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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock ($0.01 par value)
JKHY
Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  
Yes No
As of January 28, 2020, the Registrant had 76,719,595 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 December 31, 2019 and June 30, 2019 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2019 and 2018 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended December 31, 2019 and 2018 (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 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 (the "Exchange Act"). Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “seek,” “anticipate,” “estimate,” “future,” “intend,” “plan,” “strategy,” “predict,” “likely,” “should,” “will,” “would,” “could,” “can,” “may,” and similar expressions. Forward-looking statements are based only on management’s current beliefs, expectations and assumptions regarding the future of the Company, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.  Such risks and uncertainties include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, those discussed in our Annual Report on Form 10-K for the year ended June 30, 2019, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.


2




3


PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 
December 31,
2019
 
June 30,
2019
 
 
 
 
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
72,513

 
$
93,628

Receivables, net
204,703

 
310,080

Income tax receivable

 
17,817

Prepaid expenses and other
99,298

 
106,466

Deferred costs
44,862

 
35,102

Assets held for sale
6,355

 
6,355

Total current assets
427,731

 
569,448

PROPERTY AND EQUIPMENT, net
278,695

 
272,474

OTHER ASSETS:
 
 
 
Non-current deferred costs
101,304

 
90,084

Computer software, net of amortization
337,602

 
318,969

Other non-current assets
218,564

 
134,743

Customer relationships, net of amortization
102,807

 
100,653

Other intangible assets, net of amortization
34,404

 
31,514

Goodwill
686,332

 
666,944

Total other assets
1,481,013

 
1,342,907

Total assets
$
2,187,439

 
$
2,184,829

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
10,670

 
$
9,850

Accrued expenses
116,383

 
120,360

Accrued income taxes
676

 

Deferred revenues
215,425

 
339,752

Total current liabilities
343,154

 
469,962

LONG-TERM LIABILITIES:
 
 
 
Non-current deferred revenues
61,579

 
54,554

Non-current deferred income tax liability
223,737

 
217,010

Other long-term liabilities
72,223

 
14,290

Total long-term liabilities
357,539

 
285,854

Total liabilities
700,693

 
755,816

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

 

Common stock - $0.01 par value; 250,000,000 shares authorized;
103,572,129 shares issued at December 31, 2019;
103,496,026 shares issued at June 30, 2019
1,036

 
1,035

Additional paid-in capital
481,005

 
472,029

Retained earnings
2,166,039

 
2,066,073

Less treasury stock at cost
26,857,903 shares at December 31, 2019;
26,507,903 shares at June 30, 2019
(1,161,334
)
 
(1,110,124
)
Total stockholders' equity
1,486,746

 
1,429,013

Total liabilities and equity
$
2,187,439

 
$
2,184,829

See notes to condensed consolidated financial statements

4


    
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
REVENUE
$
419,119

 
$
386,275

 
$
857,124

 
$
778,818

 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
Cost of Revenue
249,267

 
227,284

 
495,058

 
447,396

Research and Development
27,187

 
23,990

 
51,778

 
48,016

Selling, General, and Administrative
48,961

 
46,797

 
98,396

 
91,979

Total Expenses
325,415

 
298,071

 
645,232

 
587,391

 
 
 
 
 
 
 
 
OPERATING INCOME
93,704

 
88,204

 
211,892

 
191,427

 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest Income
346

 
252

 
853

 
542

Interest Expense
(156
)
 
(148
)
 
(312
)
 
(295
)
Total Interest Income (Expense)
190

 
104

 
541

 
247

 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
93,894

 
88,308

 
212,433

 
191,674

 
 
 
 
 
 
 
 
PROVISION FOR INCOME TAXES
21,796

 
20,219

 
50,965

 
40,034

 
 
 
 
 
 
 
 
NET INCOME
$
72,098

 
$
68,089

 
$
161,468

 
$
151,640

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.94

 
$
0.88

 
$
2.10

 
$
1.96

Basic weighted average shares outstanding
76,879

 
77,216

 
76,926

 
77,202

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.94

 
$
0.88

 
$
2.10

 
$
1.96

Diluted weighted average shares outstanding
76,935

 
77,409

 
77,001

 
77,474


See notes to condensed consolidated financial statements


5


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

 

 

 

 
 
 
 
 
 
 
 
COMMON SHARES:
 
 
 
 
 
 
 
Shares, beginning of period
103,535,828

 
103,398,501

 
103,496,026

 
103,278,562

Shares issued for equity-based payment arrangements
18,594

 
13,303

 
38,482

 
115,397

Shares issued for Employee Stock Purchase Plan
17,707

 
16,612

 
37,621

 
34,457

Shares, end of period
103,572,129

 
103,428,416

 
103,572,129

 
103,428,416

 
 
 
 
 
 
 
 
COMMON STOCK - PAR VALUE $0.01 PER SHARE:
 
 
 
 
 
 
 
Balance, beginning of period
$
1,035

 
$
1,034

 
$
1,035

 
$
1,033

Shares issued for equity-based payment arrangements
1

 

 
1

 
1

Balance, end of period
$
1,036

 
$
1,034

 
$
1,036

 
$
1,034

 
 
 
 
 
 
 
 
ADDITIONAL PAID-IN CAPITAL:
 
 
 
 
 
 
 
Balance, beginning of period
$
475,222

 
$
454,869

 
$
472,030

 
$
464,138

Shares issued for equity-based payment arrangements

 

 
(1
)
 
(1
)
Tax withholding related to share based compensation
(553
)
 
(227
)
 
(2,625
)
 
(13,484
)
Shares issued for Employee Stock Purchase Plan
2,191

 
1,972

 
4,603

 
4,189

Stock-based compensation expense
4,145

 
3,374

 
6,998

 
5,146

Balance, end of period
$
481,005

 
$
459,988

 
$
481,005

 
$
459,988

 
 
 
 
 
 
 
 
RETAINED EARNINGS:
 
 
 
 
 
 
 
Balance, beginning of period
$
2,124,672

 
$
1,967,921

 
$
2,066,073

 
$
1,912,933

Net income
72,098

 
68,089

 
161,468

 
151,640

Dividends
(30,731
)
 
(28,541
)
 
(61,502
)
 
(57,104
)
Balance, end of period
$
2,166,039

 
$
2,007,469

 
$
2,166,039

 
$
2,007,469

 
 
 
 
 
 
 
 
TREASURY STOCK:
 
 
 
 
 
 
 
Balance, beginning of period
$
(1,124,269
)
 
$
(1,055,260
)
 
$
(1,110,124
)
 
$
(1,055,260
)
Purchase of treasury shares
(37,065
)
 
(21,276
)
 
(51,210
)
 
(21,276
)
Balance, end of period
$
(1,161,334
)
 
$
(1,076,536
)
 
$
(1,161,334
)
 
$
(1,076,536
)
 
 
 
 
 
 
 
 
TOTAL STOCKHOLDERS' EQUITY
$
1,486,746

 
$
1,391,955

 
$
1,486,746

 
$
1,391,955

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.40

 
$
0.37

 
$
0.80

 
$
0.74


See notes to condensed consolidated financial statements.


6


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Six Months Ended
 
December 31,
 
2019
 
2018
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
161,468

 
$
151,640

Adjustments to reconcile net income from operations
     to net cash from operating activities:
 
 
 
Depreciation
25,364

 
22,470

Amortization
58,873

 
56,146

Change in deferred income taxes
4,134

 
1,256

Expense for stock-based compensation
6,998

 
5,146

(Gain)/loss on disposal of assets
(103
)
 
(22
)
Changes in operating assets and liabilities:
 
 
 
Change in receivables  
106,782

 
113,563

Change in prepaid expenses, deferred costs and other
(21,911
)
 
(49,918
)
Change in accounts payable
(262
)
 
(10,535
)
Change in accrued expenses
(28,702
)
 
4,658

Change in income taxes
19,861

 
12,654

Change in deferred revenues
(117,489
)
 
(115,014
)
Net cash from operating activities
215,013

 
192,044

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Payment for acquisitions, net of cash acquired
(30,376
)
 
(19,981
)
Capital expenditures
(30,758
)
 
(32,968
)
Proceeds from the sale of assets
326

 
76

Purchased software
(5,551
)
 
(2,694
)
Computer software developed
(57,886
)
 
(54,086
)
Purchase of investments
(1,150
)
 

Net cash from investing activities
(125,395
)
 
(109,653
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Purchase of treasury stock
(51,210
)
 
(21,276
)
Dividends paid
(61,502
)
 
(57,104
)
Proceeds from issuance of common stock upon exercise of stock options

 
1

Tax withholding payments related to share based compensation
(2,624
)
 
(13,485
)
Proceeds from sale of common stock
4,603

 
4,189

Net cash from financing activities
(110,733
)
 
(87,675
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
(21,115
)
 
$
(5,284
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
93,628

 
$
31,440

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
72,513

 
$
26,156


See notes to condensed consolidated financial statements


7


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

NOTE 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Jack Henry & Associates, Inc. and subsidiaries (“JHA” or the “Company”) is a provider of integrated computer systems and services. The Company has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide 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 on-premise 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 six months ended December 31, 2019 and 2018 equals the Company’s net income.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.  Accumulated depreciation at December 31, 2019 totaled $397,244 and at June 30, 2019 totaled $388,481.
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 yearsAccumulated amortization of intangible assets totaled $766,312 and $707,518 at December 31, 2019 and June 30, 2019, respectively.
Purchase of Investments
At June 30, 2019, the Company had an investment in the preferred stock of Automated Bookkeeping, Inc ("Autobooks") of $5,000. During the first quarter of fiscal 2020, the Company made an additional investment in Autobooks of $1,000, for a total investment at December 31, 2019 of $6,000, representing a non-controlling share of the voting equity as of that date. The total investment was recorded at cost and is included within other non-current assets on the Company's balance sheet. There have been no events or changes in circumstances that would indicate an impairment and no price changes resulting from observing a similar or identical investment. An impairment and/or an observable price change would be an adjustment to recorded cost. Fair value will not be estimated unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.
Common Stock
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or borrowings on its existing line-of-credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At December 31, 2019, there were 26,858 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,133 additional shares. The total cost of treasury shares at December 31, 2019 is $1,161,334. During the first six months of fiscal 2020, the Company repurchased 350 treasury shares. At June 30, 2019, there were 26,508 shares in treasury stock and the Company had authority to repurchase up to 3,483 additional shares.
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.

8


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 deferred benefits for uncertain tax positions. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.
Interim Financial Statements
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission ("SEC") and in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") applicable to interim condensed consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended June 30, 2019. 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, 2019, with updates to certain policies included in this Note 1.
In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly in all material respects the financial position of the Company as of December 31, 2019, the results of its operations for the three and six months ended December 31, 2019 and 2018, changes in stockholders' equity for the three and six months ended December 31, 2019 and 2018, and its cash flows for the six months ended December 31, 2019 and 2018. The condensed consolidated balance sheet at June 30, 2019 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.
The results of operations for the three and six months ended December 31, 2019 are not necessarily indicative of the results to be expected for the entire year.

NOTE 2:     RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Guidance
The FASB issued Accounting Standards Update (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 to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. 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.
The Company adopted the new standard effective July 1, 2019 using the optional transition method in ASU 2018-11. Under this method, the Company did not adjust its comparative period financial statements for the effects of the new standard or make the new, expanded required disclosures for periods prior to the effective date. The Company elected the package of practical expedients permitted under the new standard, which among other things, allows it to carry forward its historical lease classifications. In addition, the Company has made a policy election to keep leases with an initial term of twelve months or less off of the balance sheet. The Company also elected the practical expedient to not separate the non-lease components of a contract from the lease component to which they relate.
The adoption of standard resulted in the recognition of lease liabilities of $77,393 and right-to-use assets of $74,084 as of July 1, 2019. Adoption of the standard did not have a material impact on the Company’s condensed consolidated statements of income or condensed consolidated statements of cash flows.
Not Yet Adopted
In December of 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions and simplifies other requirements of Topic 740 guidance. The ASU will be effective for the Company on July 1, 2021. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company will adopt ASU No. 2019-12 when required, or sooner as allowed, and is assessing the timing of adoption and evaluating the impact on its consolidated financial statements.

9


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 plans to early adopt ASU No. 2018-15 for its fiscal 2020 third quarter and, since the adoption will be prospective, there will be no material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 of the goodwill impairment test that had required a hypothetical purchase price allocation. Rather, entities should apply the same impairment assessment to all reporting units and recognize an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 will be effective prospectively for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company plans to adopt ASU No. 2017-04 when required and does not expect the adoption to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, with an allowance for credit losses valuation account that is deducted to present the net carrying value at the amount expected to be collected. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company plans to adopt ASU No. 2016-13 when required and is evaluating the impact on its consolidated financial statements.

NOTE 3.    REVENUE AND DEFERRED COSTS
Revenue Recognition
The Company generates revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales.
Disaggregation of Revenue
The tables below present the Company's revenue disaggregated by type of revenue. Refer to Note 11, Reportable Segment Information, for disaggregated revenue by type and reportable segment. The majority of the Company’s revenue is earned domestically, with revenue from customers outside the United States comprising less than 1% of total revenue.
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Outsourcing & Cloud
$
115,897

 
$
100,066

 
$
224,480

 
$
197,425

Product Delivery & Services
61,709

 
58,794

 
133,070

 
116,758

In-House Support
77,598

 
78,462

 
176,462

 
169,707

Services & Support
255,204

 
237,322

 
534,012

 
483,890

 
 
 
 
 
 
 
 
Processing
163,915

 
148,953

 
323,112

 
294,928

 
 
 
 
 
 
 
 
Total Revenue
$
419,119

 
$
386,275

 
$
857,124

 
$
778,818



10


Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.
 
December 31,
2019
 
June 30,
2019
Receivables, net
$
204,703

 
$
310,080

Contract Assets- Current
21,872

 
21,446

Contract Assets- Non-current
60,168

 
50,640

Contract Liabilities (Deferred Revenue)- Current
215,425

 
339,752

Contract Liabilities (Deferred Revenue)- Non-current
$
61,579

 
$
54,554


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 December 31, 2019 and 2018, the Company recognized revenue of $84,613 and $93,656, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. For the six months ended December 31, 2019 and 2018, the Company recognized revenue of $155,625 and $164,051, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
Amounts recognized that relate to performance obligations satisfied (or partially satisfied) in prior periods were immaterial for each period presented. These adjustments are primarily the result of transaction price re-allocations due to changes in estimates of variable consideration.
Transaction Price Allocated to Remaining Performance Obligations
As of December 31, 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 $3,901,517. The Company expects to recognize approximately 27% over the next 12 months, 20% in 13-24 months, and the balance thereafter.
Contract Costs
The Company incurs incremental costs to obtain a contract as well as costs to fulfill contracts with customers that are expected to be recovered. These costs consist primarily of sales commissions, which are incurred only if a contract is obtained, and customer conversion or implementation-related costs. Capitalized costs are amortized based on the transfer of goods or services to which the asset relates, in line with the percentage of revenue recognized for each performance obligation to which the costs are allocated.
Capitalized costs totaled $255,922 and $231,273, at December 31, 2019 and June 30, 2019, respectively.
For the three months ended December 31, 2019 and 2018, amortization of deferred contract costs was $27,821 and $25,435, respectively. During the six months ended December 31, 2019 and 2018, amortization of deferred contract costs totaled $59,214 and $52,257, 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, 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

11


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
December 31, 2019
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
55,376

 
$

 
$

 
$
55,376

June 30, 2019
 
 

 
 
 
 
 
 

Financial Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
81,945

 
$

 
$

 
$
81,945


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

 
$
1,300

 
$

 
$
1,300

June 30, 2019
 
 
 
 
 
 
 
 
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 third quarter of fiscal 2020.

NOTE 5.    LEASES
The Company adopted ASU 2016-02 and its related amendments (collectively known as “ASC 842”) on July 1, 2019 using the optional transition method in ASU 2018-11. Therefore, the reported results for the three and six months ended December 31, 2019 reflect the application of ASC 842 while the reported results for the three and six months ended December 31, 2018 were not adjusted and continue to be reported under the accounting guidance, ASC 840, Leases (“ASC 840”), in effect for the prior period.
The Company determines if an arrangement is a lease at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property, and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The lease term is used to determine lease classification as an operating or finance lease and is used to calculate straight-line expense for operating leases. The Company elected the package of practical expedients permitted under the transition guidance within ASU 2016-02 to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs.
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. As a practical expedient, 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 commencement date based upon the present value of lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. The Company estimates contingent lease incentives when it is probable that the Company is entitled to the incentive at lease commencement. 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 for both real estate and equipment leases. The determination of the incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate 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 elected the short-term lease recognition exemption for all leases that qualify. Therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet; instead, lease payments are recognized as lease expense on a straight-line basis over the lease term.

12


The Company leases certain office space, data centers and equipment. The Company’s leases have remaining terms of 1 to 11 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred. Certain leases include options to purchase the leased asset at the end of the lease term, which is assessed as a part of the Company’s lease classification determination. The depreciable life of the ROU asset and leasehold improvements are limited by the expected lease term unless the Company is reasonably certain of a transfer of title or purchase option.
At December 31, 2019, the Company had operating lease assets of $67,727. Total operating lease liabilities of $70,971 were comprised of current operating lease liabilities of $12,094 and noncurrent operating lease liabilities of $58,877.
Operating lease assets are included within other non-current assets and operating lease liabilities are included with 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 $6,826 as of December 31, 2019.
Operating lease costs for the three and six months ended December 31, 2019 were $4,024 and $8,031, respectively, and included approximately $780 and $1,659, respectively, of variable lease costs.
Operating lease expense is included within cost of services, research and development, and selling, general & administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of income.
Operating cash flows from operating leases for the six months ended December 31, 2019 were $7,803 and right-of-use assets obtained in exchange for operating lease liabilities were $1,370.
As of December 31, 2019, the weighted-average remaining lease term for the Company's operating leases was 83 months and the weighted-average discount rate was 2.96%.
Maturity of Lease Liabilities under ASC 842
Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2019:
Due dates
 
Future Minimum Rental Payments
 
 
 
2020 (remaining period)
 
$
6,944

2021
 
13,678

2022
 
12,442

2023
 
10,785

2024
 
8,635

Thereafter
 
26,608

Total lease payments
 
$
79,092

Less: interest
 
(8,121
)
Present value of lease liabilities
 
$
70,971

Operating lease payments include $4,750 related to options to extend lease terms that are reasonably certain of being exercised. At December 31, 2019, there were no legally binding lease payments for leases signed but not yet commenced.

13


Maturity of Lease Liabilities under ASC 840
Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2019:
Due dates
 
Future Minimum Rental Payments
 
 
 
2020
 
$
15,559

2021
 
13,539

2022
 
11,860

2023
 
10,169

2024
 
8,835

Thereafter
 
11,671

Total lease payments
 
$
71,633

Rent expense for all operating leases was $15,196 during the year ended June 30, 2019.

NOTE 6.    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 December 31, 2019, the Company was in compliance with all such covenants. The revolving credit facility terminates February 20, 2020. A new 5-year revolving credit facility is anticipated to be in place prior to the termination date. There was no outstanding credit facility balance at either December 31, 2019 or at June 30, 2019.
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 December 31, 2019, no amount was outstanding. There was also no balance outstanding at June 30, 2019.
Interest
The Company paid interest of $193 and $192 during the six months ended December 31, 2019 and 2018, respectively.

NOTE 7.    INCOME TAXES
The effective tax rate was 23.2% of income before income taxes for the quarter ended December 31, 2019, compared to 22.9% for the same quarter of the prior fiscal year. For the six months ended December 31, 2019, the effective tax rate was 24.0% compared to 20.9% for the six months ended December 31, 2018. The increase to the Company's tax rate was primarily due to the difference in impact of stock-based compensation. The tax benefits recognized from stock-based compensation in the prior year significantly exceeded the tax benefits recognized in the current year.
The Company paid income taxes, net of refunds, of $26,262 in the six months ended December 31, 2019 and paid income taxes, net of refunds, of $25,211 in the six months ended December 31, 2018.
At December 31, 2019, the Company had $11,463 of gross unrecognized tax benefits, $10,762 of which, if recognized, would affect our effective tax rate. We had accrued interest and penalties of $1,883 and $1,431 related to uncertain tax positions at December 31, 2019 and 2018, respectively.
The U.S. federal and state income tax returns for fiscal 2016 and all subsequent years remain subject to examination as of December 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 $3,000 - $4,000 within twelve months of December 31, 2019.

14



NOTE 8.    STOCK-BASED COMPENSATION
Our operating income for the three months ended December 31, 2019 and 2018 included $4,145 and $3,374 of stock-based compensation costs, respectively. For the six months ended December 31, 2019 and 2018, stock-based compensation costs included in operating income totaled $6,998 and $5,146, 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, 2019
32

 
$
87.27

 
 
Granted

 

 
 
Forfeited

 

 
 
Exercised

 

 
 
Outstanding December 31, 2019
32

 
$
87.27

 
$
1,850

Vested and Expected to Vest December 31, 2019
32

 
$
87.27

 
$
1,850

Exercisable December 31, 2019
32

 
$
87.27

 
$
1,850


At December 31, 2019, there was no compensation cost yet to be recognized related to outstanding options. For options currently exercisable, the weighted average remaining contractual term (remaining period of exercisability) as of December 31, 2019 was 6.50 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 December 31, 2019, as well as activity for the six months then ended:
Share awards
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding July 1, 2019
6

 
$
87.27

Granted

 

Vested
(6
)
 
87.27

Forfeited

 

Outstanding December 31, 2019

 
$


At December 31, 2019, there was no compensation expense yet to be recognized related to non-vested restricted stock share awards.

15


The following table summarizes non-vested restricted stock unit awards as of December 31, 2019, as well as activity for the six months then ended:
Unit awards
Units
 
Weighted
Average
Grant Date
Fair Value
 
Aggregate Intrinsic Value
Outstanding July 1, 2019
298

 
$
107.00

 
 
Granted
92

 
159.68

 
 
Vested
(53
)
 
92.61

 
 
Forfeited
(54
)
 
78.92

 
 
Outstanding December 31, 2019
283

 
$
132.16

 
$
41,238


For 52 of the unit awards granted in fiscal 2020 with only service requirements, the Company valued the awards 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.
For 38 of the remaining 40 unit awards granted in fiscal 2020 with performance targets, the Company utilized a Monte Carlo pricing model as of the measurement date customized to the specific provisions of the Company’s plan design to value the unit awards as of the grant date. The remaining 2 unit awards granted in fiscal 2020 had other performance targets. Per the Company's award vesting and settlement provisions, approximately half of the awards utilizing a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return in comparison to the compensation peer group made up of participants approved by the Company's Compensation Committee of the Board of Directors for fiscal year 2020, and the other half of the awards utilizing a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return in comparison to the Standard & Poor's 1500 Information Technology Index (S&P 1500 IT Index) participants. The weighted average assumptions used in the model to estimate fair value at the measurement date and resulting values for these performance unit awards are as follows.
 
Compensation Peer Group
 
S&P 1500 IT Index
Volatility
16.7
%
 
16.7
%
Risk free interest rate
1.68
%
 
1.68
%
Dividend yield
1.1
%
 
1.1
%
 
 
 
 
Stock Beta
0.713

 
0.538


At December 31, 2019, there was $21,457 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 1.43 years.

NOTE 9.    EARNINGS PER SHARE
The following table reflects the reconciliation between basic and diluted earnings per share.
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Net Income
$
72,098

 
$
68,089

 
$
161,468

 
$
151,640

Common share information:
 
 
 
 
 
 
 
Weighted average shares outstanding for basic earnings per share
76,879

 
77,216

 
76,926

 
77,202

Dilutive effect of stock options and restricted stock
56

 
193

 
75

 
272

Weighted average shares outstanding for diluted earnings per share
76,935

 
77,409

 
77,001

 
77,474

Basic earnings per share
$
0.94

 
$
0.88

 
$
2.10

 
$
1.96

Diluted earnings per share
$
0.94

 
$
0.88

 
$
2.10

 
$
1.96



16


Per share information is based on the weighted average number of common shares outstanding for the three and six months ended December 31, 2019 and 2018. Stock options, restricted stock, and restricted stock units have been included in the calculation of earnings per share to the extent they are dilutive. There were 50 anti-dilutive stock options or restricted stock shares or units excluded for the quarter ended December 31, 2019 and 5 anti-dilutive stock options or restricted stock shares or units excluded for the quarter ended December 31, 2018. There were 37 anti-dilutive stock options or restricted stock shares or units excluded for the six months ended December 31, 2019 compared to 1 for the six months ended December 31, 2018.

NOTE 10.    BUSINESS ACQUISITIONS
Geezeo
On July 1, 2019, the Company acquired all of the equity interest of Geezeo for $37,776 paid in cash. The primary reason for the acquisition was to expand the Company's digital financial management solutions and the purchase was funded by cash generated from operations. Geezeo is a Boston-based provider of retail and business digital financial management solutions.
Management has completed a preliminary 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 July 1, 2019 are set forth below:
Current assets
$
8,927

Long-term assets
397

Identifiable intangible assets
19,114

Non-current deferred income tax liability
(2,593
)
Total other liabilities assumed
(7,457
)
Total identifiable net assets
18,388

Goodwill
19,388

Net assets acquired
$
37,776

Measurement period adjustments were made during the second quarter of fiscal 2020 relating to accrued expenses and working capital, which resulted in adjustments to the goodwill amount recorded. The amounts shown above may change as management finalizes its assessment of the fair value of acquired assets and liabilities and continues to evaluate the income tax implications of this business combination.
The goodwill of $19,388 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 Geezeo, together with the value of Geezeo's 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 $10,522, computer software of $5,791, and other intangible assets of $2,801. The amortization period for acquired customer relationships, computer software, and other intangible assets is 15 years for each.
Current assets were inclusive of cash acquired of $7,400. The fair value of current assets acquired included accounts receivable of $1,373, none of which were expected to be uncollectible.
Costs incurred related to the acquisition of Geezeo in fiscal 2020 totaled $30 for 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 months ended December 31, 2019 included revenue of $2,040 and after-tax net income of $140 resulting from Geezeo's operations. The Company's condensed consolidated statements of income for the six months ended December 31, 2019 included revenue of $4,432 and after-tax net income of $178 resulting from Geezeo's operations.
The accompanying condensed consolidated statements of income for the three and six months ended December 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 condensed consolidated financial statements and pro forma financial information has not been provided.

17


BOLTS Technologies, Inc
On October 5, 2018, the Company acquired all of the equity interest of BOLTS Technologies, Inc. ("BOLTS") for $15,046 paid in cash. The acquisition was funded by cash generated from operations. BOLTS 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 condensed consolidated statements of income for the three months ended December 31, 2019 included revenue of $43 and after-tax net loss of $188 resulting from BOLTS' operations. The Company's condensed consolidated statements of income for the three months ended December 31, 2018 included revenue of $35 and after-tax net loss of $246 resulting from BOLTS' operations.
The Company's condensed consolidated statements of income for the six months ended December 31, 2019 included revenue of $87 and after-tax net loss of $361 resulting from BOLTS' operations. The Company's condensed consolidated statements of income for the six months ended December 31, 2018 included revenue of $35 and after-tax net loss of $246 resulting from BOLTS' operations.
The accompanying condensed consolidated statements of income for the three and six months ended December 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 condensed consolidated financial statements and pro forma financial information has not been provided.

18


Agiletics, Inc.
On October 1, 2018, the Company acquired all of the equity interest of Agiletics, Inc. ("Agiletics") 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
(872
)
Total other liabilities assumed
(738
)
Total identifiable net assets
3,650

Goodwill
3,999

Net assets acquired
$
7,649


The amounts shown above include measurement period adjustments made during fiscal 2019 related to income taxes.
The goodwill of $3,999 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 condensed consolidated statements of income for the three months ended December 31, 2019 included revenue of $347 and after-tax net income of $72 resulting from Agiletics' operations. The Company's condensed consolidated statements of income for the three months ended December 31, 2018 included revenue of $193 and after-tax net loss of $111 resulting from Agiletics' operations.
The Company's condensed consolidated statements of income for the six months ended December 31, 2019 included revenue of $897 and after-tax net income of $237 resulting from Agiletics' operations. The Company's condensed consolidated statements of income for the six months ended December 31, 2018 included revenue of $193 and after-tax net loss of $111 resulting from Agiletics' operations.
The accompanying condensed consolidated statements of income for the three and six months ended December 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 condensed consolidated financial statements and pro forma financial information has not been provided.

NOTE 11.    REPORTABLE SEGMENT INFORMATION
The Company is a provider of integrated computer systems that perform data processing (available for on-premise 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.

19


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 during the first quarter of fiscal 2020 to reclassify revenue recognized in fiscal 2019 from the Complementary to the Core segment to be consistent with the current year's allocation of revenue by segment. The amount reclassified totaled $1,603 and is reflected in the segment table below for the six months ended December 31, 2018 .

 
Three Months Ended
 
December 31, 2019
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Services and Support
$
130,782

 
$
14,829

 
$
94,478

 
$
15,115

 
$
255,204

Processing
7,587

 
137,215

 
19,006

 
107

 
163,915

Total Revenue
138,369

 
152,044

 
113,484

 
15,222

 
419,119

 
 
 
 
 
 
 
 
 
 
Cost of Revenue
61,243

 
79,135

 
48,019

 
60,870

 
249,267

Research and Development
 
 
 
 
 
 
 
 
27,187

Selling, General, and Administrative
 
 
 
 
 
 
 
 
48,961

Total Expenses
 
 
 
 
 
 
 
 
325,415

 
 
 
 
 
 
 
 
 
 
SEGMENT INCOME
$
77,126

 
$
72,909

 
$
65,465

 
$
(45,648
)
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 
 
 
 
 
 
93,704

 
 
 
 
 
 
 
 
 
 
INTEREST INCOME (EXPENSE)
 
 
 
 
 
 
 
 
190

 
 
 
 
 
 
 
 
 
 
INCOME BEFORE INCOME TAXES
 
 
 
 
 
 
 
 
$
93,894




20


<
 
Three Months Ended
 
December 31, 2018
 
Core
 
Payments
 
Complementary
 
Corporate & Other
 
Total
REVENUE
 
 
 
 
 
 
 
 
 
Services and Support
$
122,721

 
$
13,108

 
$
86,386

 
$
15,107

 
$
237,322

Processing
7,008

 
124,911

 
16,864

 
170

 
148,953