JACK HENRY & ASSOCIATES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements Report of Independent Registered Public Accounting Firm 34 Management's Annual Report on Internal Control over Financial Reporting 36 Financial Statements Consolidated Statements of Income, Years Ended June 30, 2024, 2023, and 2022 37 Consolidated Balance Sheets, June 30, 2024, and 2023 38 Consolidated Statements of Changes in Stockholders' Equity, Years Ended June 30, 2024, 2023, and 2022 39 Consolidated Statements of Cash Flows, Years Ended June 30, 2024, 2023, and 2022 40 Notes to Consolidated Financial Statements 41 Financial Statement Schedules There are no schedules included because they are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. 33 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Jack Henry & Associates, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Jack Henry & Associates, Inc. and its subsidiaries (the "Company") as of June 30, 2024 and 2023, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended June 30, 2024, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 34 Table of Contents Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition - estimating variable consideration As discussed in Notes 1 and 2 to the consolidated financial statements, the Company recorded revenue of $2.216 billion for the year ended June 30, 2024. The Company enters into contracts with its clients that may include multiple types of goods and services. The amount of revenue recognized is based on the consideration the Company expects to receive in exchange for transferring goods and services to the client. The Company’s contracts with its clients frequently contain some component of variable consideration. Management estimates variable consideration in its contracts primarily using the expected value method, based on both historical and current information. Where appropriate, the Company 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. At contract inception, management assesses the solutions and services promised in its contracts with clients and identifies 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. The Company recognizes revenue when or as it satisfies each performance obligation by transferring control of a solution or service to the client. Significant judgment is used in the estimate of variable consideration of client contracts that are long-term and include varying transactional volumes. The principal considerations for our determination that performing procedures relating to the estimation of variable consideration is a critical audit matter are significant judgment by management to estimate the variable consideration, principally, the varying volume of transactional activity. This in turn resulted in a high degree of auditor judgment, subjectivity, and effort in performing our audit procedures and in evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the estimation of variable consideration. The procedures also included, among others, evaluating and testing management’s process for determining the variable consideration and testing the reasonableness of management’s estimation of variable consideration. Testing the estimation of variable consideration included evaluating the terms and conditions of the long-term contracts and the related significant assumptions used in the estimate of the variable consideration, principally, the use of historical transaction volumes to estimate the varying volume of transactional activity. The procedures for testing variable consideration included evaluation of the terms and conditions for a sample of contracts. /s/ PricewaterhouseCoopers LLP Kansas City, Missouri August 26, 2024 We have served as the Company’s auditor since 2015. 35 Table of Contents MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Jack Henry & Associates, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(e). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes policies and procedures pertaining to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements. All internal controls, no matter how well designed, have inherent limitations. Therefore, even where internal control over financial reporting is determined to be effective, it can provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are subject to the risk controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As of June 30, 2024, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management has concluded the Company’s internal control over financial reporting as of June 30, 2024, was effective. The Company’s internal control over financial reporting as of June 30, 2024, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing in this Item 8. 36 Table of Contents JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Data) Year Ended June 30, 2024 2023 2022 REVENUE $ 2,215,543 $ 2,077,702 $ 1,942,884 EXPENSES Cost of Revenue 1,299,477 1,219,062 1,128,614 Research and Development 148,256 142,678 121,355 Selling, General, and Administrative 278,419 235,274 218,296 Total Expenses 1,726,152 1,597,014 1,468,265 OPERATING INCOME 489,391 480,688 474,619 INTEREST INCOME (EXPENSE) Interest Income 25,012 8,959 32 Interest Expense ( 16,384 ) ( 15,073 ) ( 2,384 ) Total Interest Income (Expense) 8,628 ( 6,114 ) ( 2,352 ) INCOME BEFORE INCOME TAXES 498,019 474,574 472,267 PROVISION FOR INCOME TAXES 116,203 107,928 109,351 NET INCOME $ 381,816 $ 366,646 $ 362,916 Basic earnings per share $ 5.24 $ 5.03 $ 4.95 Basic weighted average shares outstanding 72,867 72,918 73,324 Diluted earnings per share $ 5.23 $ 5.02 $ 4.94 Diluted weighted average shares outstanding 73,025 73,096 73,486 See notes to consolidated financial statements. 37 Table of Contents JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Data) June 30, 2024 June 30, 2023 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 38,284 $ 12,243 Receivables, net 333,033 361,252 Income tax receivable 6,149 7,523 Prepaid expenses and other 168,768 169,178 Deferred costs 85,784 77,766 Total current assets 632,018 627,962 PROPERTY AND EQUIPMENT, net 215,069 205,664 OTHER ASSETS: Non-current deferred costs 183,307 161,465 Computer software, net of amortization 592,761 565,714 Other non-current assets 417,621 322,698 Customer relationships, net of amortization 56,757 65,528 Other intangible assets, net of amortization 22,151 19,998 Goodwill 804,797 804,797 Total other assets 2,077,394 1,940,200 Total assets $ 2,924,481 $ 2,773,826 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 25,314 $ 19,156 Accrued expenses 200,770 172,629 Current maturities of long-term debt 90,000 — Deferred revenues 317,730 331,974 Total current liabilities 633,814 523,759 LONG-TERM LIABILITIES: Non-current deferred revenues 71,202 67,755 Deferred income tax liability 243,522 244,431 Debt, net of current maturities 60,000 275,000 Other long-term liabilities 73,579 54,371 Total long-term liabilities 448,303 641,557 Total liabilities 1,082,117 1,165,316 STOCKHOLDERS' EQUITY Preferred stock - $ 1 par value; 500,000 shares authorized, none issued — — Common stock - $ 0.01 par value; 250,000,000 shares authorized; 104,245,089 shares issued at June 30, 2024; 104,088,784 shares issued at June 30, 2023 1,042 1,041 Additional paid-in capital 619,805 583,836 Retained earnings 3,081,690 2,855,751 Less treasury stock at cost 31,372,959 shares at June 30, 2024; 31,194,351 shares at June 30, 2023 ( 1,860,173 ) ( 1,832,118 ) Total stockholders' equity 1,842,364 1,608,510 Total liabilities and equity $ 2,924,481 $ 2,773,826 See notes to consolidated financial statements. 38 Table of Contents JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands, Except Share and Per Share Data) Year Ended June 30, 2024 2023 2022 PREFERRED SHARES: — — — COMMON SHARES: Shares, beginning of year 104,088,784 103,921,724 103,795,169 Shares issued for equity-based payment arrangements 65,766 82,776 46,669 Shares issued for Employee Stock Purchase Plan 90,539 84,284 79,886 Shares, end of year 104,245,089 104,088,784 103,921,724 COMMON STOCK - PAR VALUE $0.01 PER SHARE: Balance, beginning of year $ 1,041 $ 1,039 $ 1,038 Shares issued for equity-based payment arrangements — 1 — Shares issued for Employee Stock Purchase Plan 1 1 1 Balance, end of year $ 1,042 $ 1,041 $ 1,039 ADDITIONAL PAID-IN CAPITAL: Balance, beginning of year $ 583,836 $ 551,360 $ 518,960 Shares issued for equity-based payment arrangements — ( 1 ) — Tax withholding related to share based compensation ( 5,378 ) ( 8,505 ) ( 4,152 ) Shares issued for Employee Stock Purchase Plan 12,474 12,371 11,772 Stock-based compensation expense 28,873 28,611 24,780 Balance, end of year $ 619,805 $ 583,836 $ 551,360 RETAINED EARNINGS: Balance, beginning of year $ 2,855,751 $ 2,636,342 $ 2,412,496 Net income 381,816 366,646 362,916 Dividends ( 155,877 ) ( 147,237 ) ( 139,070 ) Balance, end of year $ 3,081,690 $ 2,855,751 $ 2,636,342 TREASURY STOCK: Balance, beginning of year $ ( 1,832,118 ) $ ( 1,807,118 ) $ ( 1,613,202 ) Purchase of treasury shares ( 28,055 ) ( 25,000 ) ( 193,916 ) Balance, end of year $ ( 1,860,173 ) $ ( 1,832,118 ) $ ( 1,807,118 ) TOTAL STOCKHOLDERS' EQUITY $ 1,842,364 $ 1,608,510 $ 1,381,623 Dividends declared per share $ 2.14 $ 2.02 $ 1.90 See notes to consolidated financial statements. 39 Table of Contents JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended June 30, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 381,816 $ 366,646 $ 362,916 Adjustments to reconcile net income from operations to net cash from operating activities: Depreciation 46,342 48,720 50,789 Amortization 153,562 142,006 126,835 Change in deferred income taxes ( 909 ) ( 48,199 ) 31,872 Expense for stock-based compensation 28,873 28,611 24,780 (Gain)/loss on disposal of assets and businesses 3,841 ( 4,517 ) 400 Changes in operating assets and liabilities: Change in receivables 28,219 ( 12,067 ) ( 41,508 ) Change in prepaid expenses, deferred costs and other ( 115,558 ) ( 112,316 ) ( 82,565 ) Change in accounts payable 5,435 ( 6,277 ) 6,646 Change in accrued expenses 37,292 ( 20,453 ) 1,190 Change in income taxes 9,925 9,952 16,704 Change in deferred revenues ( 10,797 ) ( 10,547 ) 6,572 Net cash from operating activities 568,041 381,559 504,631 CASH FLOWS FROM INVESTING ACTIVITIES: Payment for acquisitions, net of cash acquired — ( 229,628 ) — Capital expenditures ( 58,118 ) ( 39,179 ) ( 34,659 ) Proceeds from the sale of assets 904 27,939 45 Purchased software ( 7,130 ) ( 1,685 ) ( 8,491 ) Computer software developed ( 167,175 ) ( 166,120 ) ( 148,239 ) Purchase of investments ( 8,646 ) ( 1,000 ) ( 5,000 ) Net cash from investing activities ( 240,165 ) ( 409,673 ) ( 196,344 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on credit facilities 475,000 810,000 332,000 Repayments on credit facilities and financing leases ( 600,000 ) ( 650,060 ) ( 317,127 ) Purchase of treasury stock ( 28,055 ) ( 25,000 ) ( 193,916 ) Dividends paid ( 155,877 ) ( 147,237 ) ( 139,070 ) Proceeds from issuance of common stock upon exercise of stock options — 1 — Tax withholding payments related to share based compensation ( 5,378 ) ( 8,505 ) ( 4,152 ) Proceeds from sale of common stock 12,475 12,371 11,773 Net cash from financing activities ( 301,835 ) ( 8,430 ) ( 310,492 ) NET CHANGE IN CASH AND CASH EQUIVALENTS $ 26,041 $ ( 36,544 ) $ ( 2,205 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 12,243 $ 48,787 $ 50,992 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,284 $ 12,243 $ 48,787 See notes to consolidated financial statements. 40 Table of Contents JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, Except Per Share Amounts) NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE COMPANY Jack Henry & Associates, Inc. and subsidiaries ("Jack Henry" or the "Company") is a well-rounded financial technology company. Jack Henry was founded in 1976 as a provider of core processing solutions for banks. Today, the Company’s extensive array of products and services includes processing transactions, automating business processes, and managing information for approximately 7,500 financial institutions and diverse corporate entities. CONSOLIDATION The consolidated financial statements include the accounts of Jack Henry and all its subsidiaries, which are wholly owned, and all intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION The Company generates "Services and Support" revenue through software licensing and related services, private cloud core and complementary software solutions, professional services, and hardware sales. The Company generates "Processing" revenue through processing of remittance transactions, card transactions and monthly fees, and digital transactions. Identification of performance obligations The Company enters into contracts with clients that may include multiple types of goods and services. At contract inception, the Company assesses the solutions and services promised in its contracts with clients and identifies 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. Determination of transaction price The amount of revenue recognized is based on the consideration the Company expects to receive in exchange for transferring goods and services to the client. The Company’s contracts with its clients frequently contain some component of variable consideration. The Company estimates variable consideration in its contracts primarily using the expected value method, based on both historical and current information. Where appropriate, the Company 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 client contracts that are long-term and include varying transactional volumes. Allocation of transaction price The transaction price, once determined, is allocated between the various performance obligations in the contract based upon their relative standalone selling prices. The standalone selling prices are determined based on the prices at which the Company separately sells each good or service. For items that are not sold separately, the Company estimates the standalone selling prices using all information that is reasonably available, including reference to historical pricing data. COMPUTER SOFTWARE DEVELOPMENT The Company capitalizes new product development costs incurred for software to be sold from the point at which technological feasibility has been established through the point at which the product is ready for general availability. Software development costs that are capitalized are evaluated on a product-by-product basis annually for impairment and are assigned an estimated economic life based on the type of product, market characteristics, and maturity of the market for that particular product. These costs are amortized based on current and estimated future revenue from the product or on a straight-line basis, whichever yields greater amortization expense. All of this amortization expense is included within components of operating income, primarily cost of revenue. 41 Table of Contents The Company capitalizes development costs for internal use software beginning at the start of application development. Amortization begins on the date the software is placed in service and the amortization period is based on estimated useful life. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents. ACCOUNTS RECEIVABLE Receivables are recorded at the time of billing. The Company monitors trade and other receivable balances and contract assets and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events. The following table summarizes allowance for credit losses activity for the years ended June 30, 2024, and 2023: Year Ended June 30, 2024 2023 Allowance for credit losses - beginning balance $ 7,955 $ 7,616 Current provision for expected credit losses 1,920 1,800 Write-offs charged against allowance ( 2,209 ) ( 1,458 ) Recoveries of amounts previously written off — ( 1 ) Other ( 189 ) ( 2 ) Allowance for credit losses - ending balance $ 7,477 $ 7,955 PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Intangible assets consist of goodwill, customer relationships, computer software, and trade names acquired in business acquisitions in addition to internally developed computer software. The amounts are amortized, with the exception of those with an indefinite life (goodwill), over an estimated economic benefit period, generally three to twenty years. The Company reviews its long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances have indicated that it is more likely than not that the carrying amount of its assets might not be recoverable. The Company evaluates goodwill for impairment of value on an annual basis as of January 1 and between annual tests if events or changes in circumstances indicate that it is more likely than not that the asset might be impaired. PURCHASE OF INVESTMENTS At June 30, 2024, and 2023, the Company had $ 25,750 and $ 18,250 , respectively, in non-current investments. These investments were recorded at cost and are included within other non-current assets on the Company's balance sheet. The fair values of these investments have not been estimated, as estimation is not practicable due to limited investors which reduces available comparative information. There have been no events or changes in circumstances that would indicate an impairment and no price changes resulting from observing similar or identical investments. An impairment and/or an observable price change would be an adjustment to recorded cost. Fair values will not be estimated unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair values of the investments. Equity transactions are monitored quarterly to assess whether there are indicators that fair value may be below carrying value. COMPREHENSIVE INCOME Comprehensive income for each of the fiscal years ending June 30, 2024, 2023, and 2022, equals the Company’s net income. REPORTABLE SEGMENT INFORMATION In accordance with U.S. GAAP, the Company's operations are classified as four reportable segments: Core, Payments, Complementary, and Corporate and Other (see Note 14). Substantially all the Company’s revenues are derived from operations and assets located within the United States of America. 42 Table of Contents COMMON STOCK The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or 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. At June 30, 2024, there were 31,373 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,618 additional shares of its common stock. The total cost of treasury shares at June 30, 2024, was $ 1,860,173 . During fiscal 2024, the Company repurchased 179 shares of its common stock for $ 28,055 to be held in treasury. At June 30, 2023, there were 31,194 shares in treasury stock and the Company had authority to repurchase up to 3,796 additional shares of its common stock. EARNINGS PER SHARE Per share information is based on the weighted average number of common shares outstanding during the year. Stock options and restricted stock have been included in the calculation of income per diluted share to the extent they are dilutive. The difference between basic and diluted weighted average shares outstanding is the dilutive effect of outstanding stock options and restricted stock (see Note 11). INCOME TAXES Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefit recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Also, interest and penalties expense are recognized on the full amount of unrecognized benefits for uncertain tax positions. The Company's policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Guidance In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company 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. 43 Table of Contents NOTE 2. REVENUE AND DEFERRED COSTS Revenue Recognition The Company generates revenue from data processing, transaction processing, software licensing and related services, professional services, and hardware sales. The Company recognizes revenue when or as it satisfies each performance obligation by transferring control of a solution or service to the client. The following describes the nature of the Company’s primary types of revenue: Processing Processing revenue is generated from transaction-based fees for electronic deposit and payment services, electronic funds transfers and debit and credit card processing. The Company’s arrangements for these services typically require the Company to “stand-ready” to provide specific services on a when and if needed basis by processing an unspecified number of transactions over the contractual term. The fees for these services may be fixed or variable (based upon performing an unspecified quantity of services), and pricing may include tiered pricing structures. Amounts of revenue allocated to these services are recognized as those services are performed. Clients are typically billed monthly for transactions processed during the month. The Company evaluates tiered pricing to determine if a material right exists. If, after that evaluation, it determines a material right does exist, it assigns value to the material right based upon standalone selling price after estimation of breakage associated with the material right. Private and public cloud Private and public cloud revenue is generated from data and item processing services and hosting fees. The Company’s arrangements for these services typically require the Company to “stand-ready” to provide specific services on a when and if needed basis. The fees for these services may be fixed or variable (based upon performing an unspecified quantity of services), and pricing may include tiered pricing structures. Amounts of revenue allocated to these services are recognized as those services are performed. Data and item processing services are typically billed monthly. The Company evaluates tiered pricing to determine if a material right exists. If, after that evaluation, it determines a material right does exist, it assigns value to the material right based upon standalone selling price. Product delivery and services Product delivery and services revenue is generated primarily from software licensing and related professional services and hardware delivery. Software licenses, along with any professional services from which they are not considered distinct, are recognized as they are delivered to the client. Hardware revenue is recognized upon delivery. Professional services that are distinct are recognized as the services are performed. Deconversion fees are also included within product delivery and services and are considered a contract modification. Therefore, the Company recognizes these fees over the remaining modified contract term. On-premise support On-premise support revenue is generated from software maintenance for ongoing client support and software usage, which includes a license and ongoing client support. The Company’s arrangements for these services typically require the Company to “stand-ready” to provide specific services on a when and if needed basis. The fees for these services may be fixed or variable (based upon performing an unspecified quantity of services). Software maintenance fees are typically billed to the client annually in advance and recognized ratably over the maintenance term. Software usage is typically billed annually in advance, with the license delivered and recognized at the outset, and the maintenance fee recognized ratably over the maintenance term. Accordingly, the Company utilizes the practical expedient which allows entities to disregard the effects of a financing component when the contract period is one year or less. Taxes collected from clients and remitted to governmental authorities are not included in revenue. The Company includes reimbursements from clients for expenses incurred in providing services (such as for postage, travel and telecommunications costs) in revenue, while the related costs are included in cost of revenue. 44 Table of Contents Disaggregation of Revenue The tables below present the Company's revenue disaggregated by type of revenue. Refer to Note 14 – Reportable Segment Information for disaggregated revenue by type and reportable segment. The majority of the Company’s revenue is earned domestically, with revenue from clients outside the United States comprising less than 1% of total revenue. Year Ended June 30, 2024 2023 2022 Private and Public Cloud $ 682,146 $ 618,850 $ 561,500 Product Delivery and Services 238,723 245,687 250,843 On-Premise Support 355,085 350,164 344,022 Services and Support 1,275,954 1,214,701 1,156,365 Processing 939,589 863,001 786,519 Total Revenue $ 2,215,543 $ 2,077,702 $ 1,942,884 Contract Balances The following table provides information about contract assets and contract liabilities from contracts with clients. June 30, 2024 June 30, 2023 Receivables, net $ 333,033 $ 361,252 Contract Assets - Current 33,610 26,711 Contract Assets - Non-current 103,295 81,561 Contract Liabilities (Deferred Revenue) - Current 317,730 331,974 Contract Liabilities (Deferred Revenue) - Non-current 71,202 67,755 Contract assets primarily result from revenue being recognized when or as control of a solution or service is transferred to the client, but where invoicing is contingent upon the completion of other performance obligations or payment terms differ from the provisioning of services. The current portion of contract assets is reported within prepaid expenses and other in the consolidated balance sheet, and the non-current portion is included in other non-current assets. Contract liabilities (deferred revenue) primarily relate to consideration received from clients in advance of delivery of the related goods and services to the client. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company analyzes contract language to identify if a significant financing component does exist and would adjust the transaction price for any material effects of the time value of money if the timing of payments provides either party to the contract with a significant benefit of financing the transaction. For the fiscal years ended June 30, 2024, 2023, and 2022, the Company recognized revenue of $ 270,241 , $ 267,978 , and $ 270,972 , respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods. Amounts recognized that relate to performance obligations satisfied (or partially satisfied) in prior periods were immaterial for each period presented. These adjustments are primarily the result of transaction price re-allocations due to changes in estimates of variable consideration. Transaction Price Allocated to Remaining Performance Obligations As of June 30, 2024, estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period totaled $ 6,810,946 . The Company expects to recognize approximately 25 % over the next 12 months, 19 % in 13 - 24 months, and the balance thereafter. 45 Table of Contents Contract Costs The Company incurs 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. Capitalized costs totaled $ 503,152 and $ 442,012 , at June 30, 2024, and 2023, respectively. During the fiscal years ended June 30, 2024, 2023, and 2022, amortization of deferred contract costs totaled $ 175,029 , $ 154,008 , and $ 133,174 , respectively. There were no impairment losses in relation to capitalized costs for the periods presented. NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS For cash equivalents, certificates of deposit, amounts receivable or payable, and short-term borrowings, fair values approximate carrying value, based on the short-term nature of the assets and liabilities. The Company's estimates of the fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets, and requires that observable inputs be used in the valuations when available. The three levels of the hierarchy are as follows: Level 1: inputs to the valuation are quoted prices in an active market for identical assets. Level 2: inputs to the valuation include quoted prices for similar assets in active markets that are observable either directly or indirectly. Level 3: valuation is based on significant inputs that are unobservable in the market and the Company's own estimates of assumptions that we believe market participants would use in pricing the asset. Financial assets and financial liabilities measured at fair value on a recurring basis are as follows: Estimated Fair Value Measurements Total Fair Level 1 Level 2 Level 3 Value June 30, 2024 Financial Assets: Certificates of Deposit $ — $ 3,505 $ — $ 3,505 Financial Liabilities: Credit facilities $ — $ 150,000 $ — $ 150,000 June 30, 2023 Financial Assets: Certificates of Deposit $ — $ 2,234 $ — $ 2,234 Financial Liabilities: Credit facilities $ — $ 275,000 $ — $ 275,000 NOTE 4. LEASES The Company determines if an arrangement is a lease, or contains a lease, at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The lease term is used to determine lease classification as an operating or finance lease and is used to calculate straight-line expense for operating leases. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As a practical expedient, lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases and equipment leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. The Company 46 Table of Contents estimates contingent lease incentives when it is probable that the Company is entitled to the incentive at lease commencement. Since the Company’s leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based upon the information available at commencement date for both real estate and equipment leases. The determination of the incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease. The Company elected the short-term lease recognition exemption for all leases that qualify. Therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet; instead, lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company leases certain office space, data centers and equipment. The Company’s leases have remaining terms of 3 months to 9 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred. Certain leases include options to purchase the leased asset at the end of the lease term, which is assessed as a part of the Company’s lease classification determination. The depreciable life of the ROU asset and leasehold improvements are limited by the expected lease term unless the Company is reasonably certain of a transfer of title or purchase option. At June 30, 2024, and 2023, the Company had operating lease assets of $ 53,981 and $ 43,662 , respectively. At June 30, 2024, total operating lease liabilities of $ 59,604 were comprised of current operating lease liabilities of $ 8,454 and noncurrent operating lease liabilities of $ 51,150 . At June 30, 2023, total operating lease liabilities of $ 50,269 were comprised of current operating lease liabilities of $ 9,776 and noncurrent operating lease liabilities of $ 40,493 . Operating lease assets are included within other non-current assets and operating lease liabilities are included with accrued expenses (current portion) and other long-term liabilities (noncurrent portion) in the Company’s consolidated balance sheet. Operating lease assets were recorded net of accumulated amortization of $ 34,306 and $ 34,973 as of June 30, 2024, and 2023, respectively. Operating lease costs for the fiscal years ended June 30, 2024, 2023, and 2022, were $ 10,598 , $ 11,870 , and $ 13,058 , respectively. Total operating lease costs for the fiscal years ended June 30, 2024, 2023, and 2022, included variable lease costs of approximately $ 4,087 , $ 3,608 , and $ 2,325 , respectively. Operating lease expense is included within cost of services, research and development, and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s consolidated statement of income. For the fiscal years ended June 30, 2024, 2023, and 2022, operating cash flows for payments on operating leases were $ 9,306 , $ 12,127 , and $ 13,082 , respectively, and ROU assets obtained in exchange for operating lease liabilities were $ 19,222 , $ 2,368 , and $ 2,407 , respectively. As of June 30, 2024, 2023, and 2022, the weighted-average remaining lease terms for the Company's operating leases were 78 months, 78 months, and 76 months, respectively, and the weighted-average discount rates were 2.70 %, 2.14 %, and 2.58 %, respectively. 47 Table of Contents Maturity of Lease Liabilities under ASC 842 Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2024: Due dates Future Minimum Rental Payments 2025 $ 10,377 2026 10,970 2027 10,455 2028 10,106 2029 7,548 Thereafter 17,667 Total lease payments $ 67,123 Less: interest ( 7,519 ) Present value of lease liabilities - lessee $ 59,604 Future lease payments include $ 5,464 related to options to extend lease terms that are reasonably certain of being exercised. At June 30, 2024, there were no material legally binding lease payments for leases signed but not yet commenced. On September 30, 2023, the Company entered into an agreement with a third party to sublease a portion of its Elizabethtown, Kentucky facility. The commencement date of the sublease was October 1, 2023, and has a term of 57 months. Sublease income for the fiscal year ended June 30, 2024, was $ 550 , and is included within revenue on the Company's condensed consolidated statements of income. There have been no indications of impairment related to the underlying right-of-use asset. Minimum Sublease Payments At June 30, 2024, the future total minimum sublease payments to be received were as follows: Due Dates (fiscal year) Future Minimum Sublease Receipts 2025 $ 873 2026 831 2027 856 2028 882 Total sublease receipts - lessor $ 3,442 48 Table of Contents NOTE 5. PROPERTY AND EQUIPMENT The classification of property and equipment, together with their estimated useful lives is as follows: June 30, 2024 2023 Estimated Useful Life Land $ 16,357 $ 16,581 Land improvements 24,322 24,251 5 - 20 years Buildings 133,835 129,991 20 - 30 years Leasehold improvements 51,432 51,125 5 - 30 years (1) Equipment and furniture 418,853 394,507 3 - 10 years Aircraft and equipment 44,140 41,400 4 - 10 years Construction in progress 12,298 14,208 Finance lease right-of-use asset (2) — 312 701,237 672,375 Less accumulated depreciation 486,168 466,711 Property and equipment, net $ 215,069 $ 205,664 (1) Lesser of lease term or estimated useful life (2) Fully depreciated at June 30, 2023. The change in property and equipment in accrued liabilities was an increase of $ 723 and $ 3,969 for the fiscal years ended June 30, 2024, and 2023, respectively. These amounts were excluded from capital expenditures on the statements of cash flows. No material impairments of property and equipment were recorded in the fiscal years ended June 30, 2024, 2023, or 2022. NOTE 6. OTHER ASSETS Goodwill The carrying amount of goodwill for the fiscal years ended June 30, 2024, and 2023, by reportable segments, is as follows: June 30, Core 2024 2023 Beginning balance $ 195,578 $ 195,578 Goodwill, acquired during the year — — Goodwill, adjustments related to dispositions — — Ending balance $ 195,578 $ 195,578 Payments Beginning balance $ 442,665 $ 325,326 Goodwill, acquired during the year — 117,339 Goodwill, adjustments related to dispositions — — Ending balance $ 442,665 $ 442,665 Complementary Beginning balance $ 166,554 $ 166,554 Goodwill, acquired during the year — — Goodwill, adjustments related to dispositions — — Ending balance $ 166,554 $ 166,554 Goodwill acquired during fiscal 2024 and 2023 was $ 0 and $ 117,339 , respectively. Goodwill consists largely of the growth potential, synergies and economies of scale expected from combining the operations of the Company with those of the entities or assets acquired, together with their assembled workforces. No goodwill has been assigned to the Company's Corporate and Other reportable segment. 49 Table of Contents Other intangible assets Information regarding other identifiable intangible assets is as follows: June 30, 2024 Gross Carrying Amount Accumulated Amortization Net Customer relationships $ 306,036 $ ( 249,279 ) $ 56,757 Computer software $ 1,533,622 $ ( 940,861 ) $ 592,761 Other intangible assets: $ 111,510 $ ( 89,359 ) $ 22,151 June 30, 2023 Gross Carrying Amount Accumulated Amortization Net Customer relationships $ 306,036 $ ( 240,508 ) $ 65,528 Computer software $ 1,386,291 $ ( 820,577 ) $ 565,714 Other intangible assets: $ 108,826 $ ( 88,828 ) $ 19,998 Customer relationships have useful lives ranging from 5 to 20 years. Computer software includes cost of software to be sold, leased, or marketed of $ 178,588 and costs of internal-use software of $ 414,173 at June 30, 2024. At June 30, 2023, costs of software to be sold, leased, or marketed totaled $ 171,310 , and costs of internal-use software totaled $ 394,404 . Computer software includes the unamortized cost of commercial software products developed or acquired by the Company, which are capitalized and amortized over useful lives generally ranging from 5 to 15 years. Amortization expense for computer software totaled $ 137,958 , $ 123,210 , and $ 105,036 for the fiscal years ended June 30, 2024, 2023, and 2022, respectively. There were no material impairments in fiscal years ended June 30, 2024, 2023, and 2022. The Company's other intangible assets have useful lives ranging from 3 to 20 years. Amortization expense for all intangible assets was $ 153,562 , $ 142,006 , and $ 126,835 for the fiscal years ended June 30, 2024, 2023, and 2022, respectively. The estimated aggregate future amortization expense for each of the next five years for all intangible assets remaining as of June 30, 2024, is as follows: Years Ending June 30, Computer Software Customer Relationships Other Intangible Assets Total 2025 $ 131,962 $ 8,317 $ 6,378 $ 146,657 2026 110,330 7,952 5,535 123,817 2027 86,947 7,858 4,016 98,821 2028 61,414 7,821 1,314 70,549 2029 37,707 7,776 1,002 46,485 NOTE 7. DEBT The Company had $ 90,000 outstanding current maturities of long-term debt and $ 60,000 outstanding long-term debt at June 30, 2024, related to credit facilities. The Company had no outstanding current maturities of long-term debt and $ 275,000 outstanding long-term debt at June 30, 2023. 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 is guaranteed by certain subsidiaries of the Company and is subject to various 50 Table of Contents financial covenants that require the Company to maintain certain financial ratios as defined in the credit agreement. As of June 30, 2024, the Company was in compliance with all such covenants. The amended and restated credit facility terminates August 31, 2027 . 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 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, 2024, the Company was in compliance with all such covenants. The term loan credit agreement has a maturity date of May 16, 2025 . There was $ 90,000 and $ 180,000 outstanding under the term loan at June 30, 2024, and June 30, 2023, respectively. 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 May 2023 to extend the expiration to April 30, 2025 . There was no balance outstanding at June 30, 2024, or 2023. Interest The Company paid interest of $ 15,757 , $ 14,776 , and $ 1,788 during the fiscal years ended June 30, 2024 , 2023, and 2022, respectively. NOTE 8. INCOME TAXES The provision for income taxes consists of the following: Year Ended June 30, 2024 2023 2022 Current: Federal $ 93,890 $ 125,622 $ 59,390 State 23,222 30,505 18,089 Deferred: Federal ( 1,615 ) ( 40,218 ) 24,391 State 706 ( 7,981 ) 7,481 $ 116,203 $ 107,928 $ 109,351 51 Table of Contents The tax effects of temporary differences related to deferred taxes shown on the balance sheets were: June 30, 2024 2023 Deferred tax assets: Contract and service revenues $ 21,985 $ 18,186 Expense reserves and accruals (bad debts and compensation) 16,123 14,023 Leasing liabilities 14,755 12,462 Net operating loss and tax credit carryforwards 2,155 1,965 Other, net 3,369 2,916 Total gross deferred tax assets 58,387 49,552 Valuation allowance ( 108 ) ( 125 ) Net deferred tax assets 58,279 49,427 Deferred tax liabilities: Property and equipment depreciation ( 26,689 ) ( 27,788 ) Intangibles, software development, and research and development tax amortization ( 113,623 ) ( 136,045 ) Contract and service costs ( 148,126 ) ( 119,201 ) Leasing right-of-use assets ( 13,363 ) ( 10,824 ) Total gross deferred liabilities ( 301,801 ) ( 293,858 ) Net deferred tax liability $ ( 243,522 ) $ ( 244,431 ) The following analysis reconciles the statutory federal income tax rate to the effective income tax rates reflected above: Year Ended June 30, 2024 2023 2022 Computed "expected" tax expense 21.0 % 21.0 % 21.0 % Increase (reduction) in taxes resulting from: State income taxes, net of federal income tax benefits 3.8 % 3.7 % 4.3 % Research and development credit ( 2.6 ) % ( 2.3 ) % ( 2.0 ) % Changes to prior year uncertain tax positions 0.6 % — % — % Other (net) 0.5 % 0.3 % ( 0.1 ) % 23.3 % 22.7 % 23.2 % As of June 30, 2024, the Company has state NOL and tax credit carryforwards with a tax-effected value of $ 110 and $ 2,045 , respectively. The state loss and credit carryover have varying expiration dates, ranging from fiscal 2025 to 2044. Based on state tax rules which restrict utilization of these losses and tax credits, the Company believes it is more likely than not that $ 108 of these losses and tax credits will expire unutilized. Accordingly, valuation allowances of $ 108 and $ 125 have been recorded against the state net operating losses and tax credit carryforwards as of June 30, 2024, and 2023, respectively. The Company paid income taxes, net of refunds, of $ 106,966 , $ 145,862 , and $ 60,553 in fiscal 2024, 2023, and 2022, respectively. At June 30, 2024, the Company had $ 19,077 of gross unrecognized tax benefits, $ 17,222 of which, if recognized, would affect its effective tax rate. At June 30, 2023, the Company had $ 12,005 of gross unrecognized tax benefits, $ 10,453 of which, if recognized, would affect its effective tax rate. The Company had accrued interest and penalties of $ 3,351 and $ 1,872 related to uncertain tax positions at June 30, 2024, and 2023, respectively. The income tax provision included interest expense and penalties (or benefits) on unrecognized tax benefits of $ 1,132 , $ 529 , and $ 73 in the fiscal years ended June 30, 2024, 2023, and 2022, respectively. 52 Table of Contents A reconciliation of the unrecognized tax benefits for the fiscal years ended June 30, 2024, 2023, and 2022, follows: Unrecognized Tax Benefits Balance at July 1, 2021 $ 8,762 Additions for current year tax positions 1,863 Additions for prior year tax positions 1,642 Reductions for prior year tax positions ( 36 ) Reductions related to expirations of statute of limitations ( 3,241 ) Balance at June 30, 2022 8,990 Additions for current year tax positions 2,570 Additions for prior year tax positions 2,433 Reductions for prior year tax positions ( 350 ) Reductions related to expirations of statute of limitations ( 1,638 ) Balance at June 30, 2023 12,005 Additions for current year tax positions 3,924 Additions for prior year tax positions 4,672 Reductions related to expirations of statute of limitations ( 1,524 ) Balance at June 30, 2024 $ 19,077 The U.S. federal income tax returns for fiscal 2021 and all subsequent years remain subject to examination as of June 30, 2024, under statute of limitations rules. The U.S. state income tax returns that remain subject to examination as of June 30, 2024, under the statute of limitation rules varies by state jurisdiction from fiscal 2016 through 2019 and all subsequent years. The Company anticipates that potential changes due to lapsing statutes of limitations and examination closures could reduce the unrecognized tax benefits balance by $ 3,000 — $ 7,000 within twelve months of June 30, 2024. NOTE 9. INDUSTRY AND SUPPLIER CONCENTRATION The Company sells its products to banks, credit unions, and financial institutions throughout the United States and generally does not require collateral. Billings to clients are typically due 30 days from date of billing. Reserves are maintained for potential credit losses. Client-related risks are moderated through the inclusion of credit mitigation clauses in the Company's contracts and through the monitoring of timely payments. In addition, some of the Company’s key solutions are dependent on technology manufactured by third parties. Termination of the Company’s relationship with one or more of these third parties could have a negative impact on the operations of the Company. NOTE 10. STOCK-BASED COMPENSATION The Company's pre-tax operating income for the fiscal years ended June 30, 2024, 2023, and 2022, includes $ 28,873 , $ 28,611 , and $ 24,780 , respectively, of equity-based compensation costs, of which $ 26,361 , $ 26,427 , and $ 22,703 , respectively, relates to the restricted stock plans. Costs are recorded net of estimated forfeitures. The total income tax benefits from equity-based compensation for the fiscal years ended June 30, 2024, 2023, and 2022, were $ 4,495 , $ 5,115 , and $ 4,252 , respectively. These income tax benefits included income tax net shortfalls from stock option exercises and restricted stock vestings of $ 184 for the fiscal year ended June 30, 2024, and income tax net excess benefits from stock option exercises and restricted stock vestings of $ 1,109 and $ 652 for the fiscal years ended June 30, 2023, and 2022, respectively. On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan ("2015 EIP") for its associates and non-employee directors. The plan allows for grants of stock options, stock appreciation rights, restricted stock shares or units, and performance shares or units. The maximum number of shares authorized for issuance under the plan is 3,000 . Stock option awards Under the 2015 EIP, terms and vesting periods of the stock options are determined by the Human Capital & Compensation Committee of the Board of Directors when granted. The options granted under this plan are 53 Table of Contents exercisable beginning three years after grant at an exercise price equal to 100% of the fair market value of the stock at the grant date. The options terminate upon surrender of the option, ninety days after termination of employment, upon the expiration of one year following notification of a deceased optionee, or 10 years after grant. During fiscal 2024, there were no options granted, forfeited, or exercised, and at June 30, 2024, 12 options were outstanding at a weighted average exercise price of $ 87.27 with an aggregate intrinsic value of $ 920 . During fiscal 2023, there were no options granted, forfeited, or exercised, and at June 30, 2023, 12 options were outstanding at a weighted average exercise price of $ 87.27 . During fiscal 2022, there were no options granted or forfeited, and 10 options were exercised at a weighted average exercise price of $ 87.27 with a total exercise intrinsic value of $ 1,005 . At June 30, 2022, 12 options were outstanding at a weighted average exercise price of $ 87.27 . All remaining options were granted on July 1, 2016. At June 30, 2024, there was no compensation cost yet to be recognized related to outstanding options. All of the options are currently exercisable, with a weighted average remaining contractual term (remaining period of exercisability) of 2 years as of June 30, 2024. Restricted stock unit and performance unit awards With respect to awards of restricted stock units and performance units, it is the intention of the Company to settle the unit awards in shares of the Company’s stock. Restricted stock unit awards (which are unit awards that have service requirements only and are not tied to performance measures) generally vest over a period of 1 to 3 years. Performance unit awards are awards that have performance measures in addition to service requirements. The following table summarizes non-vested restricted stock unit awards and performance unit awards as of June 30, 2024, as well as activity for the fiscal year then ended: Unit awards Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Outstanding July 1, 2021 294 $ 160.22 Granted 1 135 178.60 Vested ( 71 ) 145.50 Forfeited 2 ( 55 ) 189.33 Outstanding July 1, 2022 303 166.50 Granted 1 136 214.78 Vested ( 120 ) 159.10 Forfeited 2 ( 16 ) 186.35 Outstanding July 1, 2023 303 190.08 Granted 1 160 177.95 Vested ( 99 ) 170.25 Forfeited 2 ( 39 ) 194.11 Outstanding June 30, 2024 325 $ 189.68 $ 53,953 1 Granted includes restricted stock unit awards and performance unit awards with market conditions at 100% achievement. 2 Forfeited includes restricted stock unit awards and performance unit awards forfeited for service requirements not met and performance unit awards not settled due to underachievement of performance measures. Of the 160 unit awards granted in fiscal 2024, 97 were restricted stock unit awards and 63 were performance unit awards. The restricted stock unit awards were valued at the weighted average fair value of the non-vested units based on the fair market value of the Company’s equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period, consistent with the methodology for calculating compensation expense on such awards. 24 of the performance unit awards granted in fiscal 2024 were valued at grant by estimating 100% payout at release and using the fair market value of the Company equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period. The payout at release of approximately half of these performance unit awards will be determined based on the Company's compound annual growth rate ("CAGR") for revenue (excluding adjustments) for the three-year vesting period compared against goal thresholds as defined in the award agreement. The performance payout at release of the other half of these performance unit awards will be determined based on the expansion of the Company's non-GAAP operating margin over the three-year vesting period compared against goal thresholds as defined in the award agreement. 35 of the performance unit awards have market conditions and were valued at grant using a Monte Carlo pricing model as of the measurement date 54 Table of Contents customized to the specific provisions of the Company’s plan design. The remaining 4 performance unit awards had other performance targets. Per the Company's award vesting and settlement provisions, the performance unit awards that utilized a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return ("TSR") in comparison to the compensation peer group made up of participants approved by the Human Capital & Compensation Committee of the Company's Board of Directors for fiscal year 2024. For fiscal years 2023 and 2022, TSR was in comparison to the compensation peer group comprised of the Standard & Poor's 1500 Software & Services Index ("S&P 1500 S&S Index") participant companies and other participants approved by the Human Capital & Compensation Committee of the Company's Board of Directors. TSR is defined as the change in the stock price through the performance period plus dividends per share paid during the performance period, all divided by the stock price at the beginning of the performance period. The Monte Carlo inputs used in the model to estimate fair value at the measurement date and resulting values for these performance unit awards are as follows: Year Ended June 30, Monte Carlo award inputs: 2024 2023 2022 Compensation Peer Group: 1 Volatility 25.6 % 29.4 % 28.6 % Risk free interest rate 4.48 % 2.96 % 0.32 % Annual dividend based on most recent quarterly dividend $ 2.08 $ 1.96 $ 1.84 Dividend yield 1.2 % 0.9 % 1.1 % Beginning average percentile rank for TSR 74 % 71 % 65 % 1 For fiscal 2023 and 2022, S&P 1500 S&S Index participants were included in the compensation peer group. At June 30, 2024, there was $ 21,655 of compensation expense that has yet to be recognized related to non-vested restricted stock unit and performance stock unit awards, which will be recognized over a weighted-average remaining contractual term of 1.02 years. The fair values of restricted stock units and performance units at release totaled $ 16,544 , $ 24,931 , and $ 12,139 for the fiscal years ended June 30, 2024, 2023, and 2022, respectively. NOTE 11. EARNINGS PER SHARE The following table reflects the reconciliation between basic and diluted earnings per share. Year Ended June 30, 2024 2023 2022 Net Income $ 381,816 $ 366,646 $ 362,916 Common share information: Weighted average shares outstanding for basic earnings per share 72,867 72,918 73,324 Dilutive effect of stock options, restricted stock units, and performance units 158 178 162 Weighted average shares outstanding for diluted earnings per share 73,025 73,096 73,486 Basic earnings per share $ 5.24 $ 5.03 $ 4.95 Diluted earnings per share $ 5.23 $ 5.02 $ 4.94 Per share information is based on the weighted average number of common shares outstanding for each of the fiscal years. Stock options, restricted stock units, and performance units have been included in the calculation of earnings per share to the extent they are dilutive. The two-class method for computing EPS has not been applied because no outstanding awards contain non-forfeitable rights to participate in dividends. There were 33 anti-dilutive weighted average shares excluded from the weighted average shares outstanding for diluted earnings per share for fiscal 2024, 10 shares were excluded for fiscal 2023, and 7 shares were excluded for fiscal 2022. 55 Table of Contents NOTE 12. EMPLOYEE BENEFIT PLANS The Company established an employee stock purchase plan (the "Plan") in 2006. On January 1, 2024, the Plan was amended and restated, and allows substantially all associates the opportunity to directly purchase shares of the Company at 85 % of the lesser of the fair market value, as defined by the Plan, of the Company's stock on the first trading day or on the last trading day of a three-month offering period, which represents an option. Prior to January 1, 2024, the Plan allowed substantially all associates the opportunity to directly purchase shares of the Company at 85 % of the closing price of the Company's stock on or around the fifteenth day of each month. During the fiscal years ended June 30, 2024 , 2023, and 2022, associates purchased 90 , 84 , and 80 shares under this plan at average prices of $ 137.78 , $ 146.79 , and $ 147.36 , respectively. As of June 30, 2024, approximately 896 shares remained available for future issuance under the Plan. The Plan is considered compensatory, and beginning January 1, 2024, compensation expense is determined based on the option's grant date fair value as estimated by applying the Black-Scholes option-pricing model and is recognized over the offering period. Prior to January 1, 2024, the Company recorded the total dollar value of the stock discount given to associates under the plan as expense. The Company has a defined contribution plan for its associates: the 401(k) Retirement Savings Plan (the “Plan”). The Plan is subject to the Employee Retirement Income Security Act of 1975 (“ERISA”) as amended. Under the Plan, the Company matches 100 % of full-time associate contributions up to 5 % of eligible compensation. In order to receive matching contributions, associates must be 18 years of age and be employed for at least six months . The Company has the option of making a discretionary contribution; however, none has been made for any of the three most recent fiscal years. The total matching contributions for the Plan were $ 31,995 , $ 29,308 , and $ 28,259 for the fiscal years ended June 30, 2024 , 2023, and 2022, respectively. NOTE 13. BUSINESS ACQUISITION Payrailz 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 purchase price adjustments, and $ 46,000 for indemnification matters under the merger agreement, which amount was released to the sellers on September 20, 2023. 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. Management has completed a purchase price allocation and assessment of the fair value of acquired assets and liabilities assumed. The recognized amounts of identifiable assets acquired, and liabilities assumed, based on their fair values as of August 31, 2022 , and taking into account the post-closing purchase price adjustment described above, are set forth below: Current assets $ 1,851 Identifiable intangible assets 119,868 Deferred revenue ( 8,104 ) Total other liabilities assumed ( 749 ) Total identifiable net assets 112,866 Goodwill 117,339 Net assets acquired $ 230,205 The goodwill of $ 117,339 arising from this acquisition consists largely of the growth potential, synergies, and economies of scale expected from combining the operations of the Company with those of Payrailz, together with the value of Payrailz's assembled workforce. The goodwill from this acquisition has been allocated to our Payments segment and $ 117,339 is expected to be deductible for income tax purposes. 56 Table of Contents Identifiable intangible assets from this acquisition consist of customer relationships of $ 6,109 , computer software of $ 112,505 , and other intangible assets of $ 1,254 . The amortization period for acquired customer relationships, computer software, and other intangible assets is over a term of 15 years, 10 years, and 15 years, respectively. Current assets were inclusive of cash acquired of $ 577 . The fair value of current assets acquired included accounts receivable of $ 978 , none of which were expected to be uncollectible. NOTE 14. REPORTABLE SEGMENT INFORMATION 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: Core, Payments, Complementary, and Corporate and Other. The Core segment provides core information processing platforms to banks and credit unions, which consist of integrated applications required to process deposit, loan, and general ledger transactions, and maintain centralized customer/member information. The Payments segment provides secure payment processing tools and services, including ATM, debit, and credit card 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, 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, 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 . Year Ended June 30, 2024 Core Payments Complementary Corporate and Other Total REVENUE Services and Support $ 649,169 $ 84,655 $ 461,828 $ 80,302 $ 1,275,954 Processing 41,569 733,053 156,383 8,584 939,589 Total Revenue 690,738 817,708 618,211 88,886 2,215,543 Cost of Revenue 287,349 442,084 256,007 314,037 1,299,477 Research and Development 148,256 Selling, General, and Administrative 278,419 Total Expenses 1,726,152 SEGMENT INCOME $ 403,389 $ 375,624 $ 362,204 $ ( 225,151 ) OPERATING INCOME 489,391 INTEREST INCOME (EXPENSE) 8,628 INCOME BEFORE INCOME TAXES $ 498,019 57 Table of Contents Year Ended June 30, 2023 Core Payments Complementary Corporate and Other Total REVENUE Services and Support $ 608,517 $ 79,788 $ 453,541 $ 72,855 $ 1,214,701 Processing 40,528 687,521 130,045 4,907 863,001 Total Revenue 649,045 767,309 583,586 77,762 2,077,702 Cost of Revenue 276,818 420,880 237,758 283,606 1,219,062 Research and Development 142,678 Selling, General, and Administrative 235,274 Total Expenses 1,597,014 SEGMENT INCOME $ 372,227 $ 346,429 $ 345,828 $ ( 205,844 ) OPERATING INCOME 480,688 INTEREST INCOME (EXPENSE) ( 6,114 ) INCOME BEFORE INCOME TAXES $ 474,574 Year Ended June 30, 2022 Core Payments Complementary Corporate and Other Total REVENUE Services and Support $ 583,752 $ 83,810 $ 434,159 $ 54,644 $ 1,156,365 Processing 38,690 635,258 110,085 2,486 786,519 Total Revenue 622,442 719,068 544,244 57,130 1,942,884 Cost of Revenue 261,585 386,409 226,229 254,391 1,128,614 Research and Development 121,355 Selling, General, and Administrative 218,296 Total Expenses 1,468,265 SEGMENT INCOME $ 360,857 $ 332,659 $ 318,015 $ ( 197,261 ) OPERATING INCOME 474,619 INTEREST INCOME (EXPENSE) ( 2,352 ) INCOME BEFORE INCOME TAXES $ 472,267 The Company has not disclosed any additional asset information by segment, as the information is not generated for internal management reporting to the Chief Executive Officer, who is also the Chief Operating Decision Maker. 58 Table of Contents NOTE 15. SUBSEQUENT EVENTS Dividend On August 23, 2024 , the Company's Board of Directors declared a cash dividend of $ 0.55 per share on its common stock, payable on September 27, 2024 , to stockholders of record on September 6, 2024 . ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.