jkhy-20201231
12/31/2020HENRY JACK & ASSOCIATES 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 0-14112
JACK HENRY & ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1128385
(State or Other Jurisdiction of Incorporation) (I.R.S Employer Identification No.)
663 Highway 60, P.O. Box 807, Monett, MO 65708
(Address of Principle Executive Offices)
(Zip Code)
417-235-6652
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
  
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  
Yes No
As of January 29, 2021, the Registrant had 76,077,269 shares of Common Stock outstanding ($0.01 par value).



TABLE OF CONTENTS
Page Reference
PART IFINANCIAL INFORMATION
ITEM 1.Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020 (Unaudited)
Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2020 and 2019 (Unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended December 31, 2020 and 2019 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019 (Unaudited)
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
   
ITEM 3.Quantitative and Qualitative Disclosures about Market Risk
   
ITEM 4.Controls and Procedures
  
PART IIOTHER INFORMATION
ITEM 1.Legal Proceedings
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
ITEM 6.Exhibits
Signatures
In this report, all references to "Jack Henry," “JKHY,” the “Company,” “we,” “us,” and “our,” refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.
FORWARD LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “seek,” “anticipate,” “estimate,” “future,” “intend,” “plan,” “strategy,” “predict,” “likely,” “should,” “will,” “would,” “could,” “can,” “may,” and similar expressions. Forward-looking statements are based only on management’s current beliefs, expectations and assumptions regarding the future of the Company, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, those discussed in our Annual Report on Form 10-K for the year ended June 30, 2020, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.


2



PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS

3

Table of Contents
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 December 31,
2020
June 30,
2020
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$147,762 $213,345 
Receivables, net212,934 300,945 
Income tax receivable8,662 21,051 
Prepaid expenses and other98,540 95,525 
Deferred costs50,586 38,235 
Total current assets518,484 669,101 
PROPERTY AND EQUIPMENT, net257,883 273,432 
OTHER ASSETS:  
Non-current deferred costs122,016 113,525 
Computer software, net of amortization351,327 340,466 
Other non-current assets233,865 220,591 
Customer relationships, net of amortization88,295 95,108 
Other intangible assets, net of amortization28,866 29,917 
Goodwill685,973 686,334 
Total other assets1,510,342 1,485,941 
Total assets$2,286,709 $2,428,474 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Accounts payable$11,569 $9,880 
Accrued expenses145,878 166,689 
Notes payable and current maturities of long-term debt117 115 
Deferred revenues193,409 318,161 
Total current liabilities350,973 494,845 
LONG-TERM LIABILITIES:  
Non-current deferred revenues69,474 71,461 
Deferred income tax liability252,649 243,998 
Debt, net of current maturities149 208 
Other long-term liabilities68,285 68,274 
Total long-term liabilities390,557 383,941 
Total liabilities741,530 878,786 
STOCKHOLDERS' EQUITY  
Preferred stock - $1 par value; 500,000 shares authorized, none issued  
Common stock - $0.01 par value; 250,000,000 shares authorized;
103,736,703 shares issued at December 31, 2020;
103,622,563 shares issued at June 30, 2020
1,037 1,036 
Additional paid-in capital503,205 495,005 
Retained earnings2,332,509 2,235,320 
Less treasury stock at cost
27,667,903 shares at December 31, 2020;
26,992,903 shares at June 30, 2020
(1,291,572)(1,181,673)
Total stockholders' equity1,545,179 1,549,688 
Total liabilities and equity$2,286,709 $2,428,474 
See notes to condensed consolidated financial statements
4

Table of Contents
    
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months EndedSix Months Ended
 December 31,December 31,
 2020201920202019
REVENUE$422,361 $419,119 $874,161 $857,124 
EXPENSES    
Cost of Revenue257,782 249,267 520,711 495,058 
Research and Development26,780 27,187 52,837 51,778 
Selling, General, and Administrative44,167 48,961 89,393 98,396 
Total Expenses328,729 325,415 662,941 645,232 
OPERATING INCOME93,632 93,704 211,220 211,892 
INTEREST INCOME (EXPENSE)    
Interest Income52 346 120 853 
Interest Expense(117)(156)(235)(312)
Total Interest Income (Expense)(65)190 (115)541 
INCOME BEFORE INCOME TAXES93,567 93,894 211,105 212,433 
PROVISION FOR INCOME TAXES21,585 21,796 47,907 50,965 
NET INCOME$71,982 $72,098 $163,198 $161,468 
Basic earnings per share$0.94 $0.94 $2.14 $2.10 
Basic weighted average shares outstanding76,202 76,879 76,354 76,926 
Diluted earnings per share$0.94 $0.94 $2.13 $2.10 
Diluted weighted average shares outstanding76,280 76,935 76,496 77,001 

See notes to condensed consolidated financial statements

5

Table of Contents

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Data)
(Unaudited)
Three Months EndedSix Months Ended
 December 31,December 31,
 2020201920202019
PREFERRED SHARES:    
COMMON SHARES: 
Shares, beginning of period103,696,962 103,535,828 103,622,563 103,496,026 
Shares issued for equity-based payment arrangements23,412 18,594 78,414 38,482 
Shares issued for Employee Stock Purchase Plan16,329 17,707 35,726 37,621 
Shares, end of period103,736,703 103,572,129 103,736,703 103,572,129 
COMMON STOCK - PAR VALUE $0.01 PER SHARE: 
Balance, beginning of period$1,037 $1,035 $1,036 $1,035 
Shares issued for equity-based payment arrangements 1 1 1 
Balance, end of period$1,037 $1,036 $1,037 $1,036 
ADDITIONAL PAID-IN CAPITAL: 
Balance, beginning of period$497,030 $475,222 $495,005 $472,030 
Shares issued for equity-based payment arrangements  (1)(1)
Tax withholding related to share based compensation(1,184)(553)(6,689)(2,625)
Shares issued for Employee Stock Purchase Plan2,232 2,191 5,138 4,603 
Stock-based compensation expense5,127 4,145 9,752 6,998 
Balance, end of period$503,205 $481,005 $503,205 $481,005 
RETAINED EARNINGS: 
Balance, beginning of period$2,293,229 $2,124,672 $2,235,320 $2,066,073 
Cumulative effect of Accounting Standards Update adoption (Note 2)  (493) 
Net income71,982 72,098 163,198 161,468 
Dividends(32,702)(30,731)(65,516)(61,502)
Balance, end of period$2,332,509 $2,166,039 $2,332,509 $2,166,039 
TREASURY STOCK: 
Balance, beginning of period$(1,247,546)$(1,124,269)$(1,181,673)$(1,110,124)
Purchase of treasury shares(44,026)(37,065)(109,899)(51,210)
Balance, end of period$(1,291,572)$(1,161,334)$(1,291,572)$(1,161,334)
TOTAL STOCKHOLDERS' EQUITY$1,545,179 $1,486,746 $1,545,179 $1,486,746 
Dividends declared per share$0.43 $0.40 $0.86 $0.80 
See notes to condensed consolidated financial statements.
6

Table of Contents


JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Six Months Ended
 December 31,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net Income$163,198 $161,468 
Adjustments to reconcile net income from operations
to net cash from operating activities:
  
Depreciation26,652 25,364 
Amortization61,164 58,873 
Change in deferred income taxes8,651 4,134 
Expense for stock-based compensation9,752 6,998 
(Gain)/loss on disposal of assets(2,019)(103)
Changes in operating assets and liabilities:  
Change in receivables  87,518 106,782 
Change in prepaid expenses, deferred costs and other(26,109)(21,911)
Change in accounts payable16 (262)
Change in accrued expenses(22,627)(28,702)
Change in income taxes13,922 19,861 
Change in deferred revenues(126,134)(117,489)
Net cash from operating activities193,984 215,013 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Payment for acquisitions, net of cash acquired (30,376)
Capital expenditures(9,543)(30,758)
Proceeds from dispositions6,157 326 
Purchased software(4,254)(5,551)
Computer software developed(62,804)(57,886)
Purchase of investments(12,100)(1,150)
Net cash from investing activities(82,544)(125,395)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repayments on financing leases(57) 
Purchase of treasury stock(109,899)(51,210)
Dividends paid(65,516)(61,502)
Tax withholding payments related to share based compensation(6,689)(2,624)
Proceeds from sale of common stock5,138 4,603 
Net cash from financing activities(177,023)(110,733)
NET CHANGE IN CASH AND CASH EQUIVALENTS$(65,583)$(21,115)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD$213,345 $93,628 
CASH AND CASH EQUIVALENTS, END OF PERIOD$147,762 $72,513 

See notes to condensed consolidated financial statements

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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 ("Jack Henry," "JKHY," 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 JKHY systems, and by providing other related services. JKHY also provides continuing support and services to customers using on-premise or JKHY cloud-based systems.
Consolidation
The condensed consolidated financial statements include the accounts of JKHY and all of its subsidiaries, which are wholly-owned, and all intercompany accounts and transactions have been eliminated.
Comprehensive Income
Comprehensive income for the three and six months ended December 31, 2020 and 2019 equals the Company’s net income.
Change in Accounting Policy
The Company adopted FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses, ("CECL") with an adoption date of July 1, 2020 (see Note 2). As a result, the Company changed its accounting policy for allowance for credit losses. The accounting policy pursuant to CECL is disclosed below. The adoption of CECL resulted in an immaterial cumulative effect adjustment recorded in retained earnings as of July 1, 2020.
Allowance for Credit Losses
The Company monitors trade and other receivable balances and contract assets and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events.
The following table summarizes allowance for credit losses activity for the fiscal quarter and year-to-date period ended December 31, 2020:
Three Months Ended December 31, 2020Six Months Ended December 31, 2020
Allowance for credit losses - beginning balance$6,731 $6,719 
Cumulative effect of accounting standards update adoption 493 
Current provision for expected credit losses370 910 
Write-offs charged against allowance(263)(1,286)
Recoveries of amounts previously written off(1)(4)
Other(7)(2)
Allowance for credit losses - ending balance$6,830 $6,830 
While the novel coronavirus ("COVID-19") pandemic did not result in a significant increase in the Company’s expected credit loss allowance recorded as of December 31, 2020, the Company believes it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic could have a material impact on management’s estimates (see Use of Estimates below).
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, 2020 totaled $415,044 and at June 30, 2020 totaled $404,388.
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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 $858,921 and $812,856 at December 31, 2020 and June 30, 2020, respectively.
Purchase of Investments
At June 30, 2020, the Company had an investment in the preferred stock of Automated Bookkeeping, Inc ("Autobooks") of $6,000. During the second quarter of fiscal 2021, the Company made an additional investment in Autobooks for a total investment at December 31, 2020 of $13,250, which represented a non-controlling share of the voting equity as of that date. The total investment was recorded at cost and is included within other non-current assets on the Company's balance sheet. There have been no events or changes in circumstances that would indicate an impairment and no price changes resulting from observing a similar or identical investment. An impairment and/or an observable price change would be an adjustment to recorded cost. Fair value will not be estimated unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.
Common Stock
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or borrowings on its existing line-of-credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At December 31, 2020, there were 27,668 shares in treasury stock and the Company had the remaining authority to repurchase up to 2,323 additional shares. The total cost of treasury shares at December 31, 2020 was $1,291,572. During the first six months of fiscal 2021, the Company repurchased 675 shares for the treasury. At June 30, 2020, there were 26,993 shares in treasury stock and the Company had authority to repurchase up to 2,998 additional shares. The total cost of treasury shares at June 30, 2020 was $1,181,673.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest and penalties expenses are recognized on the full amount of 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, 2020. 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, 2020, 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, 2020, the results of its operations for the three and six months ended December 31, 2020 and 2019, changes in stockholders' equity for the three and six months ended December 31, 2020 and 2019, and its cash flows for the six months ended December 31, 2020 and 2019. The condensed consolidated balance sheet at June 30, 2020 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements.
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The results of operations for the three and six months ended December 31, 2020 are not necessarily indicative of the results to be expected for the entire year.
Use of Estimates
The extent to which the COVID-19 pandemic will directly or indirectly impact our business and financial results, including revenue, expenses, cost of revenues, research and development, and selling, general and administrative expenses, will depend on future developments that are highly uncertain, such as new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 (including the efficacy and distribution of any vaccines), as well as the economic impact on local, regional, national and international customers and markets. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2020 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, as well as the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements as of and for the quarter ended December 31, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
NOTE 2:     RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Guidance
In January 2017, the FASB issued Accounting Standard Update ("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. The Company adopted ASU No. 2017-04 on July 1, 2020 and the adoption did not have a material impact on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), or CECL, which prescribes an impairment model for most financial instruments based on expected losses rather than incurred losses. Under this model, an estimate of expected credit losses over the contractual life of the instrument is to be recorded as of the end of a reporting period as an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial instrument. For most instruments, entities must apply the standard using a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year of adoption.
The Company adopted CECL effective July 1, 2020 using the required modified retrospective approach, which resulted in a cumulative-effect decrease to beginning retained earnings of $493. Financial assets and liabilities held by the Company subject to the “expected credit loss” model prescribed by CECL include trade and other receivables as well as contract assets (see Note 1).
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 plans to adopt ASU 2019-12 effective July 1, 2021 and does not expect the adoption to have a material 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.
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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,
2020201920202019
Outsourcing & Cloud$124,498 $115,897 $245,456 $224,480 
Product Delivery & Services48,414 61,709 105,312 133,070 
In-House Support77,961 77,598 181,102 176,462 
Services & Support250,873 255,204 531,870 534,012 
Processing171,488 163,915 342,291 323,112 
Total Revenue$422,361 $419,119 $874,161 $857,124 
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.
December 31,
2020
June 30,
2020
Receivables, net$212,934 $300,945 
Contract Assets- Current19,274 21,609 
Contract Assets- Non-current52,430 54,293 
Contract Liabilities (Deferred Revenue)- Current193,409 318,161 
Contract Liabilities (Deferred Revenue)- Non-current69,474 71,461 
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, 2020 and 2019, the Company recognized revenue of $79,421 and $84,613, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. For the six months ended December 31, 2020 and 2019, the Company recognized revenue of $156,666 and $155,625, 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, 2020, 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 $4,139,497. 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 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 $296,757 and $271,010, at December 31, 2020 and June 30, 2020, respectively.
For the three months ended December 31, 2020 and 2019, amortization of deferred contract costs was $28,795 and $27,821, respectively. During the six months ended December 31, 2020 and 2019, amortization of deferred contract costs totaled $62,620 and $59,214, respectively. There were no impairment losses in relation to capitalized costs for the periods presented.

NOTE 4.    FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, certificates of deposit, amounts receivable or payable, and short-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities.
The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:
Level 1: inputs to the valuation are quoted prices in an active market for identical assets
Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly
Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset
Fair value of financial assets included in current assets is as follows:
Estimated Fair Value MeasurementsTotal Fair
 Level 1Level 2Level 3Value
December 31, 2020   
Financial Assets:
 Certificate of Deposit
$ $5,000 $ $5,000 
June 30, 2020   
Financial Assets:
 Certificate of Deposit
$ $ $ $ 

NOTE 5.    LEASES
The Company determines if an arrangement is a lease at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases and equipment leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the Company’s leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based upon the information available at commencement date. The determination of the incremental borrowing rate requires judgment and is determined by using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease.
The Company leases certain office space, data centers and equipment with remaining terms of 1 to 13 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
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the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. Variable lease costs are recognized as a variable lease expense when incurred.
At December 31, 2020 and June 30, 2020, the Company had operating lease assets of $62,021 and $63,948 and financing lease assets of $260 and $318, respectively. At December 31, 2020, total operating lease liabilities of $66,765 were comprised of current operating lease liabilities of $11,690 and noncurrent operating lease liabilities of $55,075, and total financing lease liabilities of $266 were comprised of current financing lease liabilities of $117 and noncurrent financing lease liabilities of $149. At June 30, 2020, total operating lease liabilities of $68,309 were comprised of current operating lease liabilities of $11,712 and noncurrent operating lease liabilities of $56,597, and total financing lease liabilities of $323 were comprised of current financing lease liabilities of $115 and noncurrent financing lease liabilities of $208.
Operating lease assets are included within other non-current assets and operating lease liabilities are included within accrued expenses (current portion) and other long-term liabilities (noncurrent portion) in the Company’s condensed consolidated balance sheet. Operating lease assets were recorded net of accumulated amortization of $18,807 and $13,719 as of December 31, 2020 and June 30, 2020, respectively. Financing lease assets are included within property and equipment, net and financing lease liabilities are included within notes payable (current portion) and long-term debt (noncurrent portion) in the Company’s condensed consolidated balance sheet. Financing lease assets were recorded net of accumulated amortization of $96 and $38 as of December 31, 2020 and June 30, 2020, respectively.
Operating lease costs for the three months ended December 31, 2020 and 2019 were $3,766 and $4,024, respectively. Operating lease costs for the six months ended December 31, 2020 and 2019 were $7,675 and $8,031, respectively. Financing lease costs for the three and six months ended December 31, 2020 and 2019 were $30 and $0, respectively. Total operating and financing lease costs for the respective quarters included variable lease costs of approximately $809 and $780. Total operating and financing lease costs for the respective year-to-date periods included variable lease costs of approximately $2,189 and $1,659. Operating and financing lease expense are included within cost of services, research and development, and selling, general & administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of income.
For the six months ended December 31, 2020 and 2019, the Company had operating cash flows for payments on operating leases of $6,872 and $7,803, and right-of-use assets obtained in exchange for operating lease liabilities of $4,485 and $1,370, respectively. Operating cash flows for interest paid on financing leases for the six months ended December 31, 2020 and 2019 were $4 and $0, respectively.
As of December 31, 2020 and June 30, 2020, the weighted-average remaining lease term for the Company's operating leases was 84 months and 88 months and the weighted-average discount rate was 2.66% and 2.76%, respectively. As of December 31, 2020 and June 30, 2020 the weighted-average remaining lease term for the Company's financing leases was 27 months and 33 months, respectively. The weighted-average discount rate for the Company's financing leases was 2.42% as of December 31, 2020 and June 30, 2020.
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Maturity of Lease Liabilities under ASC 842
Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2020*:
Due Dates (fiscal year)Future Minimum Rental Payments
2021 (remaining period)$6,569 
202213,233 
202311,772 
20249,640 
20256,899 
Thereafter25,164 
Total lease payments$73,277 
Less: interest(6,512)
Present value of lease liabilities$66,765 
*Financing leases were immaterial to the quarter, so a maturity of lease liabilities table has only been included for operating leases.
Lease payments include $5,464 related to options to extend lease terms that are reasonably certain of being exercised. At December 31, 2020, there were no legally binding lease payments for leases signed but not yet commenced.
NOTE 6.    DEBT
Revolving credit facility
On February 10, 2020, the Company entered into a five-year senior, unsecured revolving credit facility. The credit facility allows for borrowings of up to $300,000, which may be increased by the Company at any time until maturity to $700,000. The credit facility bears interest at a variable rate equal to (a) a rate based on a eurocurrency rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime rate ("Prime Rate") for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% and (iv) the eurocurrency rate for a one-month interest period on such day for dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit facility is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit facility agreement. As of December 31, 2020, the Company was in compliance with all such covenants. The revolving credit facility terminates February 10, 2025. There was no outstanding balance under the credit facility at December 31, 2020 or June 30, 2020.
Other lines of credit
The Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate less 1%. The credit line expires on April 30, 2021. There was no balance outstanding at December 31, 2020 or June 30, 2020.
Interest
The Company paid interest of $105 and $193 during the six months ended December 31, 2020 and 2019, respectively.

NOTE 7.    INCOME TAXES
The effective tax rate was 23.1% and 23.2% of income before income taxes for the three months ended December 31, 2020 and 2019, respectively. For the six months ended December 31, 2020 and 2019, the effective tax rate was 22.7% and 24.0%, respectively. The decrease in the Company's fiscal year-to-date tax rate was primarily due to the difference in impact of share-based compensation that vested during each of the periods.
The Company paid income taxes, net of refunds, of $24,794 and $26,262 in the six months ended December 31, 2020 and 2019, respectively.
At December 31, 2020, the Company had $11,314 of gross unrecognized tax benefits, $10,496 of which, if recognized, would affect our effective tax rate. The Company had accrued interest and penalties of $1,896 and $1,883 related to uncertain tax positions at December 31, 2020 and 2019, respectively.
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The U.S. federal and state income tax returns for fiscal 2017 and all subsequent years remain subject to examination as of December 31, 2020 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 $3,500 to $4,500 within twelve months of December 31, 2020.
NOTE 8.    STOCK-BASED COMPENSATION
Our operating income for the three months ended December 31, 2020 and 2019 included $5,127 and $4,145 of stock-based compensation costs, respectively. Our operating income for the six months ended December 31, 2020 and 2019 included $9,752 and $6,998 of stock-based compensation costs, respectively.
Stock Options
On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan ("2015 EIP") for its employees and non-employee directors. The plan allows for grants of stock options, stock appreciation rights, restricted stock shares or units, and performance shares or units. The maximum number of shares authorized for issuance under the plan is 3,000. For stock options, terms and vesting periods of the options are determined by the Compensation Committee of the Board of Directors when granted. The option period must expire not more than ten years from the option grant date. The options granted under this plan are exercisable beginning three years after the grant date at an exercise price equal to 100% of the fair market value of the stock at the grant date. The options terminate upon surrender of the option, ninety days after termination of employment, upon the expiration of one year following notification of a deceased optionee, or ten years after grant.
A summary of option plan activity under this plan is as follows:
 Number of SharesWeighted Average Exercise PriceAggregate
Intrinsic
Value
Outstanding July 1, 202022 $87.27  
Granted   
Forfeited   
Exercised   
Outstanding December 31, 202022 $87.27 $1,620 
Vested and Expected to Vest December 31, 202022 $87.27 $1,620 
Exercisable December 31, 202022 $87.27 $1,620 
At December 31, 2020, 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, 2020 was 5.50 years.
Restricted Stock Unit Awards
The Company issues unit awards under the 2015 EIP. The following table summarizes non-vested restricted stock unit awards as of December 31, 2020:
Unit awardsUnitsWeighted
Average
Grant Date
Fair Value
Aggregate Intrinsic Value
Outstanding July 1, 2020307 $136.41 
Granted73 185.52 
Vested(102)104.57 
Forfeited  
Outstanding December 31, 2020278 $161.09 $44,979 
The 73 unit awards granted in fiscal 2021 had service requirements and performance targets, with 38 only having service requirements. Those 38 were valued at the weighted-average fair value of the non-vested units based on the fair market value of the Company’s equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period, consistent with the methodology for calculating compensation expense on such awards. The remaining 35 unit awards granted in fiscal 2021 had performance targets along with service requirements, all of which were valued using 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.
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Per the Company's award vesting and settlement provisions, approximately half of the awards that utilize a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return (TSR) in comparison to the compensation peer group made up of participants approved by the Compensation Committee of the Company's Board of Directors for fiscal year 2021, 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 Monte Carlo inputs used in the model to estimate fair value at the measurement date and resulting values for these performance unit awards are as follows.
Compensation Peer GroupS&P 1500 IT Index
Volatility25.17 %25.17 %
Risk free interest rate0.11 %0.11 %
Annual dividend based on most recent quarterly dividend1.72 1.72 
Beginning TSR37 %30 %
At December 31, 2020, there was $23,610 of compensation expense, excluding forfeitures, that has yet to be recognized related to non-vested restricted stock unit awards, which will be recognized over a weighted average period of 1.52 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,
 2020201920202019
Net Income$71,982 $72,098 $163,198 $161,468 
Common share information:
Weighted average shares outstanding for basic earnings per share76,202 76,879 76,354 76,926 
Dilutive effect of stock options and restricted stock78 56 14275
Weighted average shares outstanding for diluted earnings per share76,280 76,935 76,496 77,001 
Basic earnings per share$0.94 $0.94 $2.14 $2.10 
Diluted earnings per share$0.94 $0.94 $2.13 $2.10 
Per share information is based on the weighted average number of common shares outstanding for the three and six months ended December 31, 2020 and 2019. Stock options and restricted stock units have been included in the calculation of earnings per share to the extent they are dilutive. There were 21 anti-dilutive stock options or restricted stock units excluded for the quarter ended December 31, 2020 and 50 excluded for the quarter ended December 31, 2019. There were 21 anti-dilutive stock options or restricted stock units excluded for the six months ended December 31, 2020 and 37 excluded for the six months ended December 31, 2019.
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NOTE 10.    BUSINESS ACQUISITIONS
Geezeo
On July 1, 2019, the Company acquired all of the equity interest of DebtFolio, Inc. ("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 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$8,925 
Long-term assets397 
Identifiable intangible assets19,114 
Deferred income tax liability(2,593)
Total other liabilities assumed(7,457)
Total identifiable net assets18,386 
Goodwill19,390 
Net assets acquired$37,776 
The goodwill of $19,390 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, 2020 included revenue of $3,273 and after-tax net income of $1,156 resulting from Geezeo's operations. 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, 2020 included revenue of $6,486 and after-tax net income of $2,222 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, 2020 and 2019 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 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 JKHY cloud-based services) for banks and credit unions.
The Company’s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate & Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card transaction processing services, online and mobile bill pay solutions, Automated Clearing House ("ACH") origination and remote deposit capture processing, and risk management products and services. The Complementary segment provides additional software and services that
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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.
During the second quarter of fiscal 2021, Jack Henry's call center was consolidated into the Complementary segment. As a result of this consolidation, an immaterial adjustment was made during the second quarter of fiscal 2021 to reclassify revenue and related costs recognized during the three and six months ended December, 31, 2019 from the Core to the Complementary segment. The revenue amounts reclassified were $4,845 for three months ended December 31, 2019, and $9,475 for the six months ended December 31, 2019. The cost of revenue amounts reclassified were $2,866 for the three months ended December 31, 2019, and $5,550 for the six months ended December 31, 2019. An additional immaterial adjustment was made after the quarter ended December 31, 2019 to reclassify cost of revenue recognized in the year-to-date period of fiscal 2020 from the Corporate & Other to the Payments segment to be consistent with the current allocation of cost of revenue by segment. The amount reclassified totaled $131 for the three and six months ended December 31, 2019.
Three Months Ended
December 31, 2020
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support$126,758 $14,807 $98,829 $10,479 $250,873 
Processing8,190 140,375 22,579 344 171,488 
Total Revenue134,948 155,182 121,408 10,823 422,361 
Cost of Revenue58,519 86,455 52,407 60,401 257,782 
Research and Development26,780 
Selling, General, and Administrative44,167 
Total Expenses328,729 
SEGMENT INCOME$76,429 $68,727 $69,001 $(49,578)
OPERATING INCOME93,632 
INTEREST INCOME (EXPENSE)(65)
INCOME BEFORE INCOME TAXES$93,567 

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Three Months Ended
December 31, 2019
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support$125,937 $14,829 $99,323 $15,115 $255,204 
Processing7,586 137,216 19,006 107 163,915 
Total Revenue133,523 152,045 118,329 15,222 419,119 
Cost of Revenue58,377 79,266 50,885 60,739 249,267 
Research and Development27,187 
Selling, General, and Administrative48,961 
Total Expenses325,415 
SEGMENT INCOME$75,146 $72,779 $67,444 $(45,517)
OPERATING INCOME93,704 
INTEREST INCOME (EXPENSE)190 
INCOME BEFORE INCOME TAXES$93,894 



Six Months Ended
December 31, 2020
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support271,344 31,111 207,378 22,037 531,870 
Processing16,759 280,804 44,384 344 342,291 
Total Revenue288,103 311,915 251,762 22,381 874,161 
Cost of Revenue122,410 172,783 104,431 121,087 520,711 
Research and Development52,837 
Selling, General, and Administrative89,393 
Total Expenses662,941 
SEGMENT INCOME$165,693 $139,132 $147,331 $(98,706)
OPERATING INCOME211,220 
INTEREST INCOME (EXPENSE)(115)
INCOME BEFORE INCOME TAXES$211,105 

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Six Months Ended
December 31, 2019
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support$269,398 $32,137 $202,404 $30,073 $534,012 
Processing15,392 269,654 37,750 316 323,112 
Total Revenue284,790 301,791 240,154 30,389 857,124 
Cost of Revenue118,999 155,890 100,242 119,927 495,058