Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2019
OR
 
 
( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________ to ________________
Commission file number 0-14112
JACK HENRY & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
43-1128385
(State or Other Jurisdiction of Incorporation)
 
(I.R.S Employer Identification No.)
663 Highway 60, P.O. Box 807, Monett, MO 65708
(Address of Principle Executive Offices)
(Zip Code)

417-235-6652
(Registrant’s telephone number, including area code)

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 [ X ]  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 [ X ]  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
[X]
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 [ X ]
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
As of April 30, 2019, the Registrant had 77,203,651 shares of Common Stock outstanding ($0.01 par value).



TABLE OF CONTENTS
 
 
Page Reference
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Condensed Consolidated Balance Sheets as of March 31, 2019 and June 30, 2018 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2019 and 2018 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended March 31, 2019 and March 31, 2018
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and 2018 (Unaudited)
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
ITEM 4.
Controls and Procedures
 
 
 
PART II
OTHER INFORMATION
 
 
 
ITEM1.
Legal Proceedings
 
 
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
ITEM 6.
Exhibits
 
 
 
 
Signatures
 
 
 

In this report, all references to “JHA”, 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. 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,” “anticipate,” “estimate,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements are identified at “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.


2


PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS

3

Table of Contents

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
March 31,
2019
 
June 30,
2018
 
 
 
*As Adjusted
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
35,398

 
$
31,440

Receivables, net
190,768

 
297,271

Income tax receivable
17,215

 
21,671

Prepaid expenses and other
106,032

 
96,141

Deferred costs
39,143

 
27,069

Total current assets
388,556

 
473,592

PROPERTY AND EQUIPMENT, net
279,948

 
286,850

OTHER ASSETS:
 
 
 
Non-current deferred costs
85,205

 
74,865

Computer software, net of amortization
311,122

 
288,172

Other non-current assets
133,639

 
110,299

Customer relationships, net of amortization
104,912

 
115,034

Other intangible assets, net of amortization
32,639

 
38,467

Goodwill
666,858

 
649,929

Total other assets
1,334,375

 
1,276,766

Total assets
$
2,002,879

 
$
2,037,208

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
10,907

 
$
34,510

Accrued expenses
95,959

 
88,764

Notes payable and current maturities of long-term debt
35,000

 

Deferred revenues
188,999

 
352,431

Total current liabilities
330,865

 
475,705

LONG-TERM LIABILITIES:
 
 
 
Non-current deferred revenues
18,909

 
17,484

Non-current deferred income tax liability
212,608

 
208,303

Other long-term liabilities
14,494

 
12,872

Total long-term liabilities
246,011

 
238,659

Total liabilities
576,876

 
714,364

STOCKHOLDERS' EQUITY
 
 
 
Preferred stock - $1 par value; 500,000 shares authorized, none issued

 

Common stock - $0.01 par value; 250,000,000 shares authorized;
103,454,889 shares issued at March 31, 2019;
103,278,562 shares issued at June 30, 2018
1,035

 
1,033

Additional paid-in capital
465,649

 
464,138

Retained earnings
2,035,855

 
1,912,933

Less treasury stock at cost
26,257,903 shares at March 31, 2019;
26,107,903 shares at June 30, 2018
(1,076,536
)
 
(1,055,260
)
Total stockholders' equity
1,426,003

 
1,322,844

Total liabilities and equity
$
2,002,879

 
$
2,037,208

See notes to condensed consolidated financial statements
*Refer to Note 2 for the impact to previously presented financial statements as a result of the adoption of ASC 606

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
*As Adjusted

 
 
 
*As Adjusted
REVENUE
$
380,364

 
$
374,048

 
$
1,159,182

 
$
1,092,541

 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
Cost of Revenue
235,594

 
218,517

 
682,990

 
629,532

Research and Development
23,442

 
22,591

 
71,458

 
65,934

Selling, General, and Administrative
44,887

 
42,233

 
136,866

 
126,415

Gain on Disposal of a Business

 

 

 
(1,894
)
Total Expenses
303,923

 
283,341

 
891,314

 
819,987

 
 
 
 
 
 
 
 
OPERATING INCOME
76,441

 
90,707

 
267,868

 
272,554

 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest Income
155

 
130

 
697

 
424

Interest Expense
(224
)
 
(734
)
 
(520
)
 
(1,173
)
Total Interest Income (Expense)
(69
)
 
(604
)
 
177

 
(749
)
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
76,372

 
90,103

 
268,045

 
271,805

 
 
 
 
 
 
 
 
PROVISION/ (BENEFIT) FOR INCOME TAXES
17,120

 
21,017

 
57,153

 
(25,394
)
 
 
 
 
 
 
 
 
NET INCOME
$
59,252

 
$
69,086

 
$
210,892

 
$
297,199

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.77

 
$
0.89

 
$
2.73

 
$
3.85

Basic weighted average shares outstanding
77,177

 
77,247

 
77,194

 
77,249

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.77

 
$
0.89

 
$
2.72

 
$
3.83

Diluted weighted average shares outstanding
77,286

 
77,546

 
77,411

 
77,586


See notes to condensed consolidated financial statements
*Refer to Note 2 for the impact to previously presented financial statements as a result of the adoption of ASC 606

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
PREFERRED SHARES:

 

 

 

 
 
 
 
 
 
 
 
COMMON SHARES:
 
 
 
 
 
 
 
Shares, beginning of period
103,428,416

 
103,218,206

 
103,278,562

 
103,083,299

Shares issued for equity-based payment arrangements
4,722

 
11,970

 
120,119

 
110,162

Shares issued for Employee Stock Purchase Plan
21,751

 
19,233

 
56,208

 
55,948

Shares, end of period
103,454,889

 
103,249,409

 
103,454,889

 
103,249,409

 
 
 
 
 
 
 
 
COMMON STOCK - PAR VALUE $0.01 PER SHARE:
 
 
 
 
 
 
 
Balance, beginning of period
$
1,034

 
$
1,032

 
$
1,033

 
$
1,031

Shares issued for equity-based payment arrangements

 

 
1

 
1

Shares issued for Employee Stock Purchase Plan
1

 

 
1

 

Balance, end of period
$
1,035

 
$
1,032

 
$
1,035

 
$
1,032

 
 
 
 
 
 
 
 
ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
 
Balance, beginning of period
$
459,988

 
$
452,841

 
$
464,138

 
$
452,016

Shares issued for equity-based payment arrangements

 
175

 
(1
)
 
174

Tax withholding related to share based compensation
(313
)
 
(135
)
 
(13,797
)
 
(7,278
)
Shares issued for Employee Stock Purchase Plan
2,469

 
2,010

 
6,658

 
5,370

Stock-based compensation expense
3,505

 
3,225

 
8,651

 
7,834

Balance, end of period
$
465,649

 
$
458,116

 
$
465,649

 
$
458,116

 
 
 
 
 
 
 
 
RETAINED EARNINGS:
 
 
 
 
 
 
 
Balance, beginning of period
$
2,007,469

 
$
1,756,419

 
$
1,856,917

 
$
1,585,278

Cumulative effect of ASC 606 adoption*

 
76,769

 
56,016

 
67,642

Net income*
59,252

 
69,086

 
210,892

 
297,199

Dividends
(30,866
)
 
(28,584
)
 
(87,970
)
 
(76,429
)
Balance, end of period
$
2,035,855

 
$
1,873,690

 
$
2,035,855

 
$
1,873,690

 
 
 
 
 
 
 
 
TREASURY STOCK:
 
 
 
 
 
 
 
Balance, beginning of period
$
(1,076,536
)
 
$
(1,036,292
)
 
$
(1,055,260
)
 
$
(1,006,274
)
Purchase of treasury shares

 

 
(21,276
)
 
(30,018
)
Balance, end of period
$
(1,076,536
)
 
$
(1,036,292
)
 
$
(1,076,536
)
 
$
(1,036,292
)
 
 
 
 
 
 
 
 
TOTAL STOCKHOLDERS' EQUITY
$
1,426,003

 
$
1,296,546

 
$
1,426,003

 
$
1,296,546

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.40

 
$
0.37

 
$
1.14

 
$
0.99

See notes to condensed consolidated financial statements.
*Prior period retained earnings and net income have been adjusted as a result of the adoption of ASC 606. Refer to Note 2 for the impact to previously presented Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Income. Other components of stockholders' equity were not impacted.

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended
 
March 31,
 
2019
 
2018
 
 
 
*As Adjusted
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
210,892

 
$
297,199

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
Depreciation
34,722

 
36,470

Amortization
84,605

 
75,787

Change in deferred income taxes
3,287

 
(86,593
)
Expense for stock-based compensation
8,651

 
7,834

(Gain)/loss on disposal of assets and businesses
183

 
(1,673
)
Changes in operating assets and liabilities:
 
 
 
Change in receivables  
107,535

 
141,799

Change in prepaid expenses, deferred costs and other
(55,639
)
 
(60,248
)
Change in accounts payable
(10,254
)
 
(432
)
Change in accrued expenses
7,115

 
(4,172
)
Change in income taxes
5,014

 
12,187

Change in deferred revenues
(162,742
)
 
(183,286
)
Net cash from operating activities
233,369

 
234,872

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Payment for acquisitions, net of cash acquired
(19,981
)
 
(137,654
)
Capital expenditures
(42,417
)
 
(17,858
)
Proceeds from the sale of businesses

 
350

Proceeds from the sale of assets
95

 
258

Customer contracts acquired
(20
)
 

Internal use software
(4,266
)
 
(6,965
)
Computer software developed
(81,438
)
 
(72,186
)
Purchase of investments

 
(5,000
)
Net cash from investing activities
(148,027
)
 
(239,055
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings on credit facilities
35,000

 
125,000

Repayments on credit facilities

 
(70,000
)
Purchase of treasury stock
(21,276
)
 
(30,018
)
Dividends paid
(87,970
)
 
(76,429
)
Proceeds from issuance of common stock upon exercise of stock options
1

 
176

Tax withholding payments related to share based compensation
(13,798
)
 
(7,279
)
Proceeds from sale of common stock
6,659

 
5,370

Net cash from financing activities
(81,384
)
 
(53,180
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
3,958

 
$
(57,363
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
31,440

 
$
114,765

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
35,398

 
$
57,402


See notes to condensed consolidated financial statements
*Refer to Note 2 for the impact to previously presented financial statements as a result of the adoption of ASC 606

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JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
(Unaudited)

NOTE 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Jack Henry & Associates, Inc. and subsidiaries (“JHA” or the “Company”) is a provider of integrated computer systems and services that has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide together with computer equipment (hardware), by providing the conversion and implementation services for financial institutions to utilize JHA systems, and by providing other related services. JHA also provides continuing support and services to customers using in-house or outsourced systems.
Consolidation
The condensed consolidated financial statements include the accounts of JHA 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 nine months ended March 31, 2019 and 2018 equals the Company’s net income.
Prior Period Reclassification
The prior year periods have been recast to reflect the Company's retrospective adoption of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, and related amendments, collectively referred to as Accounting Standards Codification ("ASC") 606.
Revenue Recognition
The Company generates revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales.
Significant Judgments in Application of the Guidance
Identification of Performance Obligations
The Company enters into contracts with customers that may include multiple types of goods and services. At contract inception, the Company assesses the solutions and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - that is, if the solution or service is separately identifiable from other items in the arrangement and if the customer can benefit from the solution or service on its own or together with other resources that are readily available. The Company recognizes revenue when or as it satisfies each performance obligation by transferring control of a solution or service to the customer.
Determination of Transaction Price
The amount of revenue recognized is based on the consideration the Company expects to receive in exchange for transferring goods and services to the customer. The Company’s contracts with its customers frequently contain some component of variable consideration. The Company estimates variable consideration in its contracts primarily using the expected value method, based on both historical and current information. Where appropriate, the Company may constrain the estimated variable consideration included in the transaction price in the event of a high degree of uncertainty as to the final consideration amount.
Taxes collected from customers and remitted to governmental authorities are not included in revenue. The Company includes reimbursements from customers for expenses incurred in providing services (such as for postage, travel and telecommunications costs) in revenue, while the related costs are included in cost of revenue.
Technology or service components from third parties are frequently included in or combined with the Company’s applications or service offerings. Whether the Company recognizes revenue based on the gross amount billed to the customer or the net amount retained involves judgment in determining whether the Company controls the good or service before it is transferred to the customer. This assessment is made at the performance obligation level.

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Allocation of Transaction Price
The transaction price, once determined, is allocated between the various performance obligations in the contract based upon their relative standalone selling prices. The standalone selling prices are determined based on the prices at which the Company separately sells each good or service. For items that are not sold separately, the Company estimates the standalone selling prices using all information that is reasonably available, including reference to historical pricing data.
The following describes the nature of the Company’s primary types of revenue:
Processing
Processing revenue is generated from transaction-based fees for electronic deposit and payment services, electronic funds transfers and debit and credit card processing. The Company’s arrangements for these services typically require the Company to “stand-ready” to provide specific services on a when and if needed basis by processing an unspecified number of transactions over the contractual term. The fees for these services may be fixed or variable (based upon performing an unspecified quantity of services), and pricing may include tiered pricing structures. Amounts of revenue allocated to these services are recognized as those services are performed. Customers are typically billed monthly for transactions processed during the month. The Company evaluates tiered pricing to determine if a material right exists. If, after that evaluation, we determine a material right does exist, we assign value to the material right based upon standalone selling price after estimation of breakage associated with the material right.
Outsourcing and Cloud
Outsourcing and cloud revenue is generated from data and item processing services and hosting fees. The Company’s arrangements for these services typically require the Company to “stand-ready” to provide specific services on a when and if needed basis. The fees for these services may be fixed or variable (based upon performing an unspecified quantity of services), and pricing may include tiered pricing structures. Amounts of revenue allocated to these services are recognized as those services are performed. Data and item processing services are typically billed monthly. The Company evaluates tiered pricing to determine if a material right exists. If, after that evaluation, we determine a material right does exist, we assign value to the material right based upon standalone selling price.
Product Delivery and Services
Product delivery and services revenue is generated primarily from software licensing and related professional services and hardware delivery. Software licenses, along with any professional services from which they are not considered distinct, are recognized as they are delivered to the customer. Hardware revenue is recognized upon delivery. Professional services that are distinct are recognized as the services are performed. Deconversion fees are also included within product delivery and services, and are considered a contract modification. Therefore, the Company recognizes these fees over the remaining modified contract term.
In-House Support
In-house support revenue is generated from software maintenance for ongoing client support and software usage, which includes a license and ongoing client support. The Company’s arrangements for these services typically require the Company to “stand-ready” to provide specific services on a when and if needed basis. The fees for these services may be fixed or variable (based upon performing an unspecified quantity of services). Software maintenance fees are typically billed to the customer annually in advance and recognized ratably over the maintenance term. Software usage is typically billed annually in advance, with the license delivered and recognized at the outset, and the maintenance fee recognized ratably over the maintenance term. Accordingly, the Company utilizes the practical expedient which allows entities to disregard the effects of a financing component when the contract period is one year or less.

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Disaggregation of Revenue
The tables below present the Company's revenue disaggregated by type of revenue. Refer to Note 9, 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,
 
2019
 
2018
 
2019
 
2018
Processing
$
146,241

 
$
137,834

 
$
441,168

 
$
406,557

 
 
 
 
 
 
 
 
Outsourcing & Cloud
102,091

 
93,512

 
299,516

 
266,900

Product Delivery & Services
55,547

 
68,716

 
172,305

 
187,177

In-House Support
76,485

 
73,986

 
246,193

 
231,907

Services & Support
234,123

 
236,214

 
718,014

 
685,984

 
 
 
 
 
 
 
 
Total Revenue
$
380,364

 
$
374,048

 
$
1,159,182

 
$
1,092,541

Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.
 
March 31,
2019
 
June 30,
2018
Receivables, net
$
190,768

 
$
297,271

Contract Assets- Current
18,458

 
14,063

Contract Assets- Non-current
49,907

 
35,630

Contract Liabilities (Deferred Revenue)- Current
188,999

 
352,431

Contract Liabilities (Deferred Revenue)- Non-current
$
18,909

 
$
17,484

Contract assets primarily result from revenue being recognized when or as control of a solution or service is transferred to the customer, but 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 March 31, 2019 and 2018, the Company recognized revenue of $85,076 and $88,318, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
During the nine months ended March 31, 2019 and 2018, the Company recognized revenue of $218,913 and $214,466, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
Amounts recognized that relate to performance obligations satisfied (or partially satisfied) in prior periods were immaterial for each period presented. These adjustments are primarily the result of transaction price re-allocations due to changes in estimates of variable consideration.
Transaction Price Allocated to Remaining Performance Obligations
As of March 31, 2019, 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 $3,557,585. The Company expects to recognize approximately 27% over the next 12 months, 20% in 13-24 months, and the balance thereafter.

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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 totaled $222,445 and $181,032, at March 31, 2019 and June 30, 2018, respectively.
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. For the three months ended March 31, 2019 and 2018, amortization of deferred contract costs was $27,527 and $23,774, respectively. For the nine months ended March 31, 2019 and 2018, amortization of deferred contract costs totaled $79,784 and $69,145, respectively. There were no impairment losses in relation to capitalized costs for the periods presented.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.  Accumulated depreciation at March 31, 2019 totaled $376,325 and at June 30, 2018 totaled $364,153.
Intangible Assets
Intangible assets consist of goodwill, customer relationships, computer software, and trade names acquired in business acquisitions in addition to internally developed computer software. The amounts are amortized, with the exception of those intangible assets with an indefinite life (such as goodwill), over an estimated economic benefit period, generally three to twenty years.  Accumulated amortization of intangible assets totaled $683,518 and $602,479 at March 31, 2019 and June 30, 2018, respectively.
Common Stock
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or borrowings on its existing line-of-credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At March 31, 2019, there were 26,258 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,733 additional shares. The total cost of treasury shares at March 31, 2019 is $1,076,536. During the first nine months of fiscal 2019, the Company repurchased 150 treasury shares. At June 30, 2018, there were 26,108 shares in treasury stock and the Company had authority to repurchase up to 3,883 additional shares.
Interim Financial Statements
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission ("SEC") and in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") applicable to interim condensed consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended June 30, 2018. 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, 2018, with updates to certain policies included in this Note 1.
In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly in all material respects the financial position of the Company as of March 31, 2019, the results of its operations for the three and nine months ended March 31, 2019 and 2018, changes in stockholders' equity for the three and nine months ended March 31, 2019 and 2018, and its cash flows for the nine months ended March 31, 2019 and 2018. The condensed consolidated balance sheet at June 30, 2018 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.
The results of operations for the three and nine months ended March 31, 2019 are not necessarily indicative of the results to be expected for the entire year.


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NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Guidance
The Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, in May 2014. This standard (and related amendments collectively referred to as “ASC 606”) is part of an effort to create a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new standard has superseded much of the authoritative literature for revenue recognition. The new model enacts a five-step process for achieving the core principle, which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard was effective for the Company on July 1, 2018. Entities are allowed to transition to the new standard by either recasting prior periods (full retrospective) or recognizing the cumulative effect as of the beginning of the period of adoption (modified retrospective).
The Company adopted the new standard using the full retrospective transition approach, using certain practical expedients. The Company has not disclosed the amount of transaction price allocated to remaining performance obligations for reporting periods presented before the date of initial application. Also, the Company did not separately consider the effects of contract modifications that occurred before the beginning of the earliest reporting period presented, but reflects the aggregate effect of all modifications that occurred before the beginning of the earliest period presented. As a result, all fiscal 2018 financial information has been adjusted for the effects of applying ASC 606. The details of the significant changes are disclosed below:
Software Revenue Recognition
The Company previously recognized software license and related services within the scope of ASC Topic 985-605, which required the establishment of vendor-specific objective evidence (“VSOE”) of fair value in order to separately recognize revenue for each software-related good or service. Due to the inability to establish VSOE, the Company had previously deferred all revenue on software-related goods and services on a master contract until all the goods and services had been delivered. Under ASC 606, VSOE is no longer required for separation of otherwise distinct performance obligations within a revenue arrangement. This change has resulted in earlier recognition of revenue for the Company’s software-related goods and services, leading to a decrease in deferred revenue balances within our adjusted condensed consolidated balance sheets.
Impacts on Financial Statements
The following tables summarize the impacts of ASC 606 adoption on the Company’s Condensed Consolidated Financial Statements:

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Table of Contents

Condensed Consolidated Balance Sheet as of June 30, 2018:
 
As Previously Reported
Adjustments
As Adjusted
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
31,440

$

$
31,440

Receivables, net
291,630

5,641

297,271

Income tax receivable
21,671


21,671

Prepaid expenses and other
84,810

11,331

96,141

Deferred costs
38,985

(11,916
)
27,069

Total current assets
468,536

5,056

473,592

PROPERTY AND EQUIPMENT, net
286,850


286,850

OTHER ASSETS:
 
 
 
Non-current deferred costs
95,540

(20,675
)
74,865

Computer software, net of amortization
288,172


288,172

Other non-current assets
107,775

2,524

110,299

Customer relationships, net of amortization
115,034


115,034

Other intangible assets, net of amortization
38,467


38,467

Goodwill
649,929


649,929

Total other assets
1,294,917

(18,151
)
1,276,766

Total assets
$
2,050,303

$
(13,095
)
$
2,037,208

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
34,510

$

$
34,510

Accrued expenses
97,848

(9,084
)
88,764

Deferred revenues
355,538

(3,107
)
352,431

Total current liabilities
487,896

(12,191
)
475,705

LONG-TERM LIABILITIES:
 
 
 
Non-current deferred revenues
93,094

(75,610
)
17,484

Non-current deferred income tax liability
189,613

18,690

208,303

Other long-term liabilities
12,872


12,872

Total long-term liabilities
295,579

(56,920
)
238,659

Total liabilities
783,475

(69,111
)
714,364

STOCKHOLDERS' EQUITY
 
 
 
Preferred stock - $1 par value; 500,000 shares authorized, none issued



Common stock - $0.01 par value; 250,000,000 shares authorized;
103,278,562 shares issued at June 30, 2018
1,033


1,033

Additional paid-in capital
464,138


464,138

Retained earnings
1,856,917

56,016

1,912,933

Less treasury stock at cost
26,107,903 shares at June 30, 2018
(1,055,260
)

(1,055,260
)
Total stockholders' equity
1,266,828

56,016

1,322,844

Total liabilities and equity
$
2,050,303

$
(13,095
)
$
2,037,208



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Table of Contents

Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2018:
 
Three Months Ended March 31, 2018
 
Nine Months Ended March 31, 2018
 
As Previously Reported
Adjustments
As Adjusted
 
As Previously Reported
Adjustments
As Adjusted
REVENUE
$
384,684

$
(10,636
)
$
374,048

 
$
1,119,374

$
(26,833
)
$
1,092,541

 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
Cost of Revenue
221,592

(3,075
)
218,517

 
637,960

(8,428
)
629,532

Research and Development
22,591


22,591

 
65,934


65,934

Selling, General, and Administrative
44,185

(1,952
)
42,233

 
133,532

(7,117
)
126,415

Gain on Disposal of a Business



 
(1,894
)

(1,894
)
Total Expenses
288,368

(5,027
)
283,341

 
835,532

(15,545
)
819,987

 
 
 
 
 
 
 
 
OPERATING INCOME
96,316

(5,609
)
90,707

 
283,842

(11,288
)
272,554

 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest Income
130


130

 
424


424

Interest Expense
(734
)

(734
)
 
(1,173
)

(1,173
)
Total Interest Income (Expense)
(604
)

(604
)
 
(749
)

(749
)
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
95,712

(5,609
)
90,103

 
283,093

(11,288
)
271,805

 
 
 
 
 
 
 
 
PROVISION/ (BENEFIT) FOR INCOME TAXES
23,317

(2,300
)
21,017

 
(8,287
)
(17,107
)
(25,394
)
 
 
 
 
 
 
 
 
NET INCOME
$
72,395

$
(3,309
)
$
69,086

 
$
291,380

$
5,819

$
297,199

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.94

 
$
0.89

 
$
3.77

 
$
3.85

Basic weighted average shares outstanding
77,247

 
77,247

 
77,249

 
77,249

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.93

 
$
0.89

 
$
3.76

 
$
3.83

Diluted weighted average shares outstanding
77,546

 
77,546

 
77,586

 
77,586



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Condensed Consolidated Statement of Cash Flows for the nine months ended March 31, 2018:
 
Nine Months Ended March 31, 2018
 
As Previously Reported
Adjustments
As Adjusted
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
291,380

$
5,819

$
297,199

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
Depreciation
36,470


36,470

Amortization
75,787


75,787

Change in deferred income taxes
(70,104
)
(16,489
)
(86,593
)
Expense for stock-based compensation
7,834


7,834

(Gain)/loss on disposal of assets and businesses
(1,673
)

(1,673
)
Changes in operating assets and liabilities:
 
 
 
Change in receivables  
113,465

28,334

141,799

Change in prepaid expenses, deferred costs and other
(17,332
)
(42,916
)
(60,248
)
Change in accounts payable
(432
)

(432
)
Change in accrued expenses
(6,971
)
2,799

(4,172
)
Change in income taxes
12,806

(619
)
12,187

Change in deferred revenues
(206,358
)
23,072

(183,286
)
Net cash from operating activities
234,872


234,872

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Payment for acquisitions, net of cash acquired
(137,654
)

(137,654
)
Capital expenditures
(17,858
)

(17,858
)
Proceeds from the sale of businesses
350


350

Proceeds from the sale of assets
258


258

Internal use software
(6,965
)

(6,965
)
Computer software developed
(72,186
)

(72,186
)
Purchase of investments
(5,000
)

(5,000
)
Net cash from investing activities
(239,055
)

(239,055
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings on credit facilities
125,000


125,000

Repayments on credit facilities
(70,000
)

(70,000
)
Purchase of treasury stock
(30,018
)

(30,018
)
Dividends paid
(76,429
)

(76,429
)
Proceeds from issuance of common stock upon exercise of stock options
176


176

Tax withholding payments related to share based compensation
(7,279
)

(7,279
)
Proceeds from sale of common stock
5,370


5,370

Net cash from financing activities
(53,180
)

(53,180
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
(57,363
)
$

$
(57,363
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
114,765

$

$
114,765

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
57,402

$

$
57,402


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Table of Contents

ASU 2016-15 issued by the FASB in August 2016 clarifies cash flow classification of eight specific cash flow issues and is effective for our annual reporting period beginning July 1, 2018. The adoption of this standard did not have any impact on our financial statements.
Not Yet Adopted
The FASB issued ASU No. 2016-02, Leases, in February 2016. This ASU aims to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and requiring disclosure of key information regarding leasing arrangements. Specifically, the standard requires operating lease commitments to be recorded on the balance sheet as operating lease liabilities and right-of-use assets, and the cost of those operating leases to be amortized on a straight-line basis. ASU No. 2016-02 will be effective for JHA's annual reporting period beginning July 1, 2019 and early adoption is permitted. We will take advantage of the transition package of practical expedients permitted within the new standard, which among other things, allows us to carryforward the historical lease classification. In addition, we will make an accounting policy election that will keep leases with an initial term of twelve months or less off of the balance sheet. Adoption of the standard will add right of use assets and lease obligations to our balance sheet and is not expected to significantly impact income before income taxes.   
In August of 2018, the FASB issued ASU No. 2018-15, Intangibles, Goodwill and Other - Internal-Use Software (Subtopic 350-40), which broadens the scope of Subtopic 350-40 to include costs incurred to implement a hosting arrangement that is a service contract. The costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred, consistent with costs for internal-use software. The amendments in this update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The ASU will be effective for the Company on July 1, 2020, with early adoption permitted. The Company is currently evaluating the impact that the guidance will have on our financial statements.

NOTE 3.    FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, 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 cash and cash equivalents, and financial liabilities is as follows:
 
 
Estimated Fair Value Measurements
 
Total Fair
 
 
Level 1
 
Level 2
 
Level 3
 
Value
March 31, 2019
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
10,634

 
$

 
$

 
$
10,634

Financial Liabilities:
 
 
 
 
 
 
 
 
Revolving credit facility
 
$

 
$
35,000

 
$

 
$
35,000

June 30, 2018
 
 

 
 
 
 
 
 

Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
14,918

 
$

 
$

 
$
14,918

Financial Liabilities:
 
 
 
 
 
 
 
 
Revolving credit facility
 
$

 
$

 
$

 
$


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Table of Contents

Non-Recurring Fair Value Measurements
 
 
 
 
 
 
 
 
March 31, 2019
 
 
 
 
 
 
 
 
Long-lived assets held for sale
 
$

 
$
1,300

 
$

 
$
1,300

June 30, 2018
 
 
 
 
 
 
 
 
Long-lived assets held for sale (a)
 
$

 
$
1,300

 
$

 
$
1,300

(a) In accordance with ASC Subtopic 360-10, long-lived assets held for sale with a carrying value of $4,575 were written down to their fair value of $1,300, resulting in an impairment totaling $3,275, which was included in earnings for the period ended June 30, 2017. These assets are expected to be disposed of by sale in the first quarter of fiscal 2020.

NOTE 4.    DEBT
Revolving credit facility
The revolving credit facility allows for borrowings of up to $300,000, which may be increased by the Company at any time until maturity to $600,000. The credit facility bears interest at a variable rate equal to (a) a rate based on LIBOR or (b) an alternate base rate (the highest of (i) the Prime Rate for such day, (ii) the sum of the Federal Funds Effective Rate for such day plus 0.50% and (iii) the Eurocurrency Rate for a one-month Interest Period on such day for dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit facility is guaranteed by certain subsidiaries of the Company. The credit facility is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the agreement. As of March 31, 2019, the Company was in compliance with all such covenants. The revolving credit facility terminates February 20, 2020. At March 31, 2019, there was an outstanding revolving loan balance of $35,000. There was no outstanding balance at June 30, 2018.
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 was renewed in May 2019 and expires on April 30, 2021. At March 31, 2019, no amount was outstanding. There was also no balance outstanding at June 30, 2018.
Interest
The Company paid interest of $283 and $632 during the nine months ended March 31, 2019 and 2018, respectively.

NOTE 5.    INCOME TAXES
The effective tax rate was 22.4% of income before income taxes for the quarter ended March 31, 2019, compared to 23.3% for the same quarter of the prior fiscal year. For the nine months ended March 31, 2019, the effective tax rate was 21.3%, compared to (9.3)% for the nine months ended March 31, 2018. The significant increase in the Company's effective tax rate for the year-to-date period was primarily due to $100,456 of tax benefits recorded in the prior fiscal year for the re-measurement of the net deferred tax liabilities due to the Tax Cuts and Jobs Act ("TCJA") enacted December 22, 2017. This increase is partially offset by the enacted lower corporate income tax rate that became effective January 1, 2018, which resulted in a U.S. statutory rate of approximately 28% for fiscal 2018, and 21% for fiscal 2019. The increase was further offset by increased excess tax benefits from share-based payments in the first nine months of fiscal 2019.
The Company paid income taxes, net of refunds, of $47,644 and $48,301 in the nine months ended March 31, 2019 and 2018, respectively.
At March 31, 2019, the Company had $10,755 of gross unrecognized tax benefits, $10,055 of which, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $1,485 and $1,249 related to uncertain tax positions at March 31, 2019 and 2018, respectively.
The U.S. federal and state income tax returns for fiscal 2015 and all subsequent years remain subject to examination as of March 31, 2019 under statute of limitations rules. We anticipate potential changes due to lapsing statutes of limitations and examination closures could reduce the unrecognized tax benefits balance by $2,500 - $3,500 within twelve months of March 31, 2019.


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Table of Contents

NOTE 6.    STOCK-BASED COMPENSATION
Our operating income for the three months ended March 31, 2019 and 2018 included $3,505 and $3,225 of stock-based compensation costs, respectively. For the nine months ended March 31, 2019 and 2018, stock-based compensation costs included in operating income totaled $8,651 and $7,834, respectively.
Stock Options
On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan ("2015 EIP") for its employees and non-employee directors. The plan allows for grants of stock options, stock appreciation rights, restricted stock shares or units, and performance shares or units. The maximum number of shares authorized for issuance under the plan is 3,000. For stock options, terms and vesting periods of the options are determined by the Compensation Committee of the Board of Directors when granted. The option period must expire not more than ten years from the option grant date. The options granted under this plan are exercisable beginning three years after the grant date at an exercise price equal to 100% of the fair market value of the stock at the grant date. The options terminate upon surrender of the option, ninety days after termination of employment, upon the expiration of one year following notification of a deceased optionee, or ten years after grant.
The Company previously issued options to outside directors under the 2005 Non-Qualified Stock Option Plan (“2005 NSOP”). No additional stock options may be issued under this plan.
A summary of option plan activity under these plans is as follows:
 
Number of Shares
 
Weighted Average Exercise Price
 
Aggregate
 Intrinsic
 Value
Outstanding July 1, 2018
52

 
$
62.65

 
 
Granted

 

 
 
Forfeited

 

 
 
Exercised

 

 
 
Outstanding March 31, 2019
52

 
$
62.65

 
$
3,933

Vested and Expected to Vest March 31, 2019
52

 
$
62.65

 
$
3,933

Exercisable March 31, 2019
20

 
$
23.65

 
$
2,302

At March 31, 2019, there was $42 of compensation cost yet to be recognized related to outstanding options. The weighted average remaining contractual term on options currently exercisable as of March 31, 2019 was 0.25 years.
Restricted Stock Awards
The Company issues both share awards and unit awards under the 2015 EIP, and previously issued these awards through the 2005 Restricted Stock Plan. The following table summarizes non-vested share awards as of March 31, 2019, as well as activity for the nine months then ended:
Share awards
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding July 1, 2018
23

 
$
81.33

Granted

 

Vested
(17
)
 
79.41

Forfeited

 

Outstanding March 31, 2019
6

 
$
87.27

At March 31, 2019, there was $42 of compensation expense that has yet to be recognized related to non-vested restricted stock share awards, which will be recognized over a weighted average period of 0.25 years.

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The following table summarizes non-vested restricted stock unit awards as of March 31, 2019, as well as activity for the nine months then ended:
Unit awards
Units
 
Weighted
Average
Grant Date
Fair Value
 
Aggregate Intrinsic Value
Outstanding July 1, 2018
351

 
$
83.37

 
 
Granted
68

 
174.95

 
 
Vested
(125
)
 
80.81

 
 
Forfeited
(4
)
 
89.69

 
 
Outstanding March 31, 2019
290

 
$
105.74

 
$
40,172

The Company utilized a Monte Carlo pricing model customized to the specific provisions of the Company’s plan design to value restricted stock unit awards subject to performance targets on the grant dates. The weighted average assumptions used in this model to estimate fair value at the measurement date and resulting values for 39 unit awards granted in fiscal 2019 are as follows:
Volatility
15.30
%
Risk free interest rate
2.89
%
Dividend yield
0.90
%
Stock Beta
0.669

The remaining 29 unit awards granted in fiscal 2019 are not subject to performance targets, and therefore the estimated fair value at measurement date is valued in the same manner as restricted stock share award grants.
At March 31, 2019, there was $14,934 of compensation expense that has yet to be recognized related to non-vested restricted stock unit awards, which will be recognized over a weighted average period of 1.23 years.

NOTE 7.    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,
 
2019
 
2018
 
2019
 
2018
Net Income
$
59,252

 
$
69,086

 
$
210,892

 
$
297,199

Common share information:
 
 
 
 
 
 
 
Weighted average shares outstanding for basic earnings per share
77,177

 
77,247

 
77,194

 
77,249

Dilutive effect of stock options and restricted stock
109

 
299

 
217

 
337

Weighted average shares outstanding for diluted earnings per share
77,286

 
77,546

 
77,411

 
77,586

Basic earnings per share
$
0.77

 
$
0.89

 
$
2.73

 
$
3.85

Diluted earnings per share
$
0.77

 
$
0.89

 
$
2.72

 
$
3.83

Per share information is based on the weighted average number of common shares outstanding for the three and nine months ended March 31, 2019 and 2018. Stock options and restricted stock have been included in the calculation of earnings per share to the extent they are dilutive. There were 20 anti-dilutive stock options or restricted stock shares excluded for the quarter ended March 31, 2019 and 49 anti-dilutive stock options or restricted stock shares excluded for the quarter ended March 31, 2018. There were 14 anti-dilutive stock options or restricted stock shares excluded for the nine months ended March 31, 2019 compared to 36 for the nine months ended March 31, 2018.


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Table of Contents

NOTE 8.    BUSINESS ACQUISITIONS
BOLTS Technologies, Inc
On October 5, 2018, the Company acquired all of the equity interest of BOLTS Technologies, Inc. for $15,046 paid in cash. The acquisition was funded by cash generated from operations. BOLTS Technologies is the developer of boltsOPEN, a next-generation digital account opening solution.
Management has completed a purchase price allocation and its 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 October 5, 2018 are set forth below:
Current assets
$
1,384

Identifiable intangible assets
2,274

Total other liabilities assumed
(1,505
)
Total identifiable net assets
2,153

Goodwill
12,893

Net assets acquired
$
15,046

The amounts shown above include measurement period adjustments made during fiscal 2019 related to income taxes.
The goodwill of $12,893 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 BOLTS, together with the value of BOLTS' assembled workforce. The goodwill from this acquisition has been allocated to our Complementary segment and is not deductible for income tax purposes.
Identifiable intangible assets from this acquisition consist of customer relationships of $567, computer software of $1,409, and other intangible assets of $298. The weighted average amortization period for acquired customer relationships, computer software, and other intangible assets is 15 years, 10 years, and 10 years, respectively.
Current assets were inclusive of cash acquired of $1,365. The fair value of current assets acquired included accounts receivable of $14, none of which were expected to be uncollectible.
Costs incurred related to the acquisition of BOLTS in fiscal 2019 totaled $23 for legal, valuation, and other fees, and were expensed as incurred within selling, general, and administrative expense.
The Company's consolidated statements of income for the third quarter of fiscal 2019 included revenue of $46 and after-tax net loss of $256 resulting from BOLTS' operations. For the nine months ended March 31, 2019, the Company's consolidated statements of income included revenue of $82 and after-tax net loss of $501 resulting from BOLTS' operations.
The accompanying consolidated statements of income for the three and nine months ended March 31, 2019 and 2018 do not include any revenues and expenses related to this acquisition prior to the acquisition date. The impact of this acquisition was considered immaterial to both the current and prior periods of our consolidated financial statements and pro forma financial information has not been provided.
Agiletics, Inc.
On October 1, 2018, the Company acquired all of the equity interest of Agiletics, Inc. for $7,649 paid in cash. The acquisition was funded by cash generated from operations. Agiletics is a provider of escrow, investment, and liquidity management solutions for banks serving commercial customers.
Management has completed a purchase price allocation and its 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 October 1, 2018 are set forth below:
Current assets
$
2,170

Identifiable intangible assets
3,090

Non-current deferred income tax liability
(787
)
Total other liabilities assumed
(738
)
Total identifiable net assets
3,735

Goodwill
3,914

Net assets acquired
$
7,649


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The amounts shown above include measurement period adjustments made during fiscal 2019 related to income taxes.
The goodwill of $3,914 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 Agiletics. The goodwill from this acquisition has been allocated to our Core segment and is not deductible for income tax purposes.
Identifiable intangible assets from this acquisition consist of customer relationships of $2,198, computer software of $701, and other intangible assets of $191. The weighted average amortization period for acquired customer relationships, computer software, and other intangible assets is 15 years, 10 years, and 10 years, respectively.
Current assets were inclusive of cash acquired of $1,349. The fair value of current assets acquired included accounts receivable of $302, none of which were expected to be uncollectible.
Costs incurred related to the acquisition of Agiletics in fiscal 2019 totaled $36 for legal, valuation, and other fees, and were expensed as incurred within selling, general, and administrative expense.
The Company's consolidated statements of income for the third quarter of fiscal 2019 included revenue of $277 and after-tax net loss of $71 resulting from Agiletics' operations. For the nine months ended March 31, 2019, the Company's consolidated statements of income included revenue of $470 and after-tax net loss of $182 resulting from Agiletics' operations.
The accompanying consolidated statements of income for the three and nine months ended March 31, 2019 and 2018 do not include any revenues and expenses related to this acquisition prior to the acquisition date. The impact of this acquisition was considered immaterial to both the current and prior periods of our consolidated financial statements and pro forma financial information has not been provided.
Ensenta Corporation
On December 21, 2017, the Company acquired all of the equity interest of EST Holdings, Inc. and its wholly-owned subsidiary, EST Interco, Inc., for $134,381 paid in cash. EST Holdings, Inc. and EST Interco, Inc. jointly own all of the outstanding equity of Ensenta Corporation ("Ensenta"), a California-based provider of real-time, cloud-based solutions for mobile and online payments and deposits. This acquisition was partially funded by a draw on the Company's revolving credit facility, with the remaining amount funded by existing operating cash. The addition of Ensenta Corporation to the JHA Payment Solutions Group expands the Company’s ability to conduct real-time transactions with third-party platforms, extending its presence in the credit union market through shared branching technology.
Management has completed a purchase price allocation of Ensenta and its assessment of the fair value of acquired assets and liabilities assumed. The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of December 21, 2017 are set forth below:
Current assets
$
14,125

Long-term assets
586

Identifiable intangible assets
58,806

Non-current deferred income tax liability
(21,859
)
Total other liabilities assumed
(8,496
)
Total identifiable net assets
43,162

Goodwill
91,219

Net assets acquired
$
134,381

The amounts shown above include measurement period adjustments made during the third and fourth quarters of fiscal 2018, and the second quarter of fiscal 2019, related to income tax adjustments and a fair value assessment.
The goodwill of $91,219 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 Ensenta, together with the value of Ensenta's assembled workforce. The goodwill from this acquisition has been allocated to our Payments segment and is not deductible for income tax purposes.
Identifiable intangible assets from this acquisition consist of customer relationships of $37,800, computer software of $16,505, and other intangible assets of $4,501. The weighted average amortization period for acquired customer relationships, computer software, and other intangible assets is 15 years, 10 years, and 10 years, respectively.
Current assets were inclusive of cash acquired of $7,274. The fair value of current assets acquired included accounts receivable of $4,668, none of which were expected to be uncollectible.

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Costs incurred related to the acquisition of Ensenta in fiscal 2018 totaled $339 for legal, valuation, and other fees, and were expensed as incurred within selling, general, and administrative expense.
The Company's consolidated statements of income for the third quarter of fiscal 2019 included revenue of $8,864 and after-tax net income of $2,786 resulting from Ensenta's operations. For the third quarter of fiscal 2018, Ensenta contributed revenue of $7,160 and after-tax net income of $199.
For the nine months ended March 31, 2019, the Company's consolidated statements of income included revenue of $26,095 and after-tax net income of $7,749. For the nine months ended March 31, 2018, Ensenta contributed revenue of $8,087 and after-tax net income of $6,566. The after-tax net income for the nine months ended March 31, 2018 included a large tax benefit recorded as a result of the TCJA. Excluding that benefit, the Company's after tax net income resulting from Ensenta's operations totaled $225.
The accompanying consolidated statements of income for the three and nine months ended March 31, 2019 and 2018 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, 2018 is presented as if this acquisition had occurred at the beginning of the earliest period presented. 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 those periods, or the results that may be obtained in the future as a result of the acquisition.
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
Actual
 
Actual
 
Actual
 
Proforma
Revenue
$
380,364

 
$
374,048

 
$
1,159,182

 
$
1,105,659

Net Income
59,252

 
69,086

 
210,892

 
298,709

Basic Earnings Per Share
$
0.77

 
$
0.89

 
$
2.73

 
$
3.87

Diluted Earnings Per Share
$
0.77

 
$
0.89

 
$
2.72

 
$
3.85

Vanguard Software Group
On August 31, 2017, the Company acquired all of the equity interest of Vanguard Software Group, a Florida-based company specializing in the underwriting, spreading, and online decisioning of commercial loans, for $10,744 paid in cash. This acquisition was funded using existing operating cash. The addition of Vanguard Software Group to the Company's ProfitStars® Lending Solutions Group expands functionality offered to clients, allowing for near-real-time communication with JHA's core processing and ancillary solutions, and also enhances cross-sell opportunities.
Management has completed a purchase price allocation of Vanguard Software Group and its assessment of the fair value of acquired assets and liabilities assumed. The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of August 31, 2017 are set forth below:
Current assets
$
1,153

Long-term assets
9

Identifiable intangible assets
4,200

Total liabilities assumed
(1,117
)
Total identifiable net assets
4,245

Goodwill
6,499

Net assets acquired
$
10,744

The goodwill of $6,499 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 Vanguard Software Group, together with the value of Vanguard Software Group's assembled workforce. The goodwill from this acquisition has been allocated to our Complementary segment and is expected to be deductible for income tax purposes.
Identifiable intangible assets from this acquisition consist of customer relationships of $2,234, computer software of $1,426, and other intangible assets of $540. The weighted average amortization periods for acquired customer relationships, computer software, and other intangible assets are 15 years, 10 years, and 10 years, respectively.
Current assets were inclusive of cash acquired of $289. The fair value of current assets acquired included accounts receivable of $847, none of which were expected to be uncollectible.

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Costs incurred related to the acquisition of Vanguard Software Group were immaterial for the periods presented.
The Company's consolidated statements of income for the third quarter of fiscal 2019 included revenue of $1,054 and an after-tax net income of $128 resulting from Vanguard Software Group's operations. For the third quarter of fiscal 2018, Vanguard Software Group contributed revenue of $493 and an after-tax net loss of $229 to the Company's consolidated statements of income.
The Company's consolidated statements of income for the first nine months of fiscal 2019 included revenue of $2,320 and an after-tax net loss of $125 resulting from Vanguard Software Group's operations. For the first nine months of fiscal 2018, Vanguard Software Group contributed revenue of $1,149 and an after-tax net loss of $531 to the Company's consolidated statements of income.
The accompanying consolidated statements of income for the three and nine months ended March 31, 2019 and 2018 do not include any revenues and expenses related to this acquisition prior to the acquisition date. The impact of this acquisition was considered immaterial to both the current and prior periods of our consolidated financial statements and pro forma financial information has not been provided.

NOTE 9.    REPORTABLE SEGMENT INFORMATION
The Company is a provider of integrated computer systems that perform data processing (available for in-house installations or outsourced services) for banks and credit unions.
The Company’s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate & Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including: ATM, debit, and credit card transaction processing services; online and mobile bill pay solutions; ACH origination and remote deposit capture processing; and risk management products and services. The Complementary segment provides additional software and services that can be integrated with our Core solutions or used independently. The Corporate & Other segment includes hardware revenue and costs, as well as operating costs not directly attributable to the other three segments.
The Company evaluates the performance of its segments and allocates resources to them based on various factors, including performance against trend, budget, and forecast. Only revenue and costs of revenue are considered in the evaluation for each segment.
An immaterial adjustment was made to reclassify revenue recognized in fiscal 2018 from the Core to the Corporate and Other Segment. For the three and nine months ended March 31, 2018, the amount reclassified totaled $749 and $2,231, respectively.


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Table of Contents

 
Three Months Ended
 
March 31, 2019
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Services and Support
$
123,694

 
$
13,126

 
$
85,095

 
$
12,208

 
$
234,123

Processing
6,910

 
121,892

 
17,439

 

 
146,241

Total Revenue
130,604

 
135,018

 
102,534

 
12,208

 
380,364

 
 
 
 
 
 
 
 
 
 
Cost of Revenue
63,977

 
68,700

 
45,733

 
57,184

 
235,594

Research and Development
 
 
 
 
 
 
 
 
23,442

Selling, General, and Administrative
 
 
 
 
 
 
 
 
44,887

Total Expenses
 
 
 
 
 
 
 
 
303,923

 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME
$
66,627

 
$
66,318

 
$
56,801

 
$
(44,976
)
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 
 
 
 
 
 
76,441

 
 
 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
 
(69
)
 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
 
 
 
 
 
 
 
$
76,372


 
Three Months Ended
 
March 31, 2018
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Services and Support
$
122,528

 
$
15,115

 
$
85,639

 
$
12,932

 
$
236,214

Processing
6,815

 
115,730

 
15,237

 
52

 
137,834

Total Revenue
129,343

 
130,845

 
100,876

 
12,984

 
374,048

 
 
 
 
 
 
 
 
 
 
Cost of Revenue
60,802

 
62,893

 
41,832

 
52,990

 
218,517

Research and Development
 
 
 
 
 
 
 
 
22,591

Selling, General, and Administrative
 
 
 
 
 
 
 
 
42,233

Total Expenses
 
 
 
 
 
 
 
 
283,341

 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME
$
68,541

 
$
67,952

 
$
59,044

 
$
(40,006
)
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 
 
 
 
 
 
90,707

 
 
 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
 
(604
)
 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
 
 
 
 
 
 
 
$
90,103



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Table of Contents

 
Nine Months Ended
 
March 31, 2019
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Services and Support
$
376,803

 
$
39,004

 
$
261,545

 
$
40,662

 
$
718,014

Processing
21,082

 
368,229

 
51,548

 
309

 
441,168

Total Revenue
397,885

 
407,233

 
313,093

 
40,971

 
1,159,182

 
 
 
 
 
 
 
 
 
 
Cost of Revenue
183,481

 
199,506

 
131,731

 
168,272

 
682,990

Research and Development
 
 
 
 
 
 
 
 
71,458

Selling, General, and Administrative
 
 
 
 
 
 
 
 
136,866

Total Expenses
 
 
 
 
 
 
 
 
891,314

 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME
$
214,404

 
$
207,727

 
$
181,362

 
$
(127,301
)
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 
 
 
 
 
 
267,868

 
 
 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
 
177

 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
 
 
 
 
 
 
 
$
268,045


 
Nine Months Ended
 
March 31, 2018
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Services and Support
$
359,619

 
$
34,292

 
$
247,264

 
$
44,809

 
$
685,984

Processing
20,365

 
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