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Item 7. Management’s Discussion and Analysis

2023-08-24 compared with 2022-08-25 · 115 added, 113 removed, 216 unchanged (51% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section provides management's view of the Company's financial condition and results of operations and should be read in conjunction with the audited consolidated financial statements, and related notes included elsewhere in this report.

elsewhere in this report.

All dollar and share amounts, except per share amounts, are in thousands and discussions compare fiscal 2023 to fiscal 2022.

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Jack Henry & Associates, Inc.

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.

is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 7,120 full-time and part-time employees nationwide, and is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.

Our solutions serve over 7,500 customers and consist of integrated data processing systems solutions to 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.

Our integrated solutions are available for on-premise installation and delivery in our private and public cloud.

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.

Through internal product development, disciplined acquisitions, and alliances with companies offering niche solutions that complement our proprietary solutions, we regularly introduce new products and services and generate new cross-sales opportunities across our three primary marketed brands.

We provide compatible computer hardware for our on-premise installations and secure processing environments for our outsourced solutions in our private cloud.

We provide compatible computer hardware for our on-premise installations and secure processing environments for our outsourced solutions in our private and public cloud.

We perform data conversions, software implementations, initial and ongoing customer training, and ongoing customer support services.

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Our support infrastructure and strict standards provide service levels we believe to be the highest in the markets we serve and generate high levels of customer satisfaction and retention.

We consistently measure customer satisfaction using comprehensive annual surveys and randomly generated daily surveys we receive in our everyday business.

We consistently measure customer satisfaction using a variety of surveys, such as an annual survey on the customer's anniversary date and randomly-generated surveys initiated each day by routine support requests.

Dedicated surveys are also used to grade specific aspects of our customer experience, including product implementation, education, and consulting services.

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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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The respective segments include all related revenues along with the related cost of sales.

COVID-19 Impact and Response

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.

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.

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.

Delays of customer system installations due to COVID-19 have been limited, and we have developed processes to handle remote installations when available.

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 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.

Financial Impact

Despite the changes and restrictions caused by COVID-19, the overall financial and operational impact on our business has been limited and our liquidity, balance sheet, and business trends remain strong.

We experienced positive operating cash flows during fiscal 2022, and we do not expect that to change in the near term.

However, we are unable to accurately predict the future impact of COVID-19 due to a number of uncertainties, including further government actions;

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

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;

and how the potential impact might affect future customer services, processing and installation-related revenue, and processes and efficiencies within the Company directly or indirectly impacting financial results.

We will continue to monitor COVID-19 and its possible impact on the Company and to take steps necessary to protect the health and safety of our employees and customers.

For a further discussion of the uncertainties and risks associated with COVID-19, see Part II, Item 1A “Risk Factors” in this Annual Report on Form 10-K.

A detailed discussion of the major components of the results of operations follows.

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FISCAL 2023 COMPARED TO FISCAL 2022

On August 31, 2022, the Company acquired all of the equity interest in Payrailz, LLC ("Payrailz").

Payrailz related revenue and operating expenses mentioned in the discussion below are for the 10 months from the date of acquisition through our fiscal year ended June 30, 2023.

In fiscal 2023, total revenue increased 7% or $134,818, compared to fiscal 2022.

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 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.

Reducing total revenue for deconversion fees of $31,775 in the current fiscal year and $53,279 in the prior fiscal year, and for Payrailz related revenue of $8,482 in the current fiscal year, results in an 8% increase, or $147,840.

This increase was primarily driven by growth in data processing and hosting and card processing revenue, as new customers were added and

volumes expanded, payment processing revenues, digital revenues (including Banno), as new customers were added and active users increased, and software usage and subscription fee revenues, as more customers chose time-based licenses rather than perpetual, compared to the prior fiscal year.

Operating expenses increased 9% in fiscal 2023 compared to fiscal 2022.

Reducing total operating expenses for deconversion costs of $4,261 in the current fiscal year and $6,277 in the prior fiscal year, and for Payrailz related expenses of $22,467, and gain on assets, net, of $4,567 in the current fiscal year, results in an 8% increase, or $112,864.

This increase was primarily due to higher personnel costs, including commissions and benefits expenses, increased direct costs consistent with increases in the related revenue, amortization of intangible assets, and internal licenses and fees.

We move into fiscal 2024 following strong performance in fiscal 2023.

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In the fiscal year ended June 30, 2023, services and support revenue increased 5% 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 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.

Reducing total services and support revenue by deconversion fees for each year, which totaled $31,775 in fiscal 2023 and $53,279 in fiscal 2022, and for Payrailz related revenue of $46 from the current fiscal year, services and support revenue grew 7%.

This increase was primarily driven by higher data processing and hosting fees within private and public cloud revenue resulting from new customers being added and volumes expanding.

Growth in software usage and subscription fee revenues, as more customers chose time-based licenses rather than perpetual, and hardware revenue also contributed to the increase.

Processing Revenue Year Ended June 30, %

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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.

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.

Processing revenue increased 10% for the fiscal year ended June 30, 2023, compared to the fiscal year ended June 30, 2022.

Reducing total processing revenue by Payrailz related revenue of $8,436 from the current fiscal year, processing revenue grew 9%.

This increase was driven by growth in card processing, payment processing (including iPay), digital revenue (including Banno), and other processing fee revenues, as new customers were added, the active user base expanded, and transaction volumes increased.

OPERATING EXPENSES

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Percentage of total revenue 59% 58%

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.

Cost of revenue for fiscal 2023 increased 8% compared to fiscal 2022.

Reducing total cost of revenue for deconversion costs of $2,046 in the current fiscal year and $3,793 in the prior fiscal year, and for Payrailz related costs of $18,193 in the current fiscal year, results in a 7% increase.

This increase was driven by higher direct costs consistent with increases in the related revenue, higher personnel costs, including benefits expenses, and increased amortization of intangible assets.

Cost of revenue increased 1% as a percentage of total revenue for fiscal 2023 compared to fiscal 2022.

Research and Development Year Ended June 30, %

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Percentage of total revenue 7% 6%

We devote significant effort and expense to develop new software, service products and continually upgrade and enhance our existing offerings.

We devote significant effort and expense to develop new software and service products and continually upgrade and enhance our existing offerings.

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 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.

Research and development expenses for fiscal 2023 increased 18% compared to fiscal 2022.

Reducing total research and development expenses for Payrailz related costs of $2,130 in the current fiscal year, results in a 16% increase.

This increase is primarily due to higher personnel costs including benefits expenses, net of capitalization, due to a headcount increase of 9% in the trailing twelve months, and higher internal licenses and fees.

Research and development expense increased 1% as a percentage of total revenue for fiscal 2023 compared to fiscal 2022.

The increase in this expense category for the current fiscal year reflects 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 expenses for fiscal 2023 increased 8% compared to fiscal 2022.

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.

Reducing total selling, general, and administrative expense for deconversion costs from each year, which totaled $2,216 in fiscal 2023 and $2,485 in fiscal 2022, and Payrailz related costs of $2,144, and the gain on assets, net, of $4,567 for the current fiscal year, results in a 9% increase.

This increase was primarily due to higher personnel costs, including commissions and benefits expenses.

Selling, general, and administrative expenses remained consistent as a percentage of total revenue for fiscal 2023 compared to fiscal 2022.

This consistency reflects our continuing commitment to control costs.

INTEREST INCOME AND EXPENSE Year Ended June 30, %

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Interest income fluctuated due to changes in invested balances and yields on invested balances.

Interest expense increased in fiscal 2022 mainly due to the timing and amounts of borrowed balances.

PROVISION/ (BENEFIT) FOR INCOME TAXES Year Ended June 30, %

Provision/ (Benefit) for income taxes $ 109,351 $ 86,256 27 %

Interest expense increased in fiscal 2023 mainly due to the timing and amounts of borrowed balances and increases in interest rates.

PROVISION FOR INCOME TAXES Year Ended June 30, %

Provision for income taxes $ 107,928 $ 109,351 (1)%

Effective rate 22.7% 23.2%

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.

The decrease in the Company's effective tax rate in fiscal 2023 compared to fiscal 2022 was primarily the result of a decrease in the state tax rate applied to net deferred tax liabilities and an increase in 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 2%.

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.

This increase was primarily due to growth in our lines of revenue in fiscal 2023 compared to fiscal 2022 and a reduction in the number of shares outstanding.

REPORTABLE SEGMENT DISCUSSION

The Company is a leading provider of technology solutions and payment processing services primarily for financial services organizations.

The Company is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.

The Company’s operations are classified into four reportable segments:

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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.

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.

During fiscal 2023, the Company transferred a product, Remit, from the Complementary segment to the Payments segment, due to better alignment with the Payments segment.

As a result of this transfer, adjustments were made during fiscal 2023 to reclassify related revenue and cost of revenue for the fiscal year ended June 30, 2022, from the Complementary to the Payments segment.

Revenue reclassed for the fiscal year ended June 30, 2022, was $12,049.

Cost of revenue reclassed for the fiscal year ended June 30, 2022, was $2,059.

Immaterial adjustments were made in fiscal 2023 to reclassify revenue that was recognized in fiscal 2022 from the Complementary to the Corporate and Other segment.

Immaterial adjustments were also made in fiscal 2023 to reclassify cost of revenue that was recognized in fiscal 2022 from the Complementary to the Payments and Corporate and Other segments.

These reclasses were made to be consistent with the current allocation of revenue and cost of revenue by segment.

Revenue reclassed for the fiscal year ended June 30, 2022, from Complementary to Corporate and Other was $4,917.

Cost of revenue reclassed for the fiscal year ended June 30, 2022, from Complementary to Payments was $3,396, and from Complementary to Corporate and Other was $403.

2023 % Change 2022

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In fiscal 2023, revenue in the Core segment increased 5% compared to fiscal 2022.

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%.

Reducing total Core revenue by deconversion fees from both fiscal years, which totaled $10,924 in fiscal 2023 and $23,048 in fiscal 2022, Core

segment revenue increased 8%.

This increase was primarily driven by organic increases in our private and public cloud revenue.

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.

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

Cost of revenue in the Core segment increased 8% for fiscal 2023 compared to fiscal 2022.

Reducing total Core cost of revenue by deconversion costs from both fiscal years, which totaled $913 in fiscal 2023 and $1,719 in fiscal 2022, Core segment revenue increased 9% This increase was primarily due to increased direct costs associated with the organic growth in cloud revenue and personnel costs, including benefits expenses.

Core segment cost of revenue increased 1% as a percentage of revenue for fiscal 2023 compared to fiscal 2022.

2023 % Change 2022

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In fiscal 2023, revenue in the Payments segment increased 7% compared to fiscal 2022.

Reducing total Payments revenue by the effects of deconversion fees from both years, which totaled $14,319 in fiscal 2022 and $6,285 in fiscal 2021, Payments segment revenue increased 9%.

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

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.

Reducing total Payments revenue by deconversion fees from both fiscal years, which totaled $7,924 in fiscal 2023 and $14,319 in fiscal 2022, and Payrailz related revenue from the current fiscal year of $8,482, Payments segment revenue also increased 7%.

This increase was primarily driven by growth within card processing and payment processing revenues.

Cost of revenue in the Payments segment increased 10% for fiscal 2023 compared to fiscal 2022.

Reducing total Payments cost of revenue by deconversion costs from both fiscal years, which totaled $303 in fiscal 2023 and $439 in fiscal 2022 and Payrailz related costs from the current fiscal year of $18,104, Payments cost of revenue increased 5%.

This increase was primarily due to increased direct costs related to the growth in card processing and payment processing, and increased personnel costs, including benefits expenses.

Payments segment cost of revenue increased 2% as a percentage of revenue for fiscal 2023 compared to fiscal 2022.

Complementary

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Revenue in the Complementary segment increased 7% for fiscal 2023 compared to fiscal 2022.

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 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.

Reducing total Complementary revenue by deconversion fees from both fiscal years, which totaled $12,649 in fiscal 2023 and $15,589 in fiscal 2022, Complementary segment revenue increased 8%.

This increase was primarily driven by organic increases in hosting fee and digital revenues (including Banno).

Cost of revenue in the Complementary segment increased 6% for fiscal 2023 compared to fiscal 2022.

Reducing total Complementary cost of revenue by deconversion costs from both fiscal years, which totaled $807 in fiscal 2023 and $1,309 in fiscal 2022, Complementary segment cost of revenue also increased 6%.

This increase was primarily due to higher direct costs related to the organic growth in hosting fee and digital revenues (including Banno) and increased personnel costs, including benefits expenses.

Complementary segment cost of revenue decreased 1% as a percentage of revenue for fiscal 2023 compared to fiscal 2022.

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Revenue in the Corporate and Other segment increased 23% for fiscal 2023 compared to fiscal 2022.

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

Reducing total Corporate and Other revenue by deconversion fees from both fiscal years, which totaled $278 in fiscal 2023 and $323 in fiscal 2022, Corporate and Other segment revenue also increased 23%.

The increase was mainly due to increased hardware, user group, and processing fee 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 7% for fiscal 2023 compared to fiscal 2022.

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

Reducing total Corporate and Other cost of revenue by deconversion fees from both fiscal years, which totaled $23 in fiscal 2023 and $325 in fiscal 2022, and Payrailz related costs of $90, Corporate and Other segment cost of revenue also increased 7%.

This increase was primarily related to higher internal licenses and fees and personnel costs, including benefits expenses.

LIQUIDITY AND CAPITAL RESOURCES

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Net cash provided by operating activities $ 381,559 $ 504,631

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.

Cash provided by operating activities for fiscal 2023 decreased 24% compared to fiscal 2022, primarily due to the change in current and deferred income taxes included within non-cash expenses above that were related to Internal Revenue Code (IRC) Section 174 tax law changes with respect to the treatment of research and development expenses, as indicated by the increase in cash taxes paid, fiscal year over fiscal year.

The Company paid income taxes, net of refunds, of $145,862, $60,553, and $80,220 in fiscal 2023, 2022, and 2021, respectively.

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

Cash used in investing activities for fiscal 2023 totaled $409,673 and included:

$148,239 for the ongoing enhancements and development of existing and new product and service offerings;

$229,628 for the acquisition of Payrailz, $166,120 for the ongoing enhancements and development of existing and new product and service offerings;

capital expenditures on facilities and equipment of $39,179, mainly for the purchase of computer equipment;

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$5,000 for the purchase of investments;

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

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 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.

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

These expenditures were partially offset by $45 of proceeds from the sale of assets.

Financing activities used cash of $8,430 for fiscal 2023 and included $147,237 for dividends paid to stockholders and $25,000 for the purchase of treasury shares.

These expenditures were partially offset by borrowings and repayments on our credit facilities and financing leases which netted to borrowings of $159,940 at June 30, 2023, and $3,867 of net cash inflow related to stock-based compensation.

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

These expenditures were partially offset by borrowings and repayments on our revolving credit facility and financing leases which netted to borrowings of $14,873 at June 30, 2022, and $7,621 of net cash inflow related to stock-based compensation.

Capital Requirements and Resources

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At June 30, 2023, the Company had no significant outstanding purchase commitments related to property and equipment.

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 assessed our liquidity needs throughout fiscal 2023, 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.

Included in off-balance sheet purchase obligations were open purchase orders of $167,692 and a strategic services agreement entered into by JKHY in fiscal 2017 with First Data® and PSCU® to provide full-service debit and credit card processing on a single platform to all existing core bank and credit union customers, as well as to expand our card processing platform to financial institutions outside our core customer base.

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 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.

At June 30, 2023, the Company had contractual obligations of $1,550,247, including operating lease obligations and $1,494,366 related to off-balance sheet contractual purchase obligations.

Contractual obligations exclude $13,877 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.

Under this authorization, the Company may finance its share repurchases with available cash reserves or short-term borrowings on its existing credit facilities.

The share repurchase program does not include specific price targets or timetables and may be suspended at any time.

The share repurchase program does not include specific price targets or

timetables and may be suspended at any time.

At June 30, 2023, there were 31,194 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,796 additional shares.

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At June 30, 2022, there were 31,043 shares in treasury stock and the Company had authority to repurchase up to 3,948 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.

On August 31, 2022, the Company acquired all of the equity interest in Payrailz.

The final purchase price, following customary post-closing adjustments to the extent actual closing date working capital, cash, debt, and unpaid seller transaction expenses exceeded or were less than the amounts estimated at closing, was $230,205.

Pursuant to the merger agreement for the transaction, $48,500 of the purchase price was placed in an escrow account at the closing, consisting of $2,500 for any final purchase price adjustments owed by the sellers, which amount was released to the sellers on December 15, 2022, in connection with post-closing adjustments, and $46,000 for indemnification matters under the merger agreement.

The primary reason for the acquisition was to expand the Company's digital financial management solutions and the purchase was originally funded by our revolving line of credit (Note 7) and cash generated from operations.

Payrailz provides cloud-native, API-first, AI-enabled consumer and commercial digital payment solutions and experiences that enable money to be moved in the moment of need.

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.

On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced the prior credit facility described below.

The credit agreement allows for borrowings of up to $600,000, which may be increased to $1,000,000 by the Company at any time until maturity.

The credit agreement bears interest at a variable rate equal to (a) a rate based on an adjusted Secured Overnight Financing Rate ("SOFR") term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) 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 agreement 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 agreement.

As of June 30, 2023, the Company was in compliance with all such covenants.

The amended and restated credit facility terminates August 31, 2027.

There was $95,000 outstanding under the amended and restated credit facility at June 30, 2023.

On June 30, 2022, there was a $115,000 outstanding balance on the prior credit facility that was entered into on February 10, 2020.

The prior credit facility was a five-year senior, unsecured revolving credit facility.

The prior credit facility allowed for borrowings of up to $300,000, which could be increased by the Company to $700,000 at any time until maturity.

The prior credit facility bore 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.

The prior credit facility was guaranteed by certain subsidiaries of the Company and was subject to various financial covenants that required the Company to maintain certain financial ratios as defined in the prior credit agreement.

As of June 30, 2022, the Company was in compliance with all such covenants.

The revolving credit facility terminates February 10, 2025.

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.

The prior credit facility's termination date was February 10, 2025.

Term loan facility

On May 16, 2023, the Company entered into a term loan credit agreement with a syndicate of financial institutions, with an original principal balance of $180,000.

Borrowings under the term loan facility bear interest at a variable rate equal to (a) a rate based on an adjusted SOFR term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars plus 0.75%), plus an applicable percentage in each case determined by the Company's leverage ratio.

The term loan credit agreement 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 term loan credit agreement.

As of June 30, 2023, the Company was in compliance with all such covenants.

The term loan credit agreement has a maturity date of May 16, 2025.

There was $180,000 outstanding under the term loan at June 30, 2023.

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 1.0%.

The credit line was renewed in May 2019 and modified in March 2021 to extend the expiration to April 30, 2023.

There was no balance outstanding at June 30, 2022 or June 30, 2021.

The credit line was renewed in May 2019 and modified in May 2023 to extend the expiration to April 30, 2025.

There was no balance outstanding at June 30, 2023 or 2022.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Guidance

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 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

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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.

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

CRITICAL ACCOUNTING ESTIMATES

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We generate revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales.

Significant Judgments in Application of the Guidance

Significant Judgments Used in the Application of the Guidance

Identification of performance obligations

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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