jkhy-20211231
12/31/2021HENRY 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, 2021
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 28, 2022, the Registrant had 72,825,033 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, 2021, and June 30, 2021 (Unaudited)
Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2021, and 2020 (Unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended December 31, 2021, and 2020 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2021, and 2020 (Unaudited)
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
   
ITEM 3.Quantitative and Qualitative Disclosures about Market Risk
   
ITEM 4.Controls and Procedures
  
PART IIOTHER INFORMATION
ITEM 1.Legal Proceedings
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds
 
ITEM 6.Exhibits
Signatures
In this report, all references to "Jack Henry," “JKHY,” the “Company,” “we,” “us,” and “our,” refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.
FORWARD LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “seek,” “anticipate,” “estimate,” “future,” “intend,” “plan,” “strategy,” “predict,” “likely,” “should,” “will,” “would,” “could,” “can,” “may,” and similar expressions. Forward-looking statements are based only on management’s current beliefs, expectations and assumptions regarding the future of the Company, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether because of new information, future events or otherwise.


2



PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
3

Table of Contents
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
 December 31,
2021
June 30,
2021
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$29,120 $50,992 
Receivables, net236,096 306,564 
Income tax receivable22,881 30,243 
Prepaid expenses and other116,778 109,723 
Deferred costs62,157 46,215 
Total current assets467,032 543,737 
PROPERTY AND EQUIPMENT, net241,409 252,481 
OTHER ASSETS:  
Non-current deferred costs133,223 127,205 
Computer software, net of amortization387,128 368,094 
Other non-current assets260,186 249,210 
Customer relationships, net of amortization75,579 81,842 
Other intangible assets, net of amortization28,787 26,129 
Goodwill687,458 687,458 
Total other assets1,572,361 1,539,938 
Total assets$2,280,802 $2,336,156 
LIABILITIES AND STOCKHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Accounts payable$14,155 $18,485 
Accrued expenses150,363 182,517 
Notes payable and current maturities of long-term debt103 110 
Deferred revenues208,733 319,748 
Total current liabilities373,354 520,860 
LONG-TERM LIABILITIES:  
Non-current deferred revenues67,045 75,852 
Deferred income tax liability272,331 260,758 
Debt, net of current maturities240,026 100,083 
Other long-term liabilities56,050 59,311 
Total long-term liabilities635,452 496,004 
Total liabilities1,008,806 1,016,864 
STOCKHOLDERS' EQUITY  
Preferred stock -$1 par value; 500,000 shares authorized, none issued
  
Common stock - $0.01 par value; 250,000,000 shares authorized;
    103,860,246 shares issued at December 31, 2021;
     103,795,169 shares issued at June 30, 2021
1,039 1,038 
Additional paid-in capital535,493 518,960 
Retained earnings2,542,583 2,412,496 
Less treasury stock at cost
    31,042,903 shares at December 31, 2021;
     29,792,903 shares at June 30, 2021
(1,807,119)(1,613,202)
Total stockholders' equity1,271,996 1,319,292 
Total liabilities and equity$2,280,802 $2,336,156 
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,
 2021202020212020
REVENUE$493,896 $422,361 $981,952 $874,161 
EXPENSES    
Cost of Revenue282,825 257,782 559,460 520,711 
Research and Development29,916 26,780 56,670 52,837 
Selling, General, and Administrative55,493 44,167 106,565 89,393 
Total Expenses368,234 328,729 722,695 662,941 
OPERATING INCOME125,662 93,632 259,257 211,220 
INTEREST INCOME (EXPENSE)    
Interest Income6 52 13 120 
Interest Expense(447)(117)(696)(235)
Total Interest Income (Expense)(441)(65)(683)(115)
INCOME BEFORE INCOME TAXES125,221 93,567 258,574 211,105 
PROVISION FOR INCOME TAXES29,551 21,585 60,791 47,907 
NET INCOME$95,670 $71,982 $197,783 $163,198 
Basic earnings per share$1.30 $0.94 $2.68 $2.14 
Basic weighted average shares outstanding73,580 76,202 73,798 76,354 
Diluted earnings per share$1.30 $0.94 $2.68 $2.13 
Diluted weighted average shares outstanding73,697 76,280 73,920 76,496 














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,
 2021202020212020
PREFERRED SHARES:    
COMMON SHARES: 
Shares, beginning of period103,822,265 103,696,962 103,795,169 103,622,563 
Shares issued for equity-based payment arrangements21,101 23,412 26,533 78,414 
Shares issued for Employee Stock Purchase Plan16,880 16,329 38,544 35,726 
Shares, end of period103,860,246 103,736,703 103,860,246 103,736,703 
COMMON STOCK - PAR VALUE $0.01 PER SHARE: 
Balance, beginning of period$1,038 $1,037 $1,038 $1,036 
Shares issued for equity-based payment arrangements   1 
Shares issued for Employee Stock Purchase Plan1  1  
Balance, end of period$1,039 $1,037 $1,039 $1,037 
ADDITIONAL PAID-IN CAPITAL: 
Balance, beginning of period$527,255 $497,030 $518,960 $495,005 
Shares issued for equity-based payment arrangements   (1)
Tax withholding related to share-based compensation(1,046)(1,184)(1,998)(6,689)
Shares issued for Employee Stock Purchase Plan2,739 2,232 6,476 5,138 
Stock-based compensation expense6,545 5,127 12,055 9,752 
Balance, end of period$535,493 $503,205 $535,493 $503,205 
RETAINED EARNINGS: 
Balance, beginning of period$2,480,574 $2,293,229 $2,412,496 $2,235,320 
Cumulative effect of Accounting Standards Update adoption (Note 1)   (493)
Net income95,670 71,982 197,783 163,198 
Dividends(33,661)(32,702)(67,696)(65,516)
Balance, end of period$2,542,583 $2,332,509 $2,542,583 $2,332,509 
TREASURY STOCK: 
Balance, beginning of period$(1,613,202)$(1,247,546)$(1,613,202)$(1,181,673)
Purchase of treasury shares(193,917)(44,026)(193,917)(109,899)
Balance, end of period$(1,807,119)$(1,291,572)$(1,807,119)$(1,291,572)
TOTAL STOCKHOLDERS' EQUITY$1,271,996 $1,545,179 $1,271,996 $1,545,179 
Dividends declared per share$0.46 $0.43 $0.92 $0.86 

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,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net Income$197,783 $163,198 
Adjustments to reconcile net income from operations
     to net cash from operating activities:
  
Depreciation25,843 26,652 
Amortization62,610 61,164 
Change in deferred income taxes11,573 8,651 
Expense for stock-based compensation13,027 9,752 
(Gain)/loss on disposal of assets240 (2,019)
Changes in operating assets and liabilities:  
Change in receivables  70,468 87,518 
Change in prepaid expenses, deferred costs and other(39,991)(26,109)
Change in accounts payable2,995 16 
Change in accrued expenses(35,814)(22,627)
Change in income taxes8,439 13,922 
Change in deferred revenues(119,822)(126,134)
Net cash from operating activities197,351 193,984 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital expenditures(22,373)(9,543)
Proceeds from dispositions38 6,157 
Purchased software(7,364)(4,254)
Computer software developed(71,353)(62,804)
Purchase of investments (12,100)
Net cash from investing activities(101,052)(82,544)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Borrowings on credit facilities220,000  
Repayments on credit facilities and financing leases(80,065)(57)
Purchase of treasury stock(193,917)(109,899)
Dividends paid(67,696)(65,516)
Tax withholding payments related to share-based compensation(1,998)(6,689)
Proceeds from sale of common stock5,505 5,138 
Net cash from financing activities(118,171)(177,023)
NET CHANGE IN CASH AND CASH EQUIVALENTS$(21,872)$(65,583)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD$50,992 $213,345 
CASH AND CASH EQUIVALENTS, END OF PERIOD$29,120 $147,762 

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 leading provider of technology solutions and payment processing services primarily for the financial services industry. The Company has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide, by providing the conversion and implementation services for financial institutions to utilize JKHY systems, and by providing payment processing and other related services. JKHY also provides continuing support and services to customers using on-premise or JKHY private and public cloud-based systems.
Consolidation
The condensed consolidated financial statements include the accounts of JKHY and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated.
Comprehensive Income
Comprehensive income for the three and six months ended December 31, 2021, and 2020, equals the Company’s net income.
Change in Accounting Policy
The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses, ("CECL") with an adoption date of July 1, 2020. As a result, the Company changed its accounting policy for allowance for credit losses. The accounting policy pursuant to CECL is disclosed below. The adoption of CECL resulted in an immaterial cumulative effect adjustment recorded in retained earnings as of July 1, 2020.
Allowance for Credit Losses
The Company monitors trade and other receivable balances and contract assets and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events.
The following table summarizes allowance for credit losses activity for the fiscal quarter and year-to-date period ended December 31, 2021, and 2020:
Three Months Ended December 31,Six Months Ended December 31,
2021202020212020
Allowance for credit losses - beginning balance$7,660 $6,731 $7,267 $6,719 
Cumulative effect of accounting standards update adoption   493 
Current provision for expected credit losses300 370 840 910 
Write-offs charged against allowance(227)(263)(373)(1,286)
Recoveries of amounts previously written off (1)(1)(4)
Other (7) (2)
Allowance for credit losses - ending balance$7,733 $6,830 $7,733 $6,830 



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Property and Equipment
Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.  Accumulated depreciation at December 31, 2021, totaled $453,439 and at June 30, 2021, totaled $435,169.
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 $983,626 and $921,050 at December 31, 2021, and June 30, 2021, respectively.
Purchase of Investments
At December 31, 2021, and June 30, 2021, the Company had an investment in the preferred stock of Automated Bookkeeping, Inc. ("Autobooks") of $13,250, which represented a non-controlling share of the voting equity as of each date. The total investment was recorded at cost and is included within other non-current assets on the Company's balance sheet. There have been no events or changes in circumstances that would indicate an impairment and no price changes resulting from observing a similar or identical investment. An impairment and/or an observable price change would be an adjustment to recorded cost. Fair value will not be estimated unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.
Common Stock
The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or borrowings on its existing line-of-credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At December 31, 2021, there were 31,043 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,948 additional shares. The total cost of treasury shares at December 31, 2021, was $1,807,119. During the first six months of fiscal 2022, the Company repurchased 1,250 shares. At June 30, 2021, there were 29,793 shares in treasury stock and the Company had authority to repurchase up to 5,198 additional shares. The total cost of treasury shares at June 30, 2021, was $1,613,202. During the first six months of fiscal 2021, the Company repurchased 675 shares.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement basis and tax basis of assets and liabilities. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest and penalties expense are recognized on the full amount of unrecognized benefits for uncertain tax positions. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense.
Interim Financial Statements
The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission ("SEC") and in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") applicable to interim condensed consolidated financial statements and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended June 30, 2021. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K for the fiscal year ended June 30, 2021, with updates to certain policies included in this Note 1.
In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary (consisting of normal recurring adjustments) to state fairly in all material respects the financial position of the Company as of December 31, 2021, the results of its operations for
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the three and six months ended December 31, 2021, and 2020, changes in stockholders' equity for the three and six months ended December 31, 2021, and 2020, and its cash flows for the six months ended December 31, 2021, and 2020. The condensed consolidated balance sheet at June 30, 2021, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
The results of operations for the three and six months ended December 31, 2021, are not necessarily indicative of the results to be expected for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The extent to which the COVID-19 pandemic will directly or indirectly impact our business and financial results, including revenue, expenses, cost of revenues, research and development, and selling, general and administrative expenses, will depend on future developments that are highly uncertain, such as new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19 (including the efficacy of vaccines against new variants and the development and effectiveness of treatments), as well as the economic impact on local, regional, national and international customers and markets. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of December 31, 2021, and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, as well as the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s condensed consolidated financial statements as of and for the fiscal quarter ended December 31, 2021, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s condensed consolidated financial statements in future reporting periods.

NOTE 2:     RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Guidance
In December of 2019, the FASB issued Accounting Standards Update ("ASU") No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions and simplifies other requirements of Topic 740 guidance. The ASU was effective for the Company on July 1, 2021. The Company adopted ASU 2019-12 effective July 1, 2021 with no material impact on its condensed consolidated financial statements.
Not Yet Adopted
In October of 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The Company plans to adopt ASU 2021-08 when required, which will be for fiscal years beginning after December 15, 2022, including interim periods within the fiscal years, and should be applied prospectively to business combinations occurring on or after the effective date of this ASU. Although this ASU has no current effect on the Company's condensed consolidated financial statements, there could be an effect for any business combinations taking place after the effective date of this ASU.

NOTE 3.    REVENUE AND DEFERRED COSTS
Revenue Recognition
The Company generates revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales.
Disaggregation of Revenue
The tables below present the Company's revenue disaggregated by type of revenue. Refer to Note 10, Reportable Segment Information, for disaggregated revenue by type and reportable segment. The majority of the Company’s
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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,
2021202020212020
Private and Public Cloud1
$138,340 $124,498 $273,982 $245,456 
Product Delivery and Services79,499 48,414 131,014 105,312 
On-Premise Support2
78,372 77,961 188,708 181,102 
Services and Support296,211 250,873 593,704 531,870 
Processing197,685 171,488 388,248 342,291 
Total Revenue$493,896 $422,361 $981,952 $874,161 
1 The name of this revenue stream was changed in fiscal 2021 from "outsourcing and cloud" to "private and public cloud" to better reflect the nature of the related revenue. However, the nature of the revenue included within this caption has not changed and is the same in the current fiscal quarter as it was in the comparative quarter of fiscal 2021 and prior.
2 The name of this revenue stream was changed in fiscal 2021 from "in-house support" to "on-premise support" to better reflect the nature of the related revenue. However, the nature of the revenue included within this caption has not changed and is the same in the current fiscal quarter as it was in the comparative quarter of fiscal 2021 and prior.
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.

December 31,
2021
June 30,
2021
Receivables, net$236,096 $306,564 
Contract Assets - Current20,374 22,884 
Contract Assets - Non-current59,119 52,920 
Contract Liabilities (Deferred Revenue) - Current208,733 319,748 
Contract Liabilities (Deferred Revenue) - Non-current67,045 75,852 
Contract assets primarily result from revenue being recognized when or as control of a solution or service is transferred to the customer, except where invoicing is contingent upon the completion of other performance obligations or payment terms differ from the provisioning of services. The current portion of contract assets is reported within prepaid expenses and other in the condensed consolidated balance sheet, and the non-current portion is included in other non-current assets. Contract liabilities (deferred revenue) primarily relate to consideration received from customers in advance of delivery of the related goods and services to the customer. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.
The Company analyzes contract language to identify if a significant financing component does exist and adjusts the transaction price for any material effects of the time value of money if the timing of payments provides either party to the contract with a significant benefit of financing the transaction.
During the three months ended December 31, 2021 and 2020, the Company recognized revenue of $89,257 and $79,421, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. For the six months ended December 31, 2021 and 2020, the Company recognized revenue of $157,781 and $156,666, 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.
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Transaction Price Allocated to Remaining Performance Obligations
As of December 31, 2021, estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period totaled $5,154,912. The Company expects to recognize approximately 26% 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 $347,867 and $314,807 at December 31, 2021 and June 30, 2021, respectively.
For the three months ended December 31, 2021 and 2020, amortization of deferred contract costs was $32,154 and $28,794, respectively. During the six months ended December 31, 2021, and 2020, amortization of deferred contract costs totaled $67,998 and $62,620, respectively.

NOTE 4.    FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash equivalents, certificates of deposit, amounts receivable or payable, and short-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities.
The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows:
Level 1: inputs to the valuation are quoted prices in an active market for identical assets
Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly
Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset
Fair value of financial assets included in current assets is as follows:
Estimated Fair Value MeasurementsTotal Fair
 Level 1Level 2Level 3Value
December 31, 2021   
Financial Assets:
 Certificates of Deposit$ $1,209 $ $1,209 
Financial Liabilities:
Revolving credit facility
$ $240,000 $ $240,000 
June 30, 2021   
Financial Assets:
 Certificates of Deposit$ $1,200 $ $1,200 
Financial Liabilities:
Revolving credit facility
$ $100,000 $ $100,000 

NOTE 5.    LEASES
The Company determines if an arrangement is a lease at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease agreements with lease and non-lease
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components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases and equipment leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the Company’s leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based upon the information available at commencement date. The determination of the incremental borrowing rate requires judgment and is determined by using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease.
The Company leases certain office space, data centers and equipment with remaining terms of 1 to 12 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. Variable lease costs are recognized as a variable lease expense when incurred.
At December 31, 2021, and June 30, 2021, the Company had operating lease assets of $51,888 and $55,977 and financing lease assets of $124 and $188, respectively. At December 31, 2021, total operating lease liabilities of $56,653 were comprised of current operating lease liabilities of $11,623 and noncurrent operating lease liabilities of $45,030, and total financing lease liabilities of $129 were comprised of current financing lease liabilities of $103 and noncurrent financing lease liabilities of $26. At June 30, 2021, total operating lease liabilities of $60,828 were comprised of current operating lease liabilities of $11,460 and noncurrent operating lease liabilities of $49,368, and total financing lease liabilities of $193 were comprised of current financing lease liabilities of $110 and noncurrent financing lease liabilities of $83.
Operating lease assets are included within other non-current assets and operating lease liabilities are included within accrued expenses (current portion) and other long-term liabilities (noncurrent portion) in the Company’s condensed consolidated balance sheet. Operating lease assets were recorded net of accumulated amortization of $27,625 and $23,813 as of December 31, 2021, and June 30, 2021, respectively. Financing lease assets are included within property and equipment, net and financing lease liabilities are included within notes payable (current portion) and long-term debt (noncurrent portion) in the Company’s condensed consolidated balance sheet. Financing lease assets were recorded net of accumulated amortization of $206 and $153 as of December 31, 2021, and June 30, 2021, respectively.
Operating lease costs for the three months ended December 31, 2021, and 2020, were $3,327 and $3,766, respectively. Financing lease costs for the three months ended December 31, 2021, and 2020, were $27 and $30, respectively. Total operating and financing lease costs for the respective quarters included variable lease costs of approximately $441 and $809, respectively. Operating lease costs for the six months ended December 31, 2021, and 2020, were $6,759 and $7,675, respectively. Financing lease costs for the six months ended December 31, 2021, and 2020, were $55 and $30, respectively. Total operating and financing lease costs for the respective fiscal year-to-date periods included variable lease costs of approximately $840 and $2,189. Operating and financing lease expense are included within cost of services, research and development, and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of income.
For the six months ended December 31, 2021, and 2020, the Company had operating cash flows for payments on operating leases of $6,802 and $6,872, respectively, and ROU assets obtained in exchange for operating lease liabilities of $1,870 and $4,485, respectively. Financing cash flows for payments on financing leases for the six months ended December 31, 2021, and 2020, were $55 and $63, respectively.
As of December 31, 2021, and June 30, 2021, the weighted average remaining lease term for the Company's operating leases was 77 months and 81 months, respectively, and the weighted average discount rate was 2.62% and 2.67%, respectively. As of December 31, 2021, and June 30, 2021, the weighted average remaining lease term for the Company's financing leases was 15 months and 21 months, respectively. The weighted average discount rate for the Company's financing leases was 2.36% and 2.39% as of December 31, 2021, and June 30, 2021, respectively.
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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, 2021*:
Due Dates (fiscal year)Future Minimum Rental Payments
2022 (remaining period)6,617 
202312,089 
202410,029 
20257,266 
20266,342 
Thereafter19,388 
Total lease payments$61,731 
Less: interest(5,078)
Present value of lease liabilities$56,653 
*Financing leases were immaterial to the fiscal quarter, so a maturity of lease liabilities table has only been included for operating leases.
Lease payments included $5,464 related to options to extend lease terms that are reasonably certain of being exercised. At December 31, 2021, the Company had $60 in legally binding lease payments for one lease that was signed but not yet commenced. The lease commencement date is March 1, 2022, and the lease term is 36 months.

NOTE 6.    DEBT
Revolving credit facility
On February 10, 2020, the Company entered into a five-year senior, unsecured revolving credit facility. The credit facility allows for borrowings of up to $300,000, which may be increased by the Company at any time until maturity to $700,000. The credit facility bears interest at a variable rate equal to (a) a rate based on a eurocurrency rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% and (iv) the eurocurrency rate for a one-month interest period on such day for dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit facility is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit facility agreement. As of December 31, 2021, the Company was in compliance with all such covenants. The revolving credit facility terminates February 10, 2025. There was $240,000 outstanding under the credit facility at December 31, 2021, and $100,000 outstanding balance at June 30, 2021.
Other lines of credit
The Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate less 1%. The credit line expires on April 30, 2023. There was no balance outstanding at December 31, 2021, or June 30, 2021.
Interest
The Company paid interest of $604 and $105 during the six months ended December 31, 2021, and 2020, respectively.

NOTE 7.    INCOME TAXES
Provision for income taxes increased for the three months ended December 31, 2021, compared to the three months ended December 31, 2020, with an effective tax rate of 23.6% of income before income taxes, compared to 23.1% in the prior-year fiscal quarter. The increase in the effective tax rate comparing the three-month periods ended December 31 was primarily due to the impact of increases in operating income relative to the impact of other items affecting the effective tax rate in the current period.

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For the six months ended December 31, 2021, provision for income taxes increased compared to the six months ended December 31, 2020, with an effective tax rate of 23.5% of income before income taxes, compared to 22.7% for the same period last fiscal year. The increase in the effective tax rate comparing the fiscal year-to-date periods ended December 31 was primarily due to the relative impact of the increase in operating income in the current fiscal year-to-date period and a larger excess tax benefit received from share-based compensation in the prior fiscal year-to-date period.
The Company paid income taxes, net of refunds, of $40,687 and $24,794 in the six months ended December 31, 2021, and 2020, respectively.
At December 31, 2021, the Company had $9,594 of gross unrecognized tax benefits before interest and penalties, $8,891 of which, if recognized, would affect our effective tax rate. The Company had accrued interest and penalties of $1,425 and $1,896 related to uncertain tax positions at December 31, 2021, and 2020, respectively.
The U.S. federal and state income tax returns for fiscal 2018 and all subsequent years remain subject to examination as of December 31, 2021, under statute of limitations rules. The Company believes it is reasonably possible that the liability for unrecognized tax benefits could reduce by $3,500 to $4,500 within twelve months of December 31, 2021, due to lapsing statutes of limitations and examination closures.

NOTE 8.    STOCK-BASED COMPENSATION
Our operating income for the three months ended December 31, 2021, and 2020, included $6,956 and $5,127 of stock-based compensation costs, respectively. Our operating income for the six months ended December 31, 2021, and 2020, included $13,027 and $9,752 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, 202122 $87.27  
Granted   
Forfeited   
Exercised   
Outstanding December 31, 202122 $87.27 $1,729 
Vested and Expected to Vest December 31, 202122 $87.27 $1,729 
Exercisable December 31, 202122 $87.27 $1,729 
At December 31, 2021, 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, 2021, was 4.50 years.
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The Company issues unit awards under the 2015 EIP. The following table summarizes non-vested performance and restricted stock unit awards as of December 31, 2021:
UnitsWeighted
Average
Grant Date
Fair Value
Aggregate Intrinsic Value
Outstanding July 1, 2021294 $160.22 
Granted130 178.47 
Vested(40)148.56 
Forfeited(41)198.03 
Outstanding December 31, 2021343 $163.99 $57,242 
The 130 unit awards granted in fiscal 2022 had service requirements and performance targets, with 82 having only service requirements. The unit awards with only service requirements were valued at the weighted average fair value of the non-vested units based on the fair market value of the Company’s equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period, consistent with the methodology for calculating compensation expense on such awards.
The remaining 48 unit awards granted in fiscal 2022 have performance targets along with service requirements. 19 of these performance and service requirement unit awards were valued at grant by estimating 100% payout at release and using the fair market value of the Company equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period. The payout at release of approximately half of these unit awards will be determined based on the Company's compound annual growth rate (CAGR) for revenue (excluding adjustments) for the three-year vesting period compared against goal thresholds as defined in the award agreement. The performance payout at release of the other half of these unit awards will be determined based on the expansion of the Company's non-GAAP operating margin over the three-year vesting period compared against goal thresholds as defined in the award agreement. The other 29 performance and service requirement unit awards were valued at grant using a Monte Carlo pricing model as of the measurement date customized to the specific provisions of the Company’s plan design. Per the Company's award vesting and settlement provisions, the awards that utilized a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return (TSR) in comparison to the custom peer group comprised of participants approved by the Compensation Committee of the Company's Board of Directors for fiscal year 2022. The Monte Carlo inputs used in the model to estimate fair value at the measurement date and resulting values for these performance unit awards are as follows.
Fiscal year 2022 Monte Carlo award inputs:
Volatility28.55 %
Risk free interest rate0.32 %
Annual dividend based on most recent quarterly dividend$1.84 
Beginning TSR65 %
At December 31, 2021, there was $29,290 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 1.39 years.
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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,
 2021202020212020
Net Income$95,670 $71,982 $197,783 $163,198 
Common share information:
Weighted average shares outstanding for basic earnings per share1
73,580 76,202 73,798 76,354 
Dilutive effect of stock options and restricted stock117 78 122142
Weighted average shares outstanding for diluted earnings per share1
73,697 76,280 73,920 76,496 
Basic earnings per share2
$1.30 $0.94 $2.68 $2.14 
Diluted earnings per share2
$1.30 $0.94 $2.68 $2.13 
1The change in weighted average shares outstanding is primarily due to the weighted effect of the Company's repurchase of 2,800 shares of common stock during all of fiscal 2021 (675 shares repurchased during the first half of fiscal 2021) and the repurchase of 1,250 shares during fiscal year-to-date 2022.
2Common stock repurchases during the trailing twelve months contributed $0.05 to diluted earnings per share for the second fiscal quarter and $0.09 for year-to-date fiscal 2022.

Per share information is based on the weighted average number of common shares outstanding for the three and six months ended December 31, 2021, and 2020. Stock options and restricted stock units have been included in the calculation of earnings per share to the extent they are dilutive. There were 28 and 23 anti-dilutive stock options or restricted stock units excluded for the three and six months ended December 31, 2021, respectively, and 21 were excluded for both the three and six months ended December 31, 2020.

NOTE 10.    REPORTABLE SEGMENT INFORMATION
The Company is a provider of integrated computer systems that perform data processing (available for on-premise installations or JKHY cloud-based services) for banks and credit unions.
The Company’s operations are classified into four reportable segments: Core, Payments, Complementary, and Corporate and Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card transaction processing services, online and mobile bill pay solutions, Automated Clearing House ("ACH") origination and remote deposit capture processing, and risk management products and services. The Complementary segment provides additional software and services that can be integrated with our core solutions, and many can be used independently. The Corporate and Other segment includes hardware revenue and costs, as well as operating costs not directly attributable to the other three segments.
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.
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Table of Contents
Three Months Ended
December 31, 2021
CorePaymentsComplementaryCorporate and OtherTotal
REVENUE
Services and Support$145,699 $23,944 $112,490 $14,078 $296,211 
Processing9,179 158,584 29,234 688 197,685 
Total Revenue154,878 182,528 141,724 14,766 493,896 
Cost of Revenue64,554 95,570 58,151 64,550 282,825 
Research and Development29,916 
Selling, General, and Administrative55,493 
Total Expenses368,234 
SEGMENT INCOME$90,324 $86,958 $83,573 $(49,784)
OPERATING INCOME125,662 
INTEREST INCOME (EXPENSE)(441)
INCOME BEFORE INCOME TAXES$125,221 

Three Months Ended
December 31, 2020
CorePaymentsComplementaryCorporate and 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 Revenue58,485 86,455 52,407 60,435 257,782 
Research and Development26,780 
Selling, General, and Administrative44,167 
Total Expenses328,729 
SEGMENT INCOME$76,463 $68,727 $69,001 $(49,612)
OPERATING INCOME93,632 
INTEREST INCOME (EXPENSE)(65)
INCOME BEFORE INCOME TAXES$93,567 

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Table of Contents
Six Months Ended
December 31, 2021
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support301,536 39,594 227,443 25,131 593,704 
Processing18,627 312,556 55,762 1,303 388,248 
Total Revenue320,163 352,150 283,205 26,434 981,952 
Cost of Revenue131,456 188,795 113,635 125,574 559,460 
Research and Development56,670 
Selling, General, and Administrative106,565 
Total Expenses722,695 
SEGMENT INCOME$188,707 $163,355 $169,570 $(99,140)
OPERATING INCOME259,257 
INTEREST INCOME (EXPENSE)(683)
INCOME BEFORE INCOME TAXES$258,574 

Six Months Ended
December 31, 2020
CorePaymentsComplementaryCorporate & OtherTotal
REVENUE
Services and Support$271,344 $31,111 $207,378 $22,037 $531,870