What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-08-25 compared with 2021-08-25 · 78 added, 99 removed, 251 unchanged (41% of the section changed)

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Jack Henry & Associates, Inc.

is headquartered in Monett, Missouri, employs approximately 6,800 full-time and part-time associates nationwide, and is a leading provider of technology solutions and payment processing services primarily for financial services organizations.

Its solutions serve nearly 8,400 customers and are marketed and supported through three primary brands.

Jack Henry Banking® is a leading provider of integrated data processing systems solutions to U.S.

banks ranging from de novo to multi-billion-dollar institutions with assets up to $50 billion.

Symitar® is a leading provider of core data processing solutions for credit unions of all sizes.

ProfitStars® provides highly specialized core agnostic products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs.

is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 6,900 full-time and part-time associates nationwide, and is a leading provider of technology solutions and payment processing services primarily for financial services organizations.

Its solutions serve over 7,800 customers and consist of integrated data processing systems solutions to U.S.

banks ranging from de novo to multi-billion-dollar institutions with assets up to $50 billion, core data processing solutions for credit unions of all sizes, and non-core highly specialized core-agnostic products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs.

JKHY's integrated solutions are available for on-premise installation and delivery in our private cloud.

Each of our brands share the fundamental commitment to provide high-quality business solutions, service levels that consistently exceed customer expectations, integration of solutions and practical new technologies.

Each of our solutions shares the fundamental commitment to provide high-quality business systems, service levels that consistently exceed customer expectations, and integration of solutions and practical new technologies.

The quality of our solutions, our high service standards, and the fundamental way we do business typically foster long-term customer relationships, attract prospective customers, and have enabled us to capture substantial market share.

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Our two primary revenue streams are "services and support" and "processing." Services and support includes:

"private and public cloud" fees (formerly known as "outsourcing and cloud" fees - see Note 2 to the consolidated financial statements) that predominantly have contract terms of seven years or longer at inception;

"private and public cloud" fees that predominantly have contract terms of seven years or longer at inception;

"product delivery and services" revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees, consulting, and hardware;

and "on-premise support" revenue (formerly known as "in-house support" revenue - see Note 2 to the consolidated financial statements), composed of maintenance fees which primarily contain annual contract terms.

and "on-premise support" revenue, composed of maintenance fees which primarily contain annual contract terms.

Processing revenue includes:

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"card" fees, including card transaction processing and monthly fees;

and "transaction and digital" revenue, which includes transaction and mobile processing fees.

and "transaction and digital" revenue, which includes transaction and mobile

processing fees.

We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.

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COVID-19 Impact and Response

Since its outbreak in early 2020, COVID-19 has rapidly spread and continues to represent a public health concern.

Since its outbreak in early calendar 2020, COVID-19 has rapidly spread and continues to represent a public health concern.

The health, safety, and well-being of our employees and customers is of paramount importance to us.

2020, we established an internal task force composed of executive officers and other members of management to frequently assess updates to the COVID-19 situation and recommend Company actions.

In March 2020, we established an internal task force composed of executive officers and other members of management to frequently assess updates to the COVID-19 situation and recommend Company actions.

We offered remote working as a recommended option to employees whose job duties allowed them to work off-site, and we suspended all non-essential business travel.

This company-wide recommendation extended until July 1, 2021, at which point we began transition to a return to our facilities and normalization of travel activities.

Individual decisions on returning to the office were manager-coordinated and based on conversations with specific teams and departments.

A large number of our employees requested to remain fully remote or participate in a hybrid approach where they would split their time between remote and in-person working.

We have not required employees who return to our facilities to receive vaccinations, but we have provided information on vaccine providers, as well as hosted on-site COVID-19 vaccination clinics at several of our facilities for our employees and their families.

On August 3, 2021, we reimplemented our company-wide recommendation for remote work and are encouraging a cautious approach to business travel based on the spread of the Delta variant and increased infection rates.

For those employees who are at our facilities, we have introduced enhanced sanitation procedures and we require face masks for both vaccinated and unvaccinated employees.

As of August 15, 2022, the majority of our employees were continuing to work remotely either full time or in a hybrid capacity.

We have announced that our official return-to-office date is September 6, 2022, though employees have been permitted to voluntarily return to the office since May 2, 2022.

Individual decisions on returning to the office will be manager-coordinated and based on conversations with specific teams and departments.

A large number of our employees have requested to remain fully remote or participate in a hybrid approach where they would split their time between remote and in-person working.

While our business travel is normalizing, we do not expect it to return to pre-pandemic levels and continue to encourage a cautious approach to business travel activities.

We work closely with our customers who are scheduled for on-site visits to ensure their needs are met while taking necessary safety precautions when our employees are required to be at a customer site.

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We expect these processes to provide flexibility and value both during and after the COVID-19 pandemic.

Even though a substantial portion of our workforce has worked remotely during the outbreak and business travel has been curtailed, we have not yet experienced significant disruption to our operations.

Even though a substantial portion of our workforce has worked remotely during the outbreak and business travel has been limited, we have not yet experienced significant disruption to our operations.

We believe our technological capabilities are well positioned to allow our employees to work remotely without materially impacting our business.

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the duration, severity and recurrence of the outbreak, including the onset of variants of the virus;

the speed and effectiveness of vaccine and treatment developments;

the speed of economic recovery;

the effectiveness of vaccines against new variants;

the development and effectiveness of treatments;

the effect on the economy generally;

the potential impact to our customers, vendors, and employees;

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Reducing total revenue for the effects of deconversion fees of $53,279 for the current fiscal year and $20,635 for the prior fiscal year, and for revenue from acquisitions and divestitures in fiscal 2022 of $274 and in fiscal 2021 of $1,182, results in a 9% increase, or $152,923.

This increase was primarily driven by growth in card processing, data processing and hosting fee, Jack Henry digital and remittance fee, and software usage fee revenues, partially offset by lower hardware revenues and decreased pass-through billable travel and user group expenses year over year due to COVID-19 travel limitations (see "COVID-19 Impact and Response" above).

Operating expenses increased 3% in fiscal 2021 compared to fiscal 2020, primarily due to higher costs related to our card payment processing platform associated with corresponding increases in revenue, higher personnel costs, and increased operating licenses and fees, partially offset by more capitalized costs related to research and development, travel expense savings as a result of COVID-19 travel limitations (see "COVID-19 Impact and Response" above), the gain on sale of assets this fiscal year compared to the loss last fiscal year, and lower hardware costs associated with a corresponding decrease in revenues.

This increase was primarily driven by growth in private and public cloud, card processing, remittance, implementation, and transaction and digital revenues, partially offset by a decrease in license fee revenue compared to the prior fiscal year.

Operating expenses increased 8% in fiscal 2022 compared to fiscal 2021, primarily due to higher costs related to our card payment processing platform associated with corresponding increases in revenue, higher personnel costs, increased operating licenses and fees, and higher travel expenses.

We move into fiscal 2023 following strong performance in fiscal 2022.

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We believe our strong balance sheet, access to extensive lines of credit, the strength of our existing product line and an unwavering commitment to superior customer service position us well to address current and future opportunities.

A detailed discussion of the major components of the results of operations for the fiscal year ended June 30, 2021 follows.

A detailed discussion of the major components of the results of operations for the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021 follows.

Services and Support Revenue Year Ended June 30, % Change

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and "on-premise support" revenue, which is composed primarily of maintenance fees with annual contract terms.

In the fiscal year ended June 30, 2021, services and support revenue remained consistent compared to the prior fiscal year.

In the fiscal year ended June 30, 2022, services and support revenue increased compared to the prior fiscal year.

Reducing total services and support revenue by the effects of deconversion fees for each year, which totaled $53,279 in fiscal 2022 and $20,635 in fiscal 2021, and for revenue from acquisitions and divestitures in fiscal 2021 of $1,181, revenue grew 7.5%.

This increase was primarily driven by higher private and public cloud revenue resulting from organic growth in data processing and hosting fee revenue reflecting a continuing shift of customers to our term license model.

Growth in software usage revenue also contributed to the increase.

Decreased pass-through expenses due to COVID-19 travel limitations (see "COVID-19 Impact and Response" above) and lower hardware revenues partially offset revenue increases.

Growth in implementation and software usage revenues also contributed to the increase, partially offset by a decrease in license fee revenue compared to the prior fiscal year.

Processing Revenue Year Ended June 30, %

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Processing revenue includes:

"remittance" revenue from payment processing, remote capture, and automated clearinghouse ("ACH") transactions;

"remittance" revenue from payment processing, remote capture, and ACH transactions;

"card" fees, including card transaction processing and monthly fees;

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We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.

Processing revenue increased 10% for the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30, 2020, with strong organic growth in the card, transaction and digital, and remittance revenue components primarily due to expanding volumes.

Processing revenue increased 11% for the fiscal year ended June 30, 2022, compared to the fiscal year ended June 30, 2021, with strong organic growth in the card processing, transaction and digital, and remittance revenue components primarily due to expanding volumes.

OPERATING EXPENSES

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Percentage of total revenue 58 % 60 %

Cost of revenue for fiscal 2021 increased 5% compared to fiscal 2020.

Reducing total cost of revenue for the effects of deconversion fees from each year, which totaled $1,425 in fiscal 2021 and $4,055 in fiscal 2020, and for the effects of acquisitions, divestitures, and gain/loss of $123 in the current fiscal year and $2,151 in the prior fiscal year, cost of revenue increased 6%.

This increase was driven by higher direct costs associated with our card processing platform in correlation with related revenue increases;

higher personnel costs and operating licenses and fees, partially offset by savings realized from travel limitations due to COVID-19 (see "COVID-19 Impact and

Response" above) and lower hardware costs corresponding with decreased hardware revenue.

Cost of revenue increased 1% as a percentage of total revenue for fiscal 2021 compared to fiscal 2020.

Cost of revenue for fiscal 2022 increased 6% compared to fiscal 2021, driven by higher direct costs associated with our card processing platform in line with related revenue increases, higher personnel costs, and higher operating licenses and fees.

Cost of revenue decreased 2% as a percentage of total revenue for fiscal 2022 compared to fiscal 2021.

Research and Development Year Ended June 30, %

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We believe our research and development efforts are highly efficient because of the extensive experience of our research and development staff and because our product development is highly customer driven.

Research and development expenses for fiscal 2021 decreased 1% compared to fiscal 2020.

The decrease was primarily due to higher capitalized research and development costs partially offset by an increase in personnel costs.

The consistency of this expense category for the fiscal years presented reflected our continuing commitment to the development of strategic products.

Research and development expenses for fiscal 2022 increased 11% compared to fiscal 2021, primarily due to higher personnel costs, net of capitalization.

Research and development expense remained consistent as a percentage of total revenue for fiscal 2022 and fiscal 2021.

The consistency of this expense category for the fiscal years presented reflected our continuing commitment to the development of strategic products.

Selling, General, and Administrative Year Ended June 30, %

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Selling, general, and administrative costs included all expenses related to sales efforts, commissions, finance, legal, and human resources, plus all administrative costs.

Selling, general, and administrative expenses for fiscal 2021 decreased 6% compared to fiscal 2020.

Reducing total selling, general, and administrative expense for the effects of deconversion fees from each year, which totaled $489 in fiscal 2021 and $973 in fiscal 2020, and for the effects of acquisitions, divestitures, and gain/loss of $(1,950) for the current fiscal year and of $4,893 for the prior fiscal year, selling, general, and administrative expense decreased 2% compared to fiscal 2020.

This decrease was primarily due to travel expense and other savings as a result of COVID-19 travel limitations partially offset by increased personnel costs.

COVID-19 related savings included our national sales meeting, Jack Henry Annual Conference, and Symitar Education Conference being held virtually during the current fiscal year (see "COVID-19 Impact and Response" above).

Selling, general, and administrative expense decreased 1% as a percentage of total revenue for fiscal 2021 compared to fiscal 2020.

Selling, general, and administrative expenses for fiscal 2022 increased 17% compared to fiscal 2021.

Reducing total selling, general, and administrative expense for the effects of deconversion fees from each year, which totaled $2,485 in fiscal 2022 and $489 in fiscal 2021, and removing the effects of acquisitions, divestitures, and gain/loss of $29 for the current fiscal year and of $(2,012) for the prior fiscal year, selling, general, and administrative expense increased 14% compared to fiscal 2021.

This increase was primarily due to higher personnel costs, increased travel expenses, and a smaller gain on sale of assets in the current fiscal year.

Selling, general, and administrative expense remained consistent as a percentage of total revenue for fiscal 2022 compared to fiscal 2021.

INTEREST INCOME AND EXPENSE Year Ended June 30, %

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Effective rate 23.2 % 21.7 %

The decrease in the Company's effective tax rate in fiscal 2021 compared to fiscal 2020 was primarily due to a greater benefit in the current fiscal year related to stock-based compensation.

The increase in the Company's effective tax rate in fiscal 2022 compared to fiscal 2021 was primarily the result of an increase in the state tax rate applied to net deferred tax liabilities and less rate benefit received from research and development credits.

NET INCOME Year Ended June 30, %

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The diluted earnings per share increase year over year was 20%.

Growth in net income and earnings per share was primarily due to the organic growth in our lines of revenue in fiscal 2021 compared to fiscal 2020 and expense savings from COVID-19 related impacts in the current fiscal year (see "COVID-19 Impact and Response" above).

Growth in net income and

earnings per share was primarily due to the organic growth in our lines of revenue in fiscal 2022 compared to fiscal 2021, partially offset by the increase in provision for income taxes.

REPORTABLE SEGMENT DISCUSSION

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The Corporate and Other segment includes revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating costs not directly attributable to the other three segments.

During the second quarter of fiscal 2021, Jack Henry's call center was consolidated into the Complementary segment.

As a result of this consolidation, immaterial adjustments were made during fiscal 2021 to reclassify related revenue and costs recognized during the fiscal years ended June 30, 2020 and 2019 from the Core to the Complementary segment.

The total related revenue reclassified was $20,797 for fiscal 2020 and $13,515 for fiscal 2019.

The total related cost of revenue reclassified was $12,386 for fiscal 2020 and $8,513 for fiscal 2019.

Immaterial adjustments were made in fiscal 2022 to reclassify cost of revenue in fiscal 2021 from the Core segment to the Corporate and Other segment to be consistent with the current fiscal year allocation of cost of revenue by segment.

The amounts reclassified for the fiscal year ended June 30, 2021 were $135.

2022 % Change 2021

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Cost of Revenue $ 261,585 6 % $ 247,150

In fiscal 2021, revenue in the Core segment remained consistent compared to fiscal 2020.

In fiscal 2022, revenue in the Core segment increased 10% compared to fiscal 2021.

Reducing total Core revenue by the effects of deconversion fees from both years, which totaled $23,048 in fiscal 2022 and $7,458 in fiscal 2021, and for revenue from acquisitions and divestitures in fiscal 2021 of $1,180, Core segment revenue increased 8%.

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Cost of revenue in the Core segment increased 6% for fiscal 2022 compared to fiscal 2021 primarily due to increased costs associated with the organic growth in cloud revenue.

Cost of revenue increased 1% as a percentage of revenue for fiscal 2021 compared to fiscal 2020.

Core segment cost of revenue decreased 2% as a percentage of revenue for fiscal 2022 compared to fiscal 2021.

2022 % Change 2021

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This increase was primarily driven by organic growth within card processing and remittance fee revenues.

Cost of revenue in the Payments segment increased 11% for fiscal 2021 compared to fiscal 2020 primarily due to increased costs associated with our card processing platform and

other costs related to the organic growth in card processing and remittance fees.

Cost of revenue increased 1.5% as a percentage of revenue for fiscal 2021 compared to fiscal 2020.

Cost of revenue in the Payments segment increased 8% for fiscal 2022 compared to fiscal 2021 primarily due to increased costs associated with our card processing platform and other costs related to the organic growth in card processing and remittance fees.

Payments segment cost of revenue decreased 1% as a percentage of revenue for fiscal 2022 compared to fiscal 2021.

Complementary

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Reducing total Complementary revenue by the effects of deconversion fees from both years, which totaled $15,589 in fiscal 2022 and $6,778 in fiscal 2021, and for revenue from acquisitions and divestitures of $274 from fiscal 2022, Complementary segment revenue increased 9%.

This increase was driven by organic increases in our private and public cloud revenue, Jack Henry digital, and on-premise support revenues.

Cost of revenue in the Complementary segment increased 4% for fiscal 2021 compared to fiscal 2020, primarily due to increased personnel costs and amortization expense mainly related to capitalized software.

Cost of revenue remained consistent as a percentage of revenue for fiscal 2021 compared to fiscal 2020.

This increase was driven by organic increases in our transaction

and digital, private and public cloud, and on-premise support revenues.

Cost of revenue in the Complementary segment increased 9% for fiscal 2022 compared to fiscal 2021, primarily due to higher direct costs, increased personnel costs, amortization expense mainly related to capitalized software, and operating licenses and fees.

Complementary segment cost of revenue decreased 1% as a percentage of revenue for fiscal 2022 compared to fiscal 2021.

Corporate and Other

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Cost of Revenue $ 253,987 2 % $ 250,041

Revenue in the Corporate and Other segment decreased 15% for fiscal 2021 compared to fiscal 2020.

The decrease was mainly due to decreased hardware revenue and lower pass-through user group revenue due to COVID-19 limitations (see "COVID-19 Impact and Response" above).

Revenue in the Corporate and Other segment increased 14% for fiscal 2022 compared to fiscal 2021.

The increase was mainly due to increased on-premise support and implementation revenues.

Cost of revenue for the Corporate and Other segment includes operating costs not directly attributable to any of the other three segments and increased 2% for fiscal 2022 compared to fiscal 2021.

The increased cost of revenue was primarily related to increased licenses and fees and personnel costs, partially offset by lower hardware costs associated with the decrease in hardware revenue.

The increased Corporate and Other segment cost of revenue was primarily related to increased operating licenses and fees.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents decreased to $48,787 at June 30, 2022 from $50,992 at June 30, 2021.

Cash was lower at the end of fiscal 2021 compared to the end of fiscal 2020 primarily due to the increase in net cash used in financing activities, including an increase in the purchase of treasury stock of approximately $360,000 and the decrease in cash provided by operating activities, including lower deconversion fees collected of approximately $22,000 or about 61% year over year.

Decreases in cash were partially offset by an increase in credit facility borrowings and a decrease in cash used in investing activities, including a 57% decrease in capital expenditures and a decrease in cash used for acquisitions year over year.

The following table summarizes net cash from operating activities in the statement of cash flows:

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Net cash provided by operating activities $ 504,631 $ 462,129

Cash provided by operating activities for fiscal 2021 decreased 9% compared to fiscal 2020.

Cash provided by operating activities for fiscal 2022 increased 9% compared to fiscal 2021.

Cash from operations is primarily used to repay debt, pay dividends and repurchase stock, and for capital expenditures.

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capital expenditures on facilities and equipment of $34,659, mainly for the purchase of computer equipment;

$2,300 for asset acquisitions;

$8,491 for the purchase and development of internal use software;

and $5,000 for purchase of investments.

This was partially offset by $6,187 of proceeds from asset sales and $5,000 of proceeds from investment maturities.

These expenditures were partially offset by $45 of proceeds from asset sales.

Cash used in investing activities for fiscal 2021 totaled $162,250 and included:

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capital expenditures on facilities and equipment of $22,988, mainly for the purchase of computer equipment;

$30,376, net of cash acquired, for the purchases of Geezeo;

$13,300 for the purchase of investments;

$6,506 for the purchase and development of internal use software;

and $1,150 for the purchase of investments.

These expenditures were partially offset by $11,130 of proceeds from the sale of assets.

and $2,300, net of cash acquired, for asset acquisitions last year;

These expenditures were partially offset by $6,187 of proceeds from the sale of assets and $5,000 of proceeds from investments.

Financing activities used cash of $310,492 for fiscal 2022 and included $193,916 for the purchase of treasury shares and $139,070 for dividends paid to stockholders.

These expenditures were partially offset by $3,211 of net cash inflow related to stock-based compensation and borrowings and repayments on our revolving credit facility which netted to a borrowing of $100,000.

Financing activities used cash in fiscal 2020 of $192,909 and included $127,421 for dividends paid to stockholders and $71,549 for the purchase of treasury shares.

These expenditures were partially offset by $6,094 of net cash inflow related to stock-based compensation.

Borrowings and repayments on our revolving credit facility netted to zero at June 30, 2020.

These expenditures were partially offset by borrowings and repayments on our revolving credit facility and financing leases which netted to a borrowing of $14,873 and $7,621 of net cash inflow related to stock-based compensation.

Financing activities used cash in fiscal 2021 of $462,232 and included $431,529 for the purchase of treasury shares and $133,800 for dividends paid to stockholders.

These expenditures were partially offset by borrowings and repayments on our revolving credit facility and financing leases which netted to $99,886 at June 30, 2021 and $3,211 of net cash inflow related to stock-based compensation.

Capital Requirements and Resources

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At June 30, 2022, the Company had no significant outstanding purchase commitments related to property and equipment.

The COVID-19 pandemic has created significant uncertainty as to general global economic and market conditions for the beginning of our fiscal 2022 and beyond.

We believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business.

However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs.

We assessed our liquidity needs throughout fiscal 2022, including in relation to the impact of the COVID-19 pandemic, and determined we had adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated funding needs.

We will continue to monitor and assess these needs going forward.

At June 30, 2022, the Company had contractual obligations of $1,449,442, including operating lease obligations and $1,393,541 related to off-balance sheet purchase obligations.

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This agreement and subsequent amendments include a total purchase commitment at June 30, 2022 of $980,348 over the remaining term of the contract, which currently extends until January 2036, subject to certain renewal terms.

Contractual obligations exclude $9,942 of liabilities for uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement.

Contractual obligations also include an agreement entered into during fiscal 2022 with Google LLC to provide Google Cloud Platform to the Company, including a total purchase commitment at June 30, 2022 of $225,000.

Contractual obligations also include an agreement entered into during fiscal 2022 with Feedzai Inc.

to provide a software as a service offering that allows prevention, detection, and monitoring of financial crime, including a total purchase commitment at June 30, 2022 of $20,501.

Contractual obligations exclude, however, $10,225 of liabilities for uncertain tax positions as we are unable to reasonably estimate the ultimate amount or timing of settlement.

The Board of Directors has authorized the Company to repurchase shares of its common stock.

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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.

We have entered into a definitive agreement to acquire Payrailz, LLC.

We anticipate the transaction closing on August 31, 2022.

In connection with the closing, we expect to amend the revolving credit facility to increase the borrowing limit to allow funding of the transaction.

Revolving credit facility

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The revolving credit facility terminates February 10, 2025.

There was a $100,000 outstanding balance under the credit facility at June 30, 2021 and no outstanding balance under this credit facility at June 30, 2020.

The Company also terminated its prior unsecured credit agreement on February 10, 2020.

There was a $115,000 outstanding balance under the credit facility at June 30, 2022 and $100,000 outstanding balance under this credit facility at June 30, 2021.

Other lines of credit

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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 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 to the consolidated financial statements).

Not Adopted at Fiscal Year End

In December of 2019, the FASB issued ASU No.

In December 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 is effective for the Company on July 1, 2021.

The Company adopted ASU 2019-12 effective July 1, 2021 and the adoption did not have a material impact on its consolidated financial statements.

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 Adopted at Fiscal Year End

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer.

The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

The Company plans to adopt the ASU effective July 1, 2023, and will apply it prospectively to business combinations occurring on or after that date.

CRITICAL ACCOUNTING ESTIMATES

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We enter into contracts with customers that may include multiple types of goods and services.

At contract inception, we assess the solutions and services promised in our contracts with customers and identify a performance

obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - that is, if the solution or service is separately identifiable from other items in the arrangement and if the customer can benefit from the solution or service on its own or together with other resources that are readily available.

At contract inception, we assess the solutions and services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - that is, if the solution or service is separately identifiable from other items in the arrangement and if the customer can benefit from the solution or service on its own or together with other resources that are readily available.

Significant judgment is used in the identification and accounting for all performance obligations.

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Costs incurred prior to this are expensed as incurred.

Significant estimates and assumptions include determining the appropriate

amortization period based on the estimated useful life and assessing the unamortized cost balances for impairment.

Significant estimates and assumptions include determining the appropriate amortization period based on the estimated useful life and assessing the unamortized cost balances for impairment.

Amortization begins on the date the software is placed in service and the amortization period is based on estimated useful life.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis