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Item 7. Management’s Discussion and Analysis

2024-08-26 compared with 2023-08-24 · 125 added, 146 removed, 185 unchanged (59% 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.

All dollar and share amounts, except per share amounts, are in thousands and discussions compare fiscal 2024 to fiscal 2023.

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Jack Henry & Associates, Inc.

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.

is a well-rounded financial technology company headquartered in Monett, Missouri, that employs approximately 7,170 full-time and part-time associates nationwide, and is a leading provider of technology solutions and payment processing services primarily to community and regional financial institutions.

Our solutions serve approximately 7,500 clients 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.

Each of our solutions shares the fundamental commitment to provide high-quality business systems, service levels that consistently exceed client 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 client relationships, attract prospective clients, 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.

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.

We believe our primary competitive advantage is customer service.

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 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.

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

We believe our primary competitive advantage is client service.

Our support infrastructure and strict standards provide service levels that generate high levels of client satisfaction and retention.

We consistently measure client satisfaction using a variety of surveys, such as an annual survey on the client'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 client experience, including product implementation, education, and consulting services.

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

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

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

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

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FISCAL 2024 COMPARED TO FISCAL 2023

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.

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

Excluded Payrailz related revenue and operating expenses that are mentioned in the discussion below are for the first two months only of fiscal year ended June 30, 2024, since the first two months of fiscal year ended June 30, 2023, do not include Payrailz.

In fiscal 2024, total revenue increased 6.6% or $137,841, compared to fiscal 2023.

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.

Reducing total revenue for deconversion revenue of $16,554 in the current fiscal year and $31,775 in the prior fiscal year, and for Payrailz related revenue of $1,945 in the current fiscal year, results in a 7.4% increase, or $151,117.

This increase was

primarily driven by growth in data processing and hosting within cloud revenue as new clients were added and volumes expanded, card processing revenue from expanded fraud detection and prevention services and the addition of new/add-on services, digital (including Banno) revenue as active monthly users and volumes increased, payment processing revenue from expanding volumes and new client revenue, and growth in remote capture and ACH revenue.

Operating expenses increased 8.1%, or $129,138, in fiscal 2024 compared to fiscal 2023.

Reducing total operating expenses for deconversion costs of $3,408 in the current fiscal year and $4,261 in the prior fiscal year, and for VEDIP related costs of $16,443 and Payrailz related expenses of $4,182, in the current fiscal year, and excluding the impact of the gain on sale of assets, net, of $4,567 in the prior fiscal year, results in a 6.6% increase, or $104,798.

The VEDIP program was a Company voluntary separation program offered to certain eligible associates beginning in July 2023.

This increase was primarily due to higher personnel costs, increased direct costs consistent with increases in the related revenue, and internal licenses and fees from price increases and higher deployments in the current fiscal year.

We move into fiscal 2025 following strong performance in fiscal 2024.

Significant portions of our business continue to provide recurring revenue and our sales pipeline is also encouraging.

Our customers continue to face regulatory and operational challenges which our products and services address, and in these times, they have an even greater need for our solutions that directly address institutional profitability, efficiency, and security.

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.

Our clients continue to face regulatory and operational challenges which our products and services address, and in these times, they have an even greater need for our solutions that directly address institutional profitability, efficiency, and security.

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 client 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, 2024 compared to the fiscal year ended June 30, 2023 follows.

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Services and support includes:

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

"private and public cloud" fees, which predominantly have contract terms of six years at inception;

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

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In the fiscal year ended June 30, 2024, services and support revenue increased 5.0% 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.

Reducing total services and support revenue by deconversion revenue for each year, which totaled $16,554 in fiscal 2024 and $31,775 in fiscal 2023, and for Payrailz related revenue of $2 from the current fiscal year, services and support revenue grew 6.5%.

This increase was primarily driven by higher data processing and hosting within cloud revenue, primarily from organic growth including the addition of new and migrating clients and expanding volumes.

Processing Revenue Year Ended June 30, %

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Reducing total processing revenue by Payrailz related revenue of $1,943 from the current fiscal year, processing revenue grew 8.6%.

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.

This increase was driven by growth in card processing primarily from expanded fraud detection and prevention services and growth in the addition of new/add-on services, digital revenue (including Banno) through growth in active monthly users and increased volumes as well as the introduction and ramping up of new add-on products, payment processing revenues as new clients increased and the active user base and transaction volumes expanded, and higher remote capture and ACH revenues.

OPERATING EXPENSES

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Reducing total cost of revenue for deconversion costs of $2,231 in the current fiscal year and $2,046 in the prior fiscal year, and for Payrailz related costs of $3,334 in the current fiscal year, results in a 6.3% 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.

This increase was driven by higher direct costs consistent with increases in the related revenue, higher internal licenses and fees from price increases and higher deployments in the current fiscal year, and increased personnel costs.

Cost of revenue remained consistent as a percentage of total revenue for fiscal 2024 compared to fiscal 2023.

Research and Development Year Ended June 30, %

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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 2024 increased 3.9% compared to fiscal 2023.

Reducing total research and development expenses for Payrailz related costs of $656 in the current fiscal year, results in a 3.4% 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.

This increase is primarily due to higher cloud consumption, net of capitalization, increased personnel costs, including Payrailz acquisition and Jack Henry Platform costs, net of capitalization.

Research and development expense remained consistent as a percentage of total revenue for fiscal 2024 compared to fiscal 2023.

The increase in this expense category for the current fiscal year reflects our continuing commitment to the development of strategic products.

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Selling, general, and administrative expenses for fiscal 2024 increased 18.3% compared to fiscal 2023.

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.

Reducing total selling, general, and administrative expense for deconversion costs from each year, which totaled $1,177 in fiscal 2024 and $2,216 in fiscal 2023, VEDIP program expenses of $16,443 and Payrailz related costs of $192 for the current fiscal year, and excluding the impact of the gain on sale of assets, net, of $4,567 for the prior fiscal year, results in a 9.7% increase.

This increase was primarily due to higher personnel costs, including a headcount increase in the trailing twelve months and higher commission expense.

Selling, general, and administrative expenses increased 2.0% as a percentage of total revenue for fiscal 2024 compared to fiscal 2023.

INTEREST INCOME AND EXPENSE Year Ended June 30, %

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Interest expense $ (16,384) $ (15,073) 8.7%

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

Interest income increased over the prior fiscal year due to increased interest earned on balances fiscal year over fiscal year.

Interest expense increased in fiscal 2024 mainly due to the timing and amounts of borrowed balances and increases in interest rates.

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Effective rate 23.3% 22.7%

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.

The increase in the Company's effective tax rate in fiscal 2024 compared to fiscal 2023 was the result of changes in uncertain tax positions for periods open under the statute of limitations in the current fiscal year.

This increase is partially offset by greater benefits received from research and development tax credits during the current fiscal year.

NET INCOME Year Ended June 30, %

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Net income grew 4.1% to $381,816, or $5.23 per diluted share, in fiscal 2024 from $366,646, or $5.02 per diluted share, in fiscal 2023.

The diluted earnings per share increase year over year was 2%.

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.

The diluted earnings per share increase fiscal year over fiscal year was 4.2%.

This increase was primarily due to growth in our lines of revenue and a reduction in the number of weighted average shares outstanding partially offset by higher operating expenses in fiscal 2024 compared to fiscal 2023 .

REPORTABLE SEGMENT DISCUSSION

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

The Company is a well-rounded financial technology company and 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 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 processing services;

online and mobile bill pay solutions;

ACH origination and remote deposit capture processing;

and risk management products and services.

The Complementary segment provides additional software, hosted processing platforms, and services, including call center support, and network security management, consulting, and monitoring, that can be integrated with our core solutions and many can be used independently.

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 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.

The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card processing services, online and mobile bill pay solutions, ACH origination and remote deposit capture processing, and risk management products and services.

The Complementary segment provides additional software, hosted processing platforms, and services, including digital/mobile banking, treasury services, online account opening, fraud/anti-money laundering ("AML") and lending/deposit solutions that can be integrated with the Company's Core solutions, and many can be used independently.

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 expenses 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.

Immaterial adjustments between segments were made in fiscal 2024 to reclassify revenue and cost of revenue that was recognized in fiscal 2023.

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.

Revenue reclassed for the fiscal year ended June 30, 2023, from Core to Corporate and Other was $7,119, from Payments to Corporate and Other was $30, and from Complementary to Corporate and Other was $307.

Cost of revenue reclassed for the fiscal year ended June 30, 2023, from Core to Corporate and Other was $6,713, from Payments to Corporate and Other was $2,594, and from Complementary to Corporate and Other was $1,286.

2024 % Change 2023

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In fiscal 2024, revenue in the Core segment increased 6.4% compared to fiscal 2023.

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.

Reducing total Core revenue by deconversion revenue from both fiscal years, which totaled $7,292 in fiscal 2024 and $10,924 in fiscal 2023, Core segment revenue increased 7.1%.

This increase was primarily driven by organic increases in our data processing and hosting within cloud revenue.

Cost of revenue in the Core segment increased 3.8% for fiscal 2024 compared to fiscal 2023.

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.

This increase was primarily due to increased direct costs associated with the organic growth in cloud revenue.

Deconversion and/or acquisition costs did not significantly affect Core cost of revenue fiscal year over fiscal year.

Core segment cost of revenue decreased 1% as a percentage of revenue for fiscal 2024 compared to fiscal 2023.

2024 % Change 2023

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In fiscal 2024, revenue in the Payments segment increased 6.6% compared to fiscal 2023.

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.

Reducing total Payments revenue by deconversion revenue from both fiscal years, which totaled $5,836 in fiscal 2024 and $7,924 in fiscal 2023, and Payrailz related revenue from the current fiscal year of $1,945, Payments segment revenue increased 6.7%.

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

Cost of revenue in the Payments segment increased 5.0% for fiscal 2024 compared to fiscal 2023.

Reducing total Payments cost of revenue by deconversion costs from both fiscal years, which totaled $259 in fiscal 2024 and $303 in fiscal 2023 and Payrailz related costs from the current fiscal year of $3,314, Payments cost of revenue increased 4.3%.

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.

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

Payments segment cost of revenue decreased 1% as a percentage of revenue for fiscal 2024 compared to fiscal 2023.

Complementary

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Revenue in the Complementary segment increased 5.9% for fiscal 2024 compared to fiscal 2023.

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).

Reducing total Complementary revenue by deconversion revenue from both fiscal years, which totaled $3,217 in fiscal 2024 and $12,649 in fiscal 2023, Complementary segment revenue increased 7.7%.

This increase was primarily driven by organic increases in digital revenue (including Banno) and hosting within cloud revenue.

Cost of revenue in the Complementary segment increased 7.7% for fiscal 2024 compared to fiscal 2023.

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.

This increase was primarily due to higher direct costs related to the organic growth in the digital and hosting within cloud revenue lines, increased amortization of capitalized software, and higher internal licenses and fees.

Deconversion and/or acquisition costs did not significantly affect Complementary cost of revenue fiscal year over fiscal year.

Complementary segment cost of revenue increased 1% as a percentage of revenue for fiscal 2024 compared to fiscal 2023.

Corporate and Other

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Revenue in the Corporate and Other segment increased 14.3% for fiscal 2024 compared to fiscal 2023.

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.

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%.

Reducing total Corporate and Other revenue by deconversion revenue from both fiscal years, which totaled $209 in fiscal 2024 and $278 in fiscal 2023, Corporate and Other segment revenue increased 14.4%.

The increase was mainly due to increased hardware revenue and subscriptions and software usage within support revenues.

Cost of revenue for the Corporate and Other segment includes operating expenses not directly attributable to any of the other three segments and increased 10.7% for fiscal 2024 compared to fiscal 2023.

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

Deconversion and/or acquisition costs did not significantly affect Corporate and Other cost of revenue fiscal year over fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents decreased to $12,243 at June 30, 2023 from $48,787 at June 30, 2022.

The Company's cash and cash equivalents increased to $38,284 at June 30, 2024, from $12,243 at June 30, 2023.

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 $ 568,041 $ 381,559

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.

Cash provided by operating activities for fiscal 2024 increased 48.9% compared to fiscal 2023, primarily due to higher than historical collections in fiscal 2024 of annual maintenance billings related to fiscal year 2025 and to an overpayment of income taxes in fiscal 2023, which led to lower cash taxes paid in fiscal 2024.

The Company paid income taxes, net of refunds, of $106,966, $145,862, and $60,553 in fiscal 2024, 2023, and 2022, respectively.

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Cash used in investing activities for fiscal 2024 totaled $240,165 and included:

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

$167,175 for the ongoing enhancements and development of existing and new product and service offerings;

capital expenditures on facilities and equipment of $58,118, mainly for the purchase of computer equipment;

$1,685 for the purchase and development of internal use software;

and $1,000 for purchase of investments.

$8,646 for purchase of investments;

and $7,130 for the purchase and development of internal use software.

These expenditures were partially offset by $904 of proceeds from asset sales.

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;

payment for the acquisition of Payrailz of $229,628, $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;

$5,000 for the purchase of investments;

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

$1,685 for the purchase and development of internal use software;

and $1,000 for the purchase of investments.

These expenditures were partially offset by $27,939 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.

Financing activities used cash of $301,835 for fiscal 2024 and included:

$155,877 for dividends paid to stockholders;

borrowing and repayments on our credit facilities which netted to repayments of $125,000;

and $28,055 for the purchase of treasury shares.

These expenditures were partially offset by $7,097 of net cash inflow related to stock-based compensation.

Financing activities used cash in fiscal 2023 of $8,430 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 revolving credit facility 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.

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These additions were funded from cash generated by operations.

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

At June 30, 2024, the Company had $24,694 of significant outstanding purchase commitments related to property and equipment.

We assessed our liquidity needs throughout fiscal 2024, 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.

In July 2023, the Company conducted a voluntary separation program for certain eligible associates that included a VEDIP payment for the eligible associates who chose to participate in the program.

The Company made payments associated with the VEDIP program in the approximate amount of $16,443 from July 2023 through December 2023, including immaterial payments continuing into calendar 2024.

At June 30, 2024, the Company had contractual obligations of $1,488,248, including operating lease obligations, and $1,421,125 related to off-balance sheet contractual purchase obligations.

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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.

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 purchase price adjustments, and $46,000 for indemnification matters under the merger agreement, which amount was released to the sellers on September 20, 2023.

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 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.

Credit facilities

On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced a prior credit facility that was entered into on February 10, 2020.

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 bears 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 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.

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

There was $60,000 and $95,000 outstanding under the amended and restated credit facility at June 30, 2024, and June 30, 2023, respectively.

Term loan facility

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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.

There was $90,000 and $180,000 outstanding under the term loan at June 30, 2024, and June 30, 2023, respectively.

We currently anticipate that we will be able to repay the remaining outstanding balance under the term loan prior to its maturity using cash generated by our operations or borrowings under our revolving credit facility.

Other lines of credit

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RECENT ACCOUNTING PRONOUNCEMENTS

Not Adopted at Fiscal Year End

Recently Adopted Accounting Guidance

In October 2021, the FASB issued ASU No.

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

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

Not Adopted at Fiscal Year End

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which improves the disclosures about a public entity's reportable segments through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all prior periods presented in the financial statements.

Early adoption is permitted.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures.

The ASU requires additional disclosure related to rate reconciliation, income taxes paid, and other disclosures to improve the effectiveness of income tax disclosures.

The ASU is effective for annual periods beginning after December 15, 2024, and applied on a prospective basis.

Early adoption and retrospective application is permitted.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

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 Used in the Application of the Guidance

Identification of performance obligations

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.

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

We recognize revenue when or as we satisfy each performance obligation by transferring control of a solution or service to the customer.

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

At contract inception, we assess the solutions and services promised in our contracts with clients and identify a performance obligation for each promise to transfer to the client 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 client can benefit from the solution or service on its own or together with other resources that are readily available.

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

We recognize revenue when or as we satisfy each performance obligation by transferring control of a solution or service to the client.

Determination of transaction price

The amount of revenue recognized is based on the consideration we expect to receive in exchange for transferring goods and services to the customer.

Our contracts with our customers frequently contain some component of variable consideration.

We estimate variable consideration in our contracts primarily using the expected value method, based on both historical and current information.

The amount of revenue recognized is based on the consideration we expect to receive in exchange for transferring goods and services to the client.

Our contracts with our clients frequently contain some component of variable consideration.

We estimate variable consideration in our contracts primarily using the expected value method,

based on both historical and current information.

Where appropriate, we may constrain the estimated variable consideration included in the transaction price in the event of a high degree of uncertainty as to the final consideration amount.

Significant judgment is used in the estimate of variable consideration of customer contracts that are long-term and include uncertain transactional volumes.

Technology or service components from third parties are frequently included in or combined with our applications or service offerings.

Whether we recognize revenue based on the gross amount billed to the customer or the net amount retained involves judgment in determining whether we control the good or service before it is transferred to the customer.

This assessment is made at the performance obligation level.

Significant judgment is used in the estimate of variable consideration of client contracts that are long-term and include varying transactional volumes.

Allocation of transaction price

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Contract costs

We incur 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.

We incur incremental costs to obtain a contract as well as costs to fulfill contracts with clients that are expected to be recovered.

These costs consist primarily of sales commissions, which are incurred only if a contract is obtained, and client 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.

Depreciation and Amortization Expense

The calculation of depreciation and amortization expense is based on the estimated economic lives of the underlying property, plant and equipment and intangible assets, which have been examined for their useful life and determined that no impairment exists.

We believe it is unlikely that any significant changes to the useful lives of our tangible and intangible assets will occur in the near term, but rapid changes in technology or changes in market conditions could result in revisions to such estimates that could materially affect the carrying value of these assets and our future consolidated operating results.

For long-lived assets, we consider whether any impairment indicators are present.

If impairment indicators are identified, we test the recoverability of the long-lived assets.

If this recoverability test is failed, we determine the fair value of the long-lived assets and recognize an impairment loss if the fair value is less than its carrying value.

Capitalization of software development costs

We capitalize certain costs incurred to develop commercial software products.

We capitalize certain costs incurred for use in our cloud-based services and to develop commercial software products.

For internal use software, capitalization begins at the beginning of application development.

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.

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

For software that is to be sold, significant areas of judgment include:

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We consider various factors to project marketability and future revenues, including an assessment of alternative solutions or products, current and historical demand for the product, and anticipated changes in technology that may make the product obsolete.

For internal use software, capitalization begins at the beginning of application development.

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.

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

A significant change in an estimate related to one or more software products could result in a material change to our results of operations.

Estimates used to determine current and deferred income taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes.

These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

We also must determine the likelihood of recoverability of deferred tax assets and adjust any valuation allowances accordingly.

Considerations include the period of expiration of the tax asset, planned use of the tax asset, and historical and projected taxable income as well as tax liabilities for the tax jurisdiction to which the tax asset relates.

Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in one or more of these factors.

Also, liabilities for uncertain tax positions require significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position.

Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect our financial results.

Assumptions related to purchase accounting and goodwill

Purchase accounting

We account for our acquisitions using the purchase method of accounting.

This method requires estimates to determine the fair values of assets and liabilities acquired, including judgments to determine any acquired intangible assets such as customer-related intangibles, as well as assessments of the fair value of existing assets such as property and equipment.

Liabilities acquired can include balances for litigation and other contingency reserves established prior to or at the time of acquisition and require judgment in ascertaining a reasonable value.

This method requires estimates to determine the fair values of assets and liabilities acquired, including judgments to determine any acquired intangible assets such as computer software and client-related intangibles.

Third-party valuation firms may be used to assist in the appraisal of certain assets and liabilities, but even those determinations would be based on significant estimates provided by us, such as forecast revenues or profits on contract-related intangibles.

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Changes in assumptions and estimates of the acquired assets and liabilities would result in changes to the fair values, resulting in an offsetting change to the goodwill balance associated with the business acquired.

As goodwill is not amortized, goodwill balances are regularly assessed for potential impairment.

Such assessments include a qualitative assessment of factors that may indicate a potential for impairment, such as:

macroeconomic conditions, industry and market changes, our overall financial performance, changes in share price, and an assessment of other events or changes in circumstances that could negatively impact us.

If that qualitative assessment indicates a potential for impairment, a quantitative assessment is then required, including an analysis of future cash flow projections as well as a determination of an appropriate discount rate to calculate present values.

Cash flow projections are based on management-approved estimates, which involve the input of numerous Company professionals from finance, operations and program management.

Key factors used in estimating future cash flows include assessments of labor and other direct costs on existing contracts, estimates of overhead costs and other indirect costs, and assessments of new business prospects and projected win rates.

Our most recent assessment indicates that no reporting units are currently at risk of impairment as the fair value of each reporting unit is significantly in excess of the carrying value.

However, significant changes in the estimates and assumptions used in purchase accounting and goodwill impairment testing could have a material effect on the consolidated financial statements.

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