per share | $ | 1.12 | | | $ | 1.16 | | | $ | 3.68 | | | $ | 3.84 | |
Per share information is based on the weighted average number of common shares outstanding for the three and ninesix months ended MarchDecember 31, 2023, and 2022. Stock options, and restricted stock units, and performance units have been included in the calculation of diluted earnings per share to the extent they are dilutive. There were zero24 and nominal22 anti-dilutive stock options, or restricted stock units, or performance units excluded for the three and ninesix months ended MarchDecember 31, 2023, respectively, and nominal31 and 1025 were excluded for the three and ninesix months ended MarchDecember 31, 2022, respectively.
NOTE 10. BUSINESS ACQUISITION
Payrailz
On August 31, 2022, the Company acquired all of the equity interest in Payrailz, LLC ("Payrailz"(“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 purchase price adjustments, and $46,000 for indemnification matters under the merger agreement.agreement, which amount was released to the sellers September 20, 2023.
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 assets | 119,868 | |
Deferred revenue | (8,104) | |
Total other liabilities assumed | (749) | |
Total identifiable net assets | 112,866 | |
Goodwill | 117,339 | |
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 nine months ended March 31, 2023, totaled $39 and $547, 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 nine months ended March 31, 2023, included revenue of $2,658 and $5,975, respectively, and after-tax net loss of $4,938 and $12,213, respectively, resulting from Payrailz's operations.
The accompanying condensed consolidated statements of income for the three and nine months ended March 31, 2023, and 2022, 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 nine months ended March 31, 2023, and the three and nine months ended March 31, 2022, 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 $2,935 and $7,481 for the three and nine months ended March 31, 2022, respectively, and $1,957 for the nine months ended March 31, 2023. 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 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.
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| | | | | | Three Months Ended March 31, | | | | | | Nine Months Ended March 31, |
| | | | | | | | 2023 | | 2022 | | | | | | 2023 | | 2022 |
| | | | | | | | | | Actual | | Pro forma | | | | | | | | | | Pro forma | | Pro forma |
Revenue | | | | | | | | | | $ | 508,552 | | | $ | 480,444 | | | | | | | | | | | $ | 1,544,696 | | | $ | 1,465,568 | |
Net Income | | | | | | | | | | 81,549 | | | 79,194 | | | | | | | | | | | 264,336 | | | 269,084 | |
NOTE 11. REPORTABLE SEGMENT INFORMATION
The Company is a leading provider of integrated computer systems that perform datatechnology solutions and payment processing (available for on-premise installations or JKHY cloud-based services) for banksservices primarily to community and credit unions.regional financial institutions.
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"(“ACH”) origination and remote deposit capture processing, and risk management products and services. The Complementary segment provides additional software, hosted processing platforms, and services, including call center support, network security management, consulting, and monitoring that can be integrated with ourthe Company's Core solutions, and many can be used independently. The Corporate &and Other segment includes hardware revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating costsexpenses 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 between segments to reclassify revenue and cost of revenue that was recognized for the three and ninesix months ended March 31, 2022, 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 Payments segments and from the Corporate and Other to Payments segments for the three months ended March 31, 2022, and from the Complementary to the Payments and Corporate and Other segments for the nine months ended MarchDecember 31, 2022. 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 ninesix months ended MarchDecember 31, 2022, from ComplementaryCore to Corporate and Other was $1,851 and $3,661, respectively, from Payments to Corporate and Other was $2,971$10 and $8,918,$16, respectively, and from Complementary to Corporate and Other was $918$174 and $3,860,$108, respectively. Cost of revenue reclassed for the three and six months ended MarchDecember 31, 2022, from ComplementaryCore to Payments was $1,217 and from Corporate and Other was $1,658 and $3,294, respectively, from Payments to PaymentsCorporate and Other was $125. Cost of revenue reclassed for the nine months ended March 31, 2022, from Complementary to Payments was $4,095,$658 and $1,261, respectively, and from Complementary to Corporate and Other was $359.
$326 and $659, respectively.
| | Three Months Ended |
| March 31, 2023 |
| Core | | Payments | | Complementary | | Corporate & Other | | Total |
| Three Months Ended | | | Three Months Ended |
| December 31, 2023 | | | December 31, 2023 |
| Core | | | Core | | Payments | | Complementary | | Corporate and Other | | Total |
REVENUE | REVENUE | |
Services and Support | |
Services and Support | |
Services and Support | Services and Support | $ | 146,809 | | | $ | 19,840 | | | $ | 109,128 | | | $ | 16,145 | | | $ | 291,922 | |
Processing | Processing | 10,094 | | | 172,000 | | | 32,994 | | | 1,542 | | | 216,630 | |
Total Revenue | Total Revenue | 156,903 | | | 191,840 | | | 142,122 | | | 17,687 | | | 508,552 | |
| Cost of Revenue | |
Cost of Revenue | |
Cost of Revenue | Cost of Revenue | 71,705 | | | 106,878 | | | 61,366 | | | 67,396 | | | 307,345 | |
Research and Development | Research and Development | | | 34,625 | |
Selling, General, and Administrative | Selling, General, and Administrative | | | 58,192 | |
| Total Expenses | Total Expenses | | | 400,162 | |
| Total Expenses | |
| Total Expenses | |
| SEGMENT INCOME | |
SEGMENT INCOME | |
SEGMENT INCOME | SEGMENT INCOME | $ | 85,198 | | | $ | 84,962 | | | $ | 80,756 | | | $ | (49,709) | | |
| OPERATING INCOME | OPERATING INCOME | | | 108,390 | |
| OPERATING INCOME | |
| OPERATING INCOME | |
| INTEREST INCOME (EXPENSE) | |
INTEREST INCOME (EXPENSE) | |
INTEREST INCOME (EXPENSE) | INTEREST INCOME (EXPENSE) | | | (2,275) | |
| INCOME BEFORE INCOME TAXES | INCOME BEFORE INCOME TAXES | | | $ | 106,115 | |
INCOME BEFORE INCOME TAXES | |
INCOME BEFORE INCOME TAXES | |
| | Three Months Ended |
| March 31, 2022 |
| Core | | Payments | | Complementary | | Corporate & Other | | Total |
| Three Months Ended | | | Three Months Ended |
| December 31, 2022 | | | December 31, 2022 |
| Core | | | Core | | Payments | | Complementary | | Corporate and Other | | Total |
REVENUE | REVENUE | |
Services and Support | |
Services and Support | |
Services and Support | Services and Support | $ | 141,194 | | | $ | 23,747 | | | $ | 105,520 | | | $ | 12,460 | | | $ | 282,921 | |
Processing | Processing | 9,605 | | | 156,771 | | | 28,301 | | | 662 | | | 195,339 | |
Total Revenue | Total Revenue | 150,799 | | | 180,518 | | | 133,821 | | | 13,122 | | | 478,260 | |
| Cost of Revenue | |
Cost of Revenue | |
Cost of Revenue | Cost of Revenue | 66,576 | | | 95,970 | | | 57,740 | | | 62,053 | | | 282,339 | |
Research and Development | Research and Development | | | 30,725 | |
Selling, General, and Administrative | Selling, General, and Administrative | | | 53,607 | |
| Total Expenses | Total Expenses | | | 366,671 | |
| Total Expenses | |
| Total Expenses | |
| SEGMENT INCOME | |
SEGMENT INCOME | |
SEGMENT INCOME | SEGMENT INCOME | $ | 84,223 | | | $ | 84,548 | | | $ | 76,081 | | | $ | (48,931) | | |
| OPERATING INCOME | OPERATING INCOME | | | 111,589 | |
| OPERATING INCOME | |
| OPERATING INCOME | |
| INTEREST INCOME (EXPENSE) | |
INTEREST INCOME (EXPENSE) | |
INTEREST INCOME (EXPENSE) | INTEREST INCOME (EXPENSE) | | | (688) | |
| INCOME BEFORE INCOME TAXES | INCOME BEFORE INCOME TAXES | | | $ | 110,901 | |
INCOME BEFORE INCOME TAXES | |
INCOME BEFORE INCOME TAXES | |
| | | Nine Months Ended |
| March 31, 2023 |
| Core | | Payments | | Complementary | | Corporate & Other | | Total |
| Six Months Ended | |
| Six Months Ended | |
| Six Months Ended | |
| December 31, 2023 | | | December 31, 2023 |
| Core | | | Core | | Payments | | Complementary | | Corporate & Other | | Total |
REVENUE | REVENUE | |
Services and Support | |
Services and Support | |
Services and Support | Services and Support | $ | 457,483 | | | $ | 57,838 | | | $ | 337,656 | | | $ | 49,794 | | | $ | 902,771 | |
Processing | Processing | 29,934 | | | 512,029 | | | 95,113 | | | 3,222 | | | 640,298 | |
Total Revenue | Total Revenue | 487,417 | | | 569,867 | | | 432,769 | | | 53,016 | | | 1,543,069 | |
| Cost of Revenue | |
Cost of Revenue | |
Cost of Revenue | Cost of Revenue | 212,269 | | | 316,104 | | | 179,074 | | | 202,748 | | | 910,195 | |
Research and Development | Research and Development | | | 104,179 | |
Selling, General, and Administrative | Selling, General, and Administrative | | | 172,205 | |
| Total Expenses | Total Expenses | | | 1,186,579 | |
| Total Expenses | |
| Total Expenses | |
| SEGMENT INCOME | |
SEGMENT INCOME | |
SEGMENT INCOME | SEGMENT INCOME | $ | 275,148 | | | $ | 253,763 | | | $ | 253,695 | | | $ | (149,732) | | |
| OPERATING INCOME | OPERATING INCOME | | | 356,490 | |
| OPERATING INCOME | |
| OPERATING INCOME | |
| INTEREST INCOME (EXPENSE) | |
INTEREST INCOME (EXPENSE) | |
INTEREST INCOME (EXPENSE) | INTEREST INCOME (EXPENSE) | | | (5,866) | |
| INCOME BEFORE INCOME TAXES | INCOME BEFORE INCOME TAXES | | | $ | 350,624 | |
INCOME BEFORE INCOME TAXES | |
INCOME BEFORE INCOME TAXES | |
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| Nine Months Ended |
| March 31, 2022 |
| Core | | Payments | | Complementary | | Corporate & Other | | Total |
REVENUE | | | | | | | | | |
Services and Support | $ | 442,730 | | | $ | 66,105 | | | $ | 327,258 | | | $ | 40,532 | | | $ | 876,625 | |
Processing | 28,232 | | | 472,510 | | | 80,879 | | | 1,966 | | | 583,587 | |
Total Revenue | 470,962 | | | 538,615 | | | 408,137 | | | 42,498 | | | 1,460,212 | |
| | | | | | | | | |
Cost of Revenue | 198,032 | | | 287,518 | | | 168,139 | | | 188,110 | | | 841,799 | |
Research and Development | | | | | | | | | 87,394 | |
Selling, General, and Administrative | | | | | | | | | 160,172 | |
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Total Expenses | | | | | | | | | 1,089,365 | |
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SEGMENT INCOME | $ | 272,930 | | | $ | 251,097 | | | $ | 239,998 | | | $ | (145,612) | | | |
| | | | | | | | | |
OPERATING INCOME | | | | | | | | | 370,847 | |
| | | | | | | | | |
INTEREST INCOME (EXPENSE) | | | | | | | | | (1,371) | |
| | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | | | | | | | $ | 369,476 | |
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| | | | | | | | | |
| Six Months Ended |
| December 31, 2022 |
| Core | | Payments | | Complementary | | Corporate & Other | | Total |
REVENUE | | | | | | | | | |
Services and Support | $ | 307,014 | | | $ | 37,982 | | | $ | 228,420 | | | $ | 37,433 | | | $ | 610,849 | |
Processing | 19,839 | | | 340,028 | | | 62,119 | | | 1,681 | | | 423,667 | |
Total Revenue | 326,853 | | | 378,010 | | | 290,539 | | | 39,114 | | | 1,034,516 | |
| | | | | | | | | |
Cost of Revenue | 137,270 | | | 207,965 | | | 117,049 | | | 140,565 | | | 602,849 | |
Research and Development | | | | | | | | | 69,554 | |
Selling, General, and Administrative | | | | | | | | | 114,013 | |
| | | | | | | | | |
| | | | | | | | | |
Total Expenses | | | | | | | | | 786,416 | |
| | | | | | | | | |
SEGMENT INCOME | $ | 189,583 | | | $ | 170,045 | | | $ | 173,490 | | | $ | (101,451) | | | |
| | | | | | | | | |
OPERATING INCOME | | | | | | | | | 248,100 | |
| | | | | | | | | |
INTEREST INCOME (EXPENSE) | | | | | | | | | (3,590) | |
| | | | | | | | | |
INCOME BEFORE INCOME TAXES | | | | | | | | | $ | 244,510 | |
The Company has not disclosed any additional asset information by segment, as the information is not generated for internal management reporting to the Chief Executive Officer, who is also the Chief Operating Decision Maker.
NOTE 12. SUBSEQUENT EVENTS
None.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included in this Form 10-Q for the fiscal quarter ended MarchDecember 31, 2023.
OVERVIEW
Jack Henry & Associates, Inc. ("JKHY") is a well-rounded financial technology company and is a leading provider of technology solutions and payment processing services primarily forto community and regional financial services organizations. Itsinstitutions. Our solutions consist of integrated data processing systems solutions to U.S. banks ranging from de novo to multi-billion-dollar institutions with assets up to $50 billion, core data processing solutions for credit unions of all sizes, and non-core highly specialized core-agnostic products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. JKHY'sOur integrated solutions are available for on-premise installation and delivery in our private and public cloud.
Our two primary revenue streams are "services“services and support"support” and "processing."“processing.” Services and support includes: "private“private and public cloud" fees thatcloud” revenue, which predominantly have contractincludes contracts with terms of seven years or longer at inception; "product“product delivery and services"services” revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees,deconversions, consulting, and hardware; and "on-premise support"“on-premise support” revenue, composed of maintenance fees whichcontracts primarily containwith annual contract terms. Processing revenue includes: "remittance""remittance” revenue from payment processing, remote capture, and ACH transactions; "card" fees,“card” revenue, including card transaction processing and monthly fees; and "transaction“transaction and digital"digital” revenue, which includes transaction and mobile processing fees.processing. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.
All amounts in the following discussion are in thousands, except per share amounts.
RESULTS OF OPERATIONS
For the thirdsecond quarter of fiscal 2023,2024, total revenue increased 6%8.0%, or $30,292,$40,387, compared to the same quarter in fiscal 2022.2023. Total revenue less deconversion fee and acquisition revenuesrevenue of $6,143 and $2,658, respectively,$4,882 for the current fiscal quarter and less deconversion fee revenues of $17,431$6,380 for the prior fiscal year second quarter results in an increase of 8%8.4%, quarter over quarter. This increase was primarily driven by growth in data processing and hosting, higherJack Henry digital, including Banno, card, and payment processing,remote capture and increased hardwareACH revenues.
Operating expenses increased 9%7.2%, or $28,796, for the thirdsecond quarter of fiscal 20232024 compared to the thirdsecond quarter of fiscal 2022.2023. Total operating expenses less deconversion expenses of $1,013 and acquisition-related expenses of $6,167 for$1,079 in the current fiscal quarter and reducing operating expenses by deconversion expenses of $1,949$917 for the prior fiscal year second quarter, and removing the effects of the gain on sale of assets, net, of $1,207 in the prior fiscal year second quarter, results in an 8% increase of 6.9%, quarter over quarter. This increase was primarily driven by higher direct costs as revenues increased, higher personnel costs, including benefitsmedical insurance and commissions, increased travel and entertainment expenses resulting from a 3% headcount increase inrelated to the trailing twelve months, higher direct costs as revenue increased, increased amortization of intangible assets,user group meeting during the quarter, and increased cost of hardware.internal licenses and fees.
Operating income decreased 3%increased 10.8%, or $11,591, for the thirdsecond quarter of fiscal 20232024 compared to the thirdsecond quarter of fiscal 2022.2023. Total operating income less deconversion fee operating income of $5,130 plus an acquisition operating loss of $3,508 for$3,803 in the current fiscal quarter and less deconversion fee operating income of $15,482$5,463 for the prior fiscal year second quarter, and removing the effects of the gain on sale of assets, net, of $1,207 in the prior fiscal year second quarter, results in an 11% increase of 14.4%, quarter over quarter. This increase was primarily driven by revenue growth partially offset by increased operating expenses detailed above.
The provision for income taxes decreased 6%increased 15.6%, or $3,823, for the thirdsecond quarter of fiscal 20232024, compared to the priorsecond quarter of fiscal year third quarter.2023. The effective tax rate for the thirdcurrent fiscal second quarter, of fiscal 2023 was 23.2%23.5% compared to 23.6%23.2% for the same quarter a year ago.
Due The increase in the effective tax rate was primarily due to the above changes, netdifference in impact of share-based compensation that vested during each of the comparative quarters.
Net income decreased 4%increased 13.9%, or $11,190, for the thirdsecond quarter of fiscal 20232024, compared to the thirdsecond quarter of fiscal 2022.2023. Total net income less deconversion fee net income of $3,861 plus acquisition net loss of $4,938$2,890 for the current fiscal quarter, and less deconversion fee net income for deconversions and the gain on disposal of $11,666assets, net, of $4,152 and $918, respectively, for the prior fiscal year second quarter, results in a 13%17.7% increase quarter over quarter.
This increase was primarily due to net organic growth in our lines of revenue partially offset by higher operating expenses and increased provision for income taxes in the second quarter of fiscal 2024 compared to the same quarter last fiscal year.
For the ninesix months ended MarchDecember 31, 2023, total revenue increased 6%8.0%, or $82,857,$82,553, compared to the same period in fiscal year 2022.2023. Total revenue less deconversion fee and acquisition revenues of $17,042$9,018 and $5,975,$1,945, respectively, for the current fiscal period and less deconversion fee revenues of $48,058$10,899 for the prior fiscal period, results in an increase of 8%8.1%, period over period. This increase was primarily driven by growth in data processing and hosting, feescard, Jack Henry digital, other processing and card, payment and digital processing revenues.
Operating expenses increased 9%10.0%, or $78,986, for the ninesix months ended MarchDecember 31, 2023, compared to the same period in fiscal year 2022.2023. Total operating expenses less deconversion expenses of $2,583 and$1,460, acquisition-related expenses of $15,609 plus$4,182, and voluntary employee departure incentive payment ("VEDIP") program expenses of $16,443 for the current fiscal period, and less deconversion expenses of $1,570 and removing the effects of the gain on sale of assets, net, of $7,384 for the current fiscal period, and reducing operating expenses by deconversion expenses of $5,036 for the prior fiscal year period, results in an 8% increase of 6.4%, period over period. TheThis increase in operating expenses was primarily driven by higher personnel costs, including benefits expenses, resulting from a 3% headcount increase in the trailing twelve months,commissions, increased direct costs related to growth in revenue, activity, higher amortization of intangible assets, increased travel-related expenses, and increased internal licenses and fees.fees, and a decrease in the gain on sale of assets, net, compared to the prior fiscal year period.
Operating income decreased 4%increased 1.4%, or $3,567, for the ninesix months ended MarchDecember 31, 2023, compared to the same period in fiscal year 2022.2023. Total operating income less deconversion fee operating income of $14,459, plus$7,558, removing the effects of the VEDIP program of $16,443 and an acquisition operating loss of $9,634,$2,237 for the current fiscal year period, less deconversion operating income of $9,330 and removing the effects of the gain on disposalsale of assets, net, of $7,384 for the current fiscal period, less deconversion fee operating income of $43,022$7,383 for the prior fiscal year period, results in a 5%13.6% increase period over period. This increase was primarily driven by revenue growth partially offset by increased operating expenses detailed above.
The provision for income taxes decreased 6%increased 4.6%, or $2,641, for the ninesix months ended MarchDecember 31, 2023, compared to the same period in fiscal year 2022.2023. The effective tax rate for the ninesix months ended MarchDecember 31, 2023, was 23.3%23.6% compared to 23.5%23.4% for the same period a year ago.
Due The increase in the effective tax rate was primarily due to the above changes, netdifference in impact of share-based compensation that vested during the comparative periods.
Net income decreased 5%increased 3.4%, or $6,320, for the ninesix months ended MarchDecember 31, 2023, compared to the same period a year ago. Total net income less deconversion fee net income of $10,880,$5,744, plus acquisition net loss for the acquisition and the VEDIP program of $12,213,$3,539 and $12,497, respectively, for the current fiscal year period, and less net income for deconversions and the gain on disposalsale of assets, net, of $5,556 for the current fiscal period,$7,090 and less deconversion fee net income of $32,417$5,612, respectively, for the prior fiscal year period, results in a 6%16.8% increase period over period.
Our third fiscal quarter This increase was significantly impactedprimarily due to net organic growth in our lines of revenue partially offset by a continuing slowdown of mergerhigher operating expenses and acquisition activityincreased provision for income taxes in the financial institution industry, which has caused decreases in deconversion fee revenue, as noted, and in conversion/merger services revenue. However, wesix months ended December 31, 2023 compared to the same period last fiscal year.
We move into the fourththird quarter of fiscal 20232024 with significant portions of our business continuing to come from recurring revenues and our sales pipeline remaining encouraging. Our customers continue to face regulatory and operational challenges which our products and services address, and we believe they have a great need for our solutions that directly address institutional profitability, efficiency, and security. Our strong balance sheet, access to extensive lines of credit, the continued strength of our existing lines of revenue, and an unwavering commitment to superior customer service should position us well to address current and future opportunities.
A detailed discussion of the major components of the results of operations for the three and ninesix months ended MarchDecember 31, 2023, follows. On August 31, 2022, the Company acquired all of the equity interest in Payrailz, LLC (“Payrailz”). Payrailz (“acquisition”) related revenue and operating expenses mentioned in the six months ended December 31, 2023, discussions below are for the first two months of the period only.
Discussions compare the current fiscal year's three and ninesix months ended MarchDecember 31, 2023, to the prior fiscal year's three and ninesix months ended MarchDecember 31, 2022.
REVENUE | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Services and Support | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Services and Support | $ | 291,922 | | | $ | 282,921 | | | 3 | % | | $ | 902,771 | | | $ | 876,625 | | | 3 | % |
Percentage of total revenue | 57 | % | | 59 | % | | | | 59 | % | | 60 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Services and Support | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Services and Support | $ | 311,992 | | | $ | 290,700 | | | 7.3 | % | | $ | 654,197 | | | $ | 610,849 | | | 7.1 | % |
Percentage of total revenue | 57 | % | | 58 | % | | | | 59 | % | | 59 | % | | |
Services and support revenue increased 3%7.3% for the thirdsecond quarter of fiscal 20232024 compared to the same quarter a year ago. Reducing services and support revenue for deconversion fee revenue from each quarter, which was $6,143$4,882 for the current fiscal year quarter and $17,431$6,380 for the prior fiscal year quarter and acquisition revenue of $1 for the current fiscal quarter, results in growth of 8%8.0% quarter over quarter. This increase was primarily driven by growth in data processing and hosting feerevenues as new and hardware revenues.existing customers migrate to our private cloud and processing volumes expand and higher user group revenues from the user group meeting held during the second quarter of fiscal 2024.
Services and support revenue increased 3%7.1% for the ninesix months ended MarchDecember 31, 2023 compared to the same period a year ago. Reducing services and support revenue for deconversion fee revenue from each period, which was $17,042$9,018 for the current fiscal year period and $48,058$10,899 for the prior fiscal year period, and acquisition revenue of $45$2 for the current fiscal year period, results in growth of 7%7.5% period over period. This increase was primarily driven by volume growth in
data processing and hosting fees,as new and existing customers migrate to our private cloud and processing volumes expand, software usage and subscription fees,as customers continue moving to time-based licenses rather than perpetual, and hardware revenues. Growth in software usage fee revenues reflects a continuing shift of customers to our time-based license model.
| Processing | Processing | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change | Processing | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| | 2023 | | 2022 | | | | 2023 | | 2022 | | | | 2023 | | 2022 | | | | 2023 | | 2022 | | |
Processing | Processing | $ | 216,630 | | | $ | 195,339 | | | 11 | % | | $ | 640,298 | | | $ | 583,587 | | | 10 | % | Processing | $ | 233,709 | | | $ | | $ | 214,614 | | | 8.9 | | 8.9 | % | | $ | 462,872 | | | $ | | $ | 423,667 | | | 9.3 | | 9.3 | % |
Percentage of total revenue | Percentage of total revenue | 43 | % | | 41 | % | | | | 41 | % | | 40 | % | | | Percentage of total revenue | 43 | % | | 42 | % | | | | 41 | % | | 41 | % | | |
Processing revenue increased 11%8.9% for the thirdsecond quarter of fiscal 20232024 compared to the same quarter last fiscal year. Reducing processing revenue for acquisition revenue of $2,657 for the current fiscal quarter, results in growth of 10% quarter over quarter. This increase was primarily driven by higher card processing, payment processing, including iPay, andgrowth in Jack Henry digital revenue including Banno,(including Banno) from higher active users and expanding volumes from existing products and the introduction of new products, growth in card revenue primarily from higher fraud detection and prevention revenues and organic growth from expanding transaction volumes, remote capture and ACH revenue, as well as other processing feeand payment processing revenues asfrom expanding volumes and new customers are added and the active user base expands.customer revenue.
Processing revenue increased 10%9.3% for the ninesix months ended MarchDecember 31, 2023, compared to the same period last fiscal year. Reducing processing revenue for acquisition revenue of $5,930$1,943 for the current fiscal year period, results in growth of 9%8.8% period over period. This increase was primarily driven by growth in card revenue primarily from higher card processing, payment processing, including iPay,fraud detection and prevention revenues and organic growth from expanding transaction volumes, growth in Jack Henry digital revenue including Banno, as well as(including Banno) from higher active users and expanding volumes from existing products and the introduction of new products, other processing feeand payment processing revenues asfrom expanding volumes and new customers are addedcustomer revenue, and the active user base expands.remote capture and ACH revenues.
OPERATING EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of Revenue | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Cost of Revenue | $ | 307,345 | | | $ | 282,339 | | | 9 | % | | $ | 910,195 | | | $ | 841,799 | | | 8 | % |
Percentage of total revenue | 60 | % | | 59 | % | | | | 59 | % | | 58 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of Revenue | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Cost of Revenue | $ | 320,979 | | | $ | 304,589 | | | 5.4 | % | | $ | 643,981 | | | $ | 602,849 | | | 6.8 | % |
Percentage of total revenue | 59 | % | | 60 | % | | | | 58 | % | | 58 | % | | |
Cost of revenue for the thirdsecond quarter of fiscal 20232024 increased 9%5.4% over the prior fiscal year third quarter. Reducing cost of revenue for deconversion costs from each quarter, which were $470 for the current fiscal year quarter and $1,129 for the prior fiscal year quarter, and for acquisition costs of $5,133 from the current fiscal year quarter, results in a 7% increase quarter oversecond quarter. This increase was primarily due to higher direct costs, in lineconsistent with related increases in the related revenue, increased internal licenses and fees, and higher personnel costs including benefits expenses, increased amortization of intangible assets, and increased cost of hardware.due to an increase in employee headcount in the trailing twelve months. Cost of revenue increased 1% compared to the prior fiscal year quarter as a percentage of total revenue.
Cost of revenue increased 8%6.8% for the ninesix months ended MarchDecember 31, 2023, compared to the same period last fiscal year. Reducing cost of revenue for deconversion costs from each period, which were $1,435$891 for the current fiscal period and $3,067$965 for the prior fiscal period, and for acquisition costs of $12,533$3,334 from the current fiscal period, results in a 7%6.3% increase period over period. This increase was primarily due to higher direct costs in line with related increases in revenue, higher personnel costs including benefits expenses, increased amortization of intangible assets,due to an increase in employee headcount in the trailing twelve months, and increased internal licenses and fees. Cost of revenue increased 1%remained consistent compared to the prior fiscal year period as a percentage of total revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and Development | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Research and Development | $ | 34,625 | | | $ | 30,725 | | | 13 | % | | $ | 104,179 | | | $ | 87,394 | | | 19 | % |
Percentage of total revenue | 7 | % | | 6 | % | | | | 7 | % | | 6 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and Development | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Research and Development | $ | 35,478 | | | $ | 36,561 | | | (3.0) | % | | $ | 72,370 | | | $ | 69,554 | | | 4.0 | % |
Percentage of total revenue | 7 | % | | 7 | % | | | | 6 | % | | 7 | % | | |
Research and development expense increased 13%decreased 3.0% for the thirdsecond quarter of fiscal 2023 over2024 compared to the prior fiscal year third quarter. Reducing research and development expense for the effects of acquisitions of $606 for the current fiscal quarter, results in an 11% increase quarter oversecond quarter. This increasedecrease was primarily due to an increase inlower personnel costs, net of capitalization, including benefits expenses, partially resulting from a 10%decrease in employee headcount increase in the trailing twelve months. Research and development expense for the quarter increased 1%remained consistent compared to the prior fiscal year quarter as a percentage of total revenue.
Research and development expense increased 19%4.0% for the ninesix months ended MarchDecember 31, 2023, compared to the same period last fiscal year. Reducing research and development expense for the effects of acquisitions of $1,213$656 for the current fiscal year period results in an 18%a 3.1% increase period over period. This increase was primarily due to an
increase in personnel costs, net of capitalization, including benefits expenses, partially resulting from a 10% headcount increase inrelated to the trailing twelve months.Payrailz acquisition and Jack Henry Platform. Research and development expense for the current fiscal year period increaseddecreased 1% compared to the prior fiscal year period as a percentage of total revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, General, and Administrative | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Selling, General, and Administrative | $ | 58,192 | | | $ | 53,607 | | | 9 | % | | $ | 172,205 | | | $ | 160,172 | | | 8 | % |
| | | | | | | | | | | |
Percentage of total revenue | 11 | % | | 11 | % | | | | 11 | % | | 11 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, General, and Administrative | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Selling, General, and Administrative | $ | 70,277 | | | $ | 56,788 | | | 23.8 | % | | $ | 149,051 | | | $ | 114,013 | | | 30.7 | % |
| | | | | | | | | | | |
Percentage of total revenue | 13 | % | | 11 | % | | | | 13 | % | | 11 | % | | |
Selling, general, and administrative expense increased 9%23.8% in the thirdsecond quarter of fiscal 20232024 over the same quarter in the prior fiscal year. Reducing selling, general, and administrative expense for the effects of deconversion feescosts from each quarter, which were $543$458 for the current fiscal year quarter and $820$362 for the prior fiscal year quarter, and forremoving the effectseffect of acquisitionsthe gain on disposal of $427 forassets, net, of $1,207 in the currentprior fiscal year quarter, results in an 8%a 21.1% increase quarter over quarter. This increase was primarily due to higher personnel costs includingfrom medical insurance and commissions expenses, and benefits expenses, partially resulting from a 5% headcountan increase in travel and entertainment and meeting expenses from the trailing twelve months.user group meeting held during the current quarter. Selling, general, and administrative expense remained consistentincreased 2% as a percentage of total revenue this fiscal quarter versus the prior fiscal year quarter.
Selling, general, and administrative expense increased 8%30.7% in the ninesix months ended MarchDecember 31, 2023, compared to the same period last fiscal year. Reducing selling, general, and administrative expense for the effects of deconversion feesdeconversions from each period, which were $1,148$570 for the current fiscal year period and $1,968$604 for the prior fiscal year period, for VEDIP program expenses of $16,443 and for the effectseffect of acquisitionsthe acquisition of $1,864 plus$192 in the current fiscal year period and removing the effect of the gain on disposalsale of assets, net, of $7,384 for$7,383 in the currentprior fiscal year period, results in a 12%9.2% increase period over period. This increase was primarily due to higher personnel costs includingfrom commissions expenses, and benefits expenses, partially resulting from a 5% headcount increasedecrease in the trailing twelve months and increased travel-related expenses.gain on sale of assets, net, period over period. Selling, general, and administrative expense remained consistentincreased 2% as a percentage of total revenue this fiscal year period versus the prior fiscal year period.
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INTEREST INCOME (EXPENSE) | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Interest Income | $ | 2,391 | | | $ | 3 | | | 79,600 | % | | $ | 3,783 | | | $ | 16 | | | 23,544 | % |
Interest Expense | $ | (4,666) | | | $ | (691) | | | 575 | % | | $ | (9,649) | | | $ | (1,387) | | | 596 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INTEREST INCOME (EXPENSE) | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Interest Income | $ | 5,121 | | | $ | 1,240 | | | 313.0 | % | | $ | 9,866 | | | $ | 1,392 | | | 608.8 | % |
Interest Expense | $ | (3,865) | | | $ | (3,406) | | | 13.5 | % | | $ | (8,062) | | | $ | (4,982) | | | 61.8 | % |
Interest income fluctuated due to changes in invested balances and yieldsinterest earned on invested balances during the third quarter of fiscal 2023three and ninesix months ended MarchDecember 31, 2023 compared to the same periods a year ago.three and six months ended December 31, 2022. Interest expense increased when compared to the prior fiscal year quarter and year-to-date period due to recent increases in prevailing interest rates length of borrowing time, and amounts borrowed. There was a $375,000$255,000 outstanding balance under the credit and term loan facilities at December 31, 2023, and $275,000 outstanding balance under the credit facility at MarchDecember 31, 2023, and $225,000 outstanding balance at March 31, 2022. The increase in the outstanding balance was primarily due to funding the Payrailz acquisition on August 31, 2022, and the increase in cash taxes paid during the third quarter ended March 31, 2023, due to tax law changes.
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PROVISION FOR INCOME TAXES | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Provision for Income Taxes | $ | 24,566 | | | $ | 26,194 | | | (6) | % | | $ | 81,751 | | | $ | 86,986 | | | (6) | % |
Effective Rate | 23.2 | % | | 23.6 | % | | | | 23.3 | % | | 23.5 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PROVISION FOR INCOME TAXES | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Provision for Income Taxes | $ | 28,258 | | | $ | 24,435 | | | 15.6 | % | | $ | 59,827 | | | $ | 57,186 | | | 4.6 | % |
Effective Rate | 23.5 | % | | 23.2 | % | | | | 23.6 | % | | 23.4 | % | | |
The change in effective tax rate increased for the third quarter of fiscalthree and six months ended December 31, 2023 compared to the three and six months ended December 31, 2022 with an effective tax rate of 23.5% and 23.6%, respectively, of income before taxes, compared to 23.2% and 23.4%, respectively, of income before taxes for the same quarter a year ago wasperiods last fiscal year. The increases in the effective tax rates were primarily due to greater benefits recognized from tax creditsthe differences in impacts of share-based compensation that vested during each of the current fiscal year quarter.comparative periods.
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NET INCOME | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Net income | $ | 81,549 | | | $ | 84,707 | | | (4) | % | | $ | 268,873 | | | $ | 282,490 | | | (5) | % |
Diluted earnings per share | $ | 1.12 | | | $ | 1.16 | | | (4) | % | | $ | 3.68 | | | $ | 3.84 | | | (4) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET INCOME | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Net income | $ | 91,965 | | | $ | 80,775 | | | 13.9 | % | | $ | 193,644 | | | $ | 187,324 | | | 3.4 | % |
Diluted earnings per share | $ | 1.26 | | | $ | 1.10 | | | 14.1 | % | | $ | 2.65 | | | $ | 2.56 | | | 3.6 | % |
Net income decreased 4%increased 13.9% to $81,549,$91,965, or $1.12$1.26 per diluted share, for the thirdsecond quarter of fiscal 20232024 compared to $84,707,$80,775, or $1.16$1.10 per diluted share, in the same quarter of fiscal 2022.2023. Reducing net income by deconversion fee net income of $3,861$2,890 for the current fiscal quarter, and $11,666by deconversion net income and the effect of the gain on disposal of assets, net, of $4,152 and $918, respectively, for the prior fiscal year fiscalsecond quarter, and increasing net
income for the current fiscal quarter by an acquisition net loss of $4,938, results in a 13%17.7% increase quarter over quarter. This increase was primarily due to net organic growth in our lines of revenue partially offset by higher operating expenses and increased provision for income taxes in the second quarter of fiscal 2024 compared to the same quarter last fiscal year.
Net income decreased 5%increased 3.4% to $268,873,$193,644, or $3.68$2.65 per diluted share, for the ninesix months ended MarchDecember 31, 2023, compared to $282,490,$187,324, or $3.84$2.56 per diluted share, in the same period of fiscal 2022. Reducing2023. Removing from net income bythe effects of deconversion fee net income of $10,880$5,744, net loss from the acquisition of $3,539, and anet loss from the VEDIP program of $12,497 for the current fiscal year period, and for the effects of deconversion net income of $7,090 and the gain on disposalsale of assets, net, of $5,556 for the current fiscal period and $32,417$5,612 for the prior year fiscal period, and increasing net income for the current fiscal period by an acquisition net loss of $12,213, results in a 6%16.8% increase period over period. This increase was primarily due to net organic growth in our lines of revenue partially offset by higher operating expenses and increased provision for income taxes in the six months ended December 31, 2023 compared to the same period last fiscal year.
REPORTABLE SEGMENT DISCUSSION
The Company is a well-rounded financial technology company and is a leading provider of technology solutions and payment processing services primarily forto community and regional financial services organizations.institutions.
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 processing services; online and mobile bill pay solutions; ACH origination and remote deposit capture processing; and risk management products and services. The Complementary segment provides additional software, hosted processing platforms, and services, including call center support, and network security management, consulting, and monitoring, that can be integrated with our core solutions, and many can be used independently. The Corporate and Other segment includes revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating costsexpenses not directly attributable to the other three segments.segments, except for items that are deemed unassigned and excluded from any segment.
Immaterial adjustments have been made between segments to reclassify revenue and cost of revenue that was recognized for the three and six months ended December 31, 2022. 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, 2022, from Core to Corporate and Other was $1,851 and $3,661, respectively, from Payments to Corporate and Other was $10 and $16, respectively, and from Complementary to Corporate and Other
Table of | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core |
| Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Revenue | $ | 156,903 | | | $ | 150,799 | | | 4 | % | | $ | 487,417 | | | $ | 470,962 | | | 3 | % |
Cost of Revenue | $ | 71,705 | | | $ | 66,576 | | | 8 | % | | $ | 212,269 | | | $ | 198,032 | | | 7 | % |
Contents was $174 and $108, respectively. Cost of revenue reclassed for the three and six months ended December 31, 2022, from Core to Corporate and Other was $1,658 and $3,294, respectively, from Payments to Corporate and Other was $658 and $1,261, respectively, and from Complementary to Corporate and Other was $326 and $659, respectively.
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|
Core | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Revenue | $ | 165,601 | | | $ | 153,539 | | | 7.9 | % | | $ | 352,041 | | | $ | 326,853 | | | 7.7 | % |
Cost of Revenue | $ | 69,370 | | | $ | 66,666 | | | 4.1 | % | | $ | 145,296 | | | $ | 137,270 | | | 5.8 | % |
Revenue in the Core segment increased 4%7.9% and cost of revenue increased 8%4.1% for the three months ended MarchDecember 31, 2023, compared to the three months ended MarchDecember 31, 2022. Reducing Core revenue for deconversion fee revenue in both quarters, which totaled $2,315$1,929 for the third quarter of fiscalthree months ended December 31, 2023, and $8,154$2,115 for the third quarter of fiscalthree months ended December 31, 2022, results in an 8%8.1% increase quarter over quarter. This increase was primarily driven by growth in data processing and hosting fee revenue. The cost of revenue increase was primarily driven by higher personnel costs, including benefits expenses,revenues as new and increased direct support costs. Core segment deconversion fee costs did not significantly affect theexisting customers migrate to our private cloud and processing volumes expand. Reducing Core cost of revenue for deconversion costs in both quarters, which totaled $321 for the three months ended December 31, 2023 and $277 for the three months ended December 31, 2022, results in a 4.0% increase quarter over quarter. This increase was primarily due to increased direct costs related to increases in revenue. Cost of revenue increaseddecreased 2% as a percentage of revenue for the thirdsecond quarter of fiscal 20232024 compared to the same quarter ofin fiscal 2022.2023.
Revenue in the Core segment increased 3%7.7% and cost of revenue increased 7%5.8% for the ninesix months ended MarchDecember 31, 2023, compared to the ninesix months ended MarchDecember 31, 2022. Reducing Core revenue for deconversion fee revenue in both periods, which totaled $6,248$3,595 for the ninesix months ended MarchDecember 31, 2023, and $21,176$3,933 for the ninesix months ended MarchDecember 31, 2022, results in a 7%7.9% increase period over period. This increase was primarily driven by the growth in data processing and hosting revenues as new and software usage fee revenues.existing customers migrate to our private cloud and processing volumes expand. Reducing Core cost of revenue for deconversion fee costs in both periods, which totaled $656$425 for the ninesix months ended MarchDecember 31, 2023 and $1,378$418 for the ninesix months ended MarchDecember 31, 2022 results in an 8%a 5.9% increase period over period. This increase was primarily due to increased direct support costs and higher personnel costs, including benefits expenses.related to increases in revenue. Cost of revenue increased 2%decreased 1% as a percentage of revenue for the ninesix months ended MarchDecember 31, 2023, compared to the same period ofin fiscal 2022.2023.
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Payments | | | | | | | | | | | |
| Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Revenue | $ | 191,840 | | | $ | 180,518 | | | 6 | % | | $ | 569,867 | | | $ | 538,615 | | | 6 | % |
Cost of Revenue | $ | 106,878 | | | $ | 95,970 | | | 11 | % | | $ | 316,104 | | | $ | 287,518 | | | 10 | % |
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| | | | | | | | | | | |
Payments | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| 2023 | | 2022 | | | | 2023 | | 2022 | | |
Revenue | $ | 203,839 | | | $ | 191,477 | | | 6.5 | % | | $ | 403,195 | | | $ | 378,010 | | | 6.7 | % |
Cost of Revenue | $ | 111,623 | | | $ | 107,413 | | | 3.9 | % | | $ | 220,449 | | | $ | 207,965 | | | 6.0 | % |
Revenue in the Payments segment increased 6%6.5% and cost of revenue increased 11%3.9% for the thirdsecond quarter of fiscal 20232024 compared to the equivalent quarter of the prior fiscal year. Reducing Payments revenue for deconversion fee revenue in both quarters, which totaled $1,643$1,555 for the thirdsecond quarter of fiscal 2024 and $1,336 for the second quarter of fiscal 2023 and $4,703 for the third quarter of fiscal 2022 and for revenue from acquisitions of $2,658 from the current fiscal year quarter, results in a 7%6.4% increase quarter over quarter. This increase was primarily due to higher card revenue primarily from expanded fraud detection and prevention revenues and organic growth in transaction volumes, and higher remote capture and ACH and payment processing fee revenues.revenues primarily from expanding volumes and new customer revenue. Reducing Payments cost of revenue for deconversion fee costs in both quarters, which totaled $62$51 for the thirdsecond quarter of fiscal 2024 and $95 for the second quarter of fiscal 2023, and $28 for the third quarter of fiscal 2022, and for cost of revenue from acquisition of $5,102 from the current fiscal year quarter, results in a 6%4.0% increase quarter over quarter. This increase was primarily due to higher direct costs related to increases in line with associated revenues, higher amortization of intangible assets, and higher personnel costs, including benefits expenses.revenue. Cost of revenue as a percentage of revenue increased 3%decreased 1% for the thirdsecond quarter of fiscal 20232024 compared to the same quarter ofin fiscal 2022.2023.
Revenue in the Payments segment increased 6%6.7% and cost of revenue increased 10%6.0% for the ninesix months ended MarchDecember 31, 2023, compared to the equivalent period of the prior fiscal year. The revenue increase was primarily due to increased card and payment processing fee revenues. Payments segment deconversion fee and acquisition revenues did not significantly affect the Payments segment revenue increase period over period. Reducing Payments cost of revenue for deconversion fee costsrevenue in both periods, which totaled $221$2,560 for the ninesix months ended MarchDecember 31, 2023 and $317$2,771 for the ninesix months ended MarchDecember 31, 2022, and for costacquisition revenue of revenue from acquisition of $12,444$1,945 from the current fiscal year period, results in a 6%6.2% increase period over period. This increase was primarily due to higher card revenue primarily from expanded fraud detection and prevention revenues and organic growth in transaction volumes, higher payment processing revenue primarily from expanding volumes and new customer revenue, and remote capture and ACH revenue. Reducing Payments cost of revenue for deconversion costs in both periods, which totaled $98 for the six months ended December 31, 2023 and $159 for the six months ended December 31, 2022, and for cost
of revenue from the acquisition of $3,313 from the current fiscal year period, results in a 4.4% increase period over period. This increase was primarily due to higher direct costs related to increases in line with associated revenues higher amortization of intangible assets, and higher personnel costs including benefits expenses.from an increase in employee headcount in the trailing twelve months. Cost of revenue as a percentage of revenue increased 2%remained consistent for the ninesix months ended MarchDecember 31, 2023, compared to the same period ofin fiscal 2022.2023.
| | Complementary | | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
Complementary | |
Complementary | | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| | 2023 | | 2022 | | | | 2023 | | 2022 | | |
Revenue | Revenue | $ | 142,122 | | | $ | 133,821 | | | 6 | % | | $ | 432,769 | | | $ | 408,137 | | | 6 | % |
Revenue | |
Revenue | | $ | 152,466 | | | $ | 142,121 | | | 7.3 | % | | $ | 313,833 | | | $ | 290,539 | | | 8.0 | % |
Cost of Revenue | Cost of Revenue | $ | 61,366 | | | $ | 57,740 | | | 6 | % | | $ | 179,074 | | | $ | 168,139 | | | 7 | % | Cost of Revenue | $ | 64,023 | | | $ | | $ | 58,944 | | | 8.6 | | 8.6 | % | | $ | 126,298 | | | $ | | $ | 117,049 | | | 7.9 | | 7.9 | % |
Revenue in the Complementary segment increased 6%7.3% and cost of revenue increased 6%8.6% for the thirdsecond quarter of fiscal 20232024 compared to the equivalent quarter of the prior fiscal year. Reducing Complementary revenue for deconversion fee revenue in both quarters,periods, which totaled $2,170$1,355 for the thirdsecond quarter of fiscal 2024 and $2,914 for the second quarter of fiscal 2023 and $4,540 for the third quarter of fiscal 2022, results in an 8%8.6% increase quarter over quarter. This increase was primarily driven by higher hosting fees and Jack Henry digital revenues.revenue as active users increased and volumes expanded from existing products and new products were introduced, and hosting revenues as new and existing customers continued to migrate to our private cloud and processing volumes expanded. Reducing Complementary cost of revenue for deconversion fee costs in both quarters, which totaled $165$249 for the thirdsecond quarter of fiscal 2024 and $174 for the second quarter of fiscal 2023, and $475 for the third quarter of fiscal 2022, results in a 7%an 8.5% increase quarter over quarter. This increase was primarily due to increased amortization of intangible assetscapitalized software from capital software development projects and higher direct costs related to increases in line with associated revenues. Cost of revenue as a percentage of revenue remained consistent for the thirdsecond quarter of fiscal 20232024 compared to the same quarter ofin fiscal 2022.2023.
Revenue in the Complementary segment increased 6%8.0% and cost of revenue increased 7%7.9% for the ninesix months ended MarchDecember 31, 2023, compared to the equivalent period of the prior fiscal year. Reducing Complementary revenue for deconversion fee revenue in both periods, which totaled $6,319$2,806 for the ninesix months ended MarchDecember 31, 2023 and $13,554$4,149 for the ninesix months ended MarchDecember 31, 2022, results in an 8%8.6% increase period over period. This increase was primarily driven by higher hosting fees and Jack Henry digital revenues. Cost of revenue growth was primarily dueas active users increased and volumes expanded from existing products and new products were introduced, and hosting revenues, as new and existing customers continued to increased direct costs in line with associated revenues, higher personnel costs, including benefits expenses,migrate to our private cloud and increased amortization of intangible assets.processing volumes expanded. Complementary segment deconversion fee costs did not significantly affect the Complementary segment cost of revenue increase period over period. The Complementary segment cost of revenue increase was primarily due to higher direct costs related to increases in revenue, increased amortization of capitalized software from capital software development projects, and higher internal licenses and fees. Cost of revenue as a percentage of revenue remained consistent for the ninesix months ended MarchDecember 31, 2023, compared to the same period ofin fiscal 2022.2023.
| | Corporate and Other | | Three Months Ended March 31, | | % Change | | Nine Months Ended March 31, | | % Change |
Corporate and Other | |
Corporate and Other | | Three Months Ended December 31, | | % Change | | Six Months Ended December 31, | | % Change |
| | 2023 | | 2022 | | | | 2023 | | 2022 | | |
Revenue | Revenue | $ | 17,687 | | | $ | 13,122 | | | 35 | % | | $ | 53,016 | | | $ | 42,498 | | | 25 | % |
Revenue | |
Revenue | | $ | 23,795 | | | $ | 18,177 | | | 30.9 | % | | $ | 48,000 | | | $ | 39,114 | | | 22.7 | % |
Cost of Revenue | Cost of Revenue | $ | 67,396 | | | $ | 62,053 | | | 9 | % | | $ | 202,748 | | | $ | 188,110 | | | 8 | % | Cost of Revenue | $ | 75,963 | | | $ | | $ | 71,566 | | | 6.1 | | 6.1 | % | | $ | 151,938 | | | $ | | $ | 140,565 | | | 8.1 | | 8.1 | % |
Revenue classified in the Corporate and Other segment includes revenues from other products and services and hardware not specifically attributed to any of the other three segments. Revenue in the Corporate and Other
segment increased 35%30.9% for the thirdsecond quarter of fiscal 20232024 compared to the equivalent quarter of the prior fiscal year. TheThis increase quarter over quarter was primarily due to higher hardware revenues.user group revenues related to the user group meeting held in the current quarter that was held during the first quarter in the prior fiscal year. Corporate and Other segment deconversion fee revenue did not significantly affect the Corporate and Other revenue increase quarter over quarter.
Cost of revenue for the Corporate and Other segment includes operating costsexpenses not directly attributable to any of the other three segments. The cost of revenue in the thirdsecond quarter of fiscal 20232024 increased 9%6.1% when compared to the prior fiscal year quarterquarter. This increase was primarily due to higher internal licenses and fees and cost of hardware.quarter over quarter. Corporate and Other segment deconversion fee and acquisition costs did not significantly affect the Corporate and Other cost of revenue increase quarter over quarter.
Revenue in the Corporate and Other segment increased 25%22.7% for the ninesix months ended MarchDecember 31, 2023, compared to the equivalent period of the prior fiscal year. TheThis increase period over period was primarily due to higher hardware revenues.and other processing revenues period over period. Corporate and Other segment deconversion fee revenue did not significantly affect the Corporate and Other revenue increase period over period.
The cost of revenue in the ninesix months ended MarchDecember 31, 2023, increased 8%8.1% when compared to the prior fiscal year periodperiod. This increase was primarily due to higher internal licenses and fees, increased personnel costs, including salaries and benefits expenses, and higher cost of hardware costs.related to the revenue increase. Corporate and Other segment deconversion fee and acquisition costs did not significantly affect the Corporate and Other cost of revenue increase period over period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreasedincreased to $26,552$26,709 at MarchDecember 31, 2023, from $48,787$12,243 at June 30, 2022.2023.
The following table summarizes net cash from operating activities in the statement of cash flows:
| | Nine Months Ended |
| March 31, |
| 2023 | | 2022 |
| Six Months Ended | | | Six Months Ended |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
Net income | Net income | $ | 268,873 | | | $ | 282,490 | |
Non-cash expenses | Non-cash expenses | 120,204 | | | 168,187 | |
Change in receivables | Change in receivables | 110,686 | | | 83,868 | |
Change in deferred revenue | Change in deferred revenue | (184,130) | | | (177,987) | |
Change in other assets and liabilities | Change in other assets and liabilities | (108,602) | | | (55,161) | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 207,031 | | | $ | 301,397 | |
Cash provided by operating activities for the first ninesix months of fiscal 2023 decreased 31%2024 increased 25% compared to the same period last year partiallyprimarily due to higher cash taxes paida lower decrease in the current year related to tax law changes requiring capitalization of research and development and software development costs for tax purposes as well as higher year to date prepaidaccrued expenses due to timing.period over period. Cash from operations is primarily used to repay debt, pay dividends, repurchase stock, for capital expenditures, and acquisitions.
Cash used in investing activities for the first ninesix months of fiscal 20232024 totaled $355,561$110,959 and included: $229,628 for an acquisition; $124,110$83,408 for the ongoing enhancementsenhancement and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $27,237; $1,471$24,458; $2,971 for the purchase and development of internal use software,software; and $1,000 for the purchase of a certificateinvestment of deposit.$1,000. Cash uses were partially offset by proceeds from the sale of assets of $27,885.$878. Cash used in investing activities for the first ninesix months of fiscal 20222023 totaled $145,024$301,192 and included $108,950included: $229,628 for an acquisition; $81,046 for the development of software; $17,376 for capital expenditures of $28,386;expenditures; and $7,726$1,027 for the purchase and development of internal use software. Cash uses were partially offset by proceeds from the sale of assets of $38.$27,885.
Financing activities providedused cash of $126,295$113,247 for the first ninesix months of fiscal 20232024 and included payments on credit facilities of $240,000, dividends paid to stockholders of $75,722, and purchases of treasury stock of $20,000. Cash uses were partially offset by borrowings on credit facilities of $550,000$220,000 and $700$2,475 net cash inflow from the issuance of stock and tax withholding related to stock-based compensation. ProvidedFinancing activities provided cash wasof $87,457 in the first six months of fiscal 2023 and included borrowings on credit facilities of $365,000 partially offset by payments on credit facilities and financing leases of $290,059, dividends paid to stockholders of $109,346, and purchases of treasury stock of $25,000. Financing activities used cash of $167,568 in the first nine months of fiscal 2022 including purchases of treasury stock of $193,916, repayments on credit facilities and financing leases of $167,091, and $103,376$205,042, $71,454 for the payment of dividends. These uses of cash were partially offset by borrowings on credit facilities of $292,000dividends, and $4,815$1,047 net cash inflowoutflow from the issuance of stock and tax withholding related to stock-based compensation.
Capital Requirements and Resources
The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $27,237$24,458 and $28,386$17,376 for the ninesix months ended MarchDecember 31, 2023, and MarchDecember 31, 2022, respectively, were made primarily for additional equipment and the improvement of existing facilities. These additions were funded from cash generated by operations. Total consolidated capital expenditures on facilities and equipment for the Company for fiscal year 20232024 are expected to be approximately $41,000$77,000 and have been or will be funded from our credit facilities and cash generated by operations.
In July 2023, the Company conducted a voluntary separation program for certain eligible employees that includes a voluntary employee departure incentive payment (VEDIP) for the eligible employees who chose to participate in the program. The Company made payments associated with the VEDIP program in the approximate amount of $16,443 from July 2023 through December 2023, including immaterial payments continuing into calendar 2024.
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 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.
On September 29, 2022,8, 2023, the Company entered into an agreement with Twilio Inc., whicha contract to purchase fixed assets that added contractual spend obligations of $30,392 for the period October 1, 2022,of December 15, 2023, through SeptemberJune 30, 2027, of $16,350.2025. This commitment is in addition to the commitments discussed in our Annual Report on Form 10-K for the year ended June 30, 2022.2023.
On December 27, 2022, the Company renewed an agreement with Microsoft, Inc., which added contractual spend obligations for the period January 1, 2023, through June 30, 2026, of $20,000 for Microsoft Azure Cloud services, and added contractual spend obligations for the period January 1, 2023, through June 30, 2026, of $49,000 for Server and Application licensing under the Microsoft Server and Cloud Enrollment Program.
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 MarchDecember 31, 2023, there were 31,323 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,667 additional shares. The total cost of treasury shares at December 31, 2023, was $1,852,118, and the Company repurchased 129 shares during the first six months of fiscal 2024. At June 30, 2023, there were 31,194 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,796 additional shares. The total cost of treasury shares at March 31,June 30, 2023, was $1,832,118. During$1,832,118 and the Company repurchased no shares during the first ninesix months of fiscal 2023, the Company repurchased 151 shares. At 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 June 30, 2022, was $1,807,118. During the first nine months of fiscal 2022, the Company repurchased 1,250 shares.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA made several changes to the U.S. tax code including, but not limited to, a 1% excise tax on net stock repurchases and tax incentives to promote clean energy. The Company does not expect the IRA to have a material impact on its financial statements.2023.
Credit facilities
On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced thea prior credit agreement described below.facility that was entered into on February 10, 2020. The credit agreement allows for borrowings of up to $600,000, which may be increased to $1,000,000 by the Company to $1,000,000 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"(“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 MarchDecember 31, 2023, the Company was in compliance with all such covenants. The amended and restated credit facility terminates August 31, 2027. There was $375,000$75,000 and $95,000 outstanding under the amended and restated credit facility at MarchDecember 31, 2023.
On2023 and June 30, 2022, there was a $115,000 outstanding balance on2023, respectively.
Term loan facility
On May 16, 2023, the prior credit facility that wasCompany entered into on February 10, 2020. The priora term loan credit agreement with a syndicate of financial institutions, with an original principal balance of $180,000. Borrowings under the term loan facility was a five-year senior, unsecured revolving credit facility. The 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 borebear interest at a variable rate equal to (a) a rate based on a eurocurrencyan adjusted SOFR term rate
or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime ratePrime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the eurocurrency rateAdjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one-month interest periodone month Interest Period on such day for dollarsDollars plus 0.75%), plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The priorterm loan credit facility wasagreement is guaranteed by certain subsidiaries of the Company and wasis subject to various financial covenants that requiredrequire the Company to maintain certain financial ratios as defined in the priorterm loan credit agreement. As of June 30, 2022,December 31, 2023, the Company was in compliance with all such covenants. The priorterm loan credit facility's terminationagreement has a maturity date of May 16, 2025. There was February 10, 2025.
The increase in$180,000 outstanding under the outstanding credit facility balance of $260,000term loan at MarchDecember 31, 2023 compared toand June 30, 2022, was primarily due to the acquisition of Payrailz and the increase in cash taxes paid during the nine months ended March 31, 2023. This borrowing, along with recent increases in prevailing interest rates, is expected to contribute to increased interest expense during fiscal 2023, and until our outstanding balances are reduced.
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, 2024.2025. There was no balance outstanding at MarchDecember 31, 2023, or June 30, 2022.2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dollar amounts in this item are in thousands.
Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, volatilities, correlations or other market factors such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. We are currently exposed to credit risk on credit extended to customers and at times are exposed to interest rate risk on outstanding debt. We do not currently use any derivative financial instruments. We actively monitor these risks through a variety of controlled procedures involving senior management.
Based on the controls in place and the credit worthiness of the customer base, we believe the credit risk associated with the extension of credit to our customers will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
We had $375,000$255,000 outstanding debt with variable interest rates as of MarchDecember 31, 2023, and a 1% increase in our borrowing rate would increase our annual interest expense by $3,750.$2,550.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including the Company's Chief Executive Officer ("CEO"(“CEO”) and Chief Financial Officer ("CFO"(“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation (required in Exchange Act Rules 13a-15(b) and 15d-15(b)), the CEO and CFO concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended MarchDecember 31, 2023, there were no changes in the Company's internal control over financial reporting which were identified in connection with management’s evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to various routine legal proceedings and claims arising in the ordinary course of our business. In the opinion of management, any liabilities resulting from current lawsuits are not expected, either individually or in the aggregate, to have a material adverse effect on our consolidated financial statements. In accordance with U.S. GAAP, we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These liabilities are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case or proceeding.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following shares of the Company were repurchased during the quarter ended MarchDecember 31, 2023:
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| Total Number of Shares Purchased | | Average Price of Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (1) |
January 1 - January 31, 2023 | — | | | — | | | — | | | 3,947,713 | |
February 1 - February 28, 2023 | 116,768 | | | $ | 171.28 | | | 116,768 | | | 3,830,945 | |
March 1 - March 31, 2023 | 34,680 | | | 144.15 | | | 34,680 | | | 3,796,265 | |
Total | 151,448 | | | $ | 165.07 | | | 151,448 | | | 3,796,265 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price of Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (1) |
October 1 - October 31, 2023 | — | | | $ | — | | | — | | | 3,667,497 | |
November 1 - November 30, 2023 | — | | | — | | | — | | | 3,667,497 | |
December 1 - December 31, 2023 | — | | | — | | | — | | | 3,667,497 | |
Total | — | | | $ | — | | | — | | | 3,667,497 | |
(1) Total stock repurchase authorizations approved by the Company's Board of Directors as of May 14, 2021, were for 35,000,000 shares. Under these authorizations, the Company has repurchased and not re-issued 31,194,35131,323,119 shares and has repurchased and re-issued 9,384 shares. These authorizations have no specific dollar or share price targets and no expiration dates.
ITEM 5. OTHER INFORMATION
Rule 10b-5(1) Trading Plans
During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
101.INS* XBRL Instance Document- the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Furnished with this quarterly report on Form 10-Q are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at MarchDecember 31, 2023, and June 30, 2022,2023, (ii) the Condensed Consolidated Statements of Income for the three and ninesix months ended MarchDecember 31, 2023, and 2022, (iii) the Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and ninesix months ended MarchDecember 31, 2023, and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the ninesix months ended MarchDecember 31, 2023, and 2022, and (v) Notes to Condensed Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | JACK HENRY & ASSOCIATES, INC. |
| | | |
Date: | MayFebruary 8, 20232024 | | /s/ David B. Foss |
| | | David B. Foss |
| | | Chief Executive Officer and Board Chair |
| | | |
Date: | MayFebruary 8, 20232024 | | /s/ Mimi L. Carsley |
| | | Mimi L. Carsley |
| | | Chief Financial Officer and Treasurer |