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, 2022, 2021, and 2020			37
			Consolidated Balance Sheets,
			June 30, 2022 and 2021			38
			Consolidated Statements of Changes in Stockholders' Equity,
			Years Ended June 30, 2022, 2021, and 2020			39
			Consolidated Statements of Cash Flows,
			Years Ended June 30, 2022, 2021, and 2020			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.

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 and its subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022 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, 2022, 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.

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 and identification of and accounting for performance obligations

As discussed in Notes 1 and 2 to the consolidated financial statements, the Company recorded revenue of $1.943 billion for the year ended June 30, 2022. The Company enters into contracts with its customers, which frequently contain multiple performance obligations and variable contract consideration. The amount of revenue recognized is based on the consideration the Company expects to receive in exchange for transferring goods and services to the customer. The Company’s contracts with its customers 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 customers and identifies 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. The Company recognizes revenue when or as it satisfies each performance obligation by transferring control of a solution or service to the customer. Significant judgment in revenue recognition for these customer contracts include, where relevant, (i) the estimation of variable consideration, principally, the varying volume of transactional activity over long-term contracts, and (ii) the identification of and accounting for all performance obligations.

The principal considerations for our determination that performing procedures relating to the estimation of variable consideration and the identification of and accounting for performance obligations is a critical audit matter are significant judgment by management to estimate the variable consideration, principally, the varying volume of transactional activity and the identification of and accounting for all performance obligations in a contract. This in turn resulted in significant audit effort, a high degree of auditor judgment and subjectivity 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 and identification of and accounting for each performance obligation. 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 the performance obligations and variable consideration included evaluation of the terms and conditions for a sample of contracts.

/s/ PricewaterhouseCoopers LLP

Kansas City, Missouri

August 25, 2022

We have served as the Company’s auditor since 2015.

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, 2022, 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, 2022, was effective.

The Company’s internal control over financial reporting as of June 30, 2022, has been audited by the Company’s independent registered public accounting firm, as stated in their report appearing in this Item 8.

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
			Year Ended
			June 30,
			2022						2021						2020
REVENUE			$	1,942,884					$	1,758,225					$	1,697,067
EXPENSES
Cost of Revenue			1,128,614						1,063,399						1,008,464
Research and Development			121,355						109,047						109,988
Selling, General, and Administrative			218,296						187,060						197,988
Total Expenses			1,468,265						1,359,506						1,316,440
OPERATING INCOME			474,619						398,719						380,627
INTEREST INCOME (EXPENSE)
Interest Income			32						150						1,137
Interest Expense			(2,384)						(1,144)						(688)
Total Interest Income (Expense)			(2,352)						(994)						449
INCOME BEFORE INCOME TAXES			472,267						397,725						381,076
PROVISION FOR INCOME TAXES			109,351						86,256						84,408
NET INCOME			$	362,916					$	311,469					$	296,668
Basic earnings per share			$	4.95					$	4.12					$	3.86
Basic weighted average shares outstanding			73,324						75,546						76,787
Diluted earnings per share			$	4.94					$	4.12					$	3.86
Diluted weighted average shares outstanding			73,486						75,658						76,934

See notes to consolidated financial statements

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
			June 30, 2022						June 30, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	48,787					$	50,992
Receivables, net			348,072						306,564
Income tax receivable			13,822						30,243
Prepaid expenses and other			125,537						109,723
Deferred costs			57,105						46,215
Assets held for sale			20,201						—
Total current assets			613,524						543,737
PROPERTY AND EQUIPMENT, net			211,709						252,481
OTHER ASSETS:
Non-current deferred costs			143,750						127,205
Computer software, net of amortization			410,957						368,094
Other non-current assets			293,526						249,210
Customer relationships, net of amortization			69,503						81,842
Other intangible assets, net of amortization			25,137						26,129
Goodwill			687,458						687,458
Total other assets			1,630,331						1,539,938
Total assets			$	2,455,564					$	2,336,156
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable			$	21,034					$	18,485
Accrued expenses			192,042						182,517
Notes payable and current maturities of long-term debt			67						110
Deferred revenues			330,687						319,748
Total current liabilities			543,830						520,860
LONG-TERM LIABILITIES:
Non-current deferred revenues			71,485						75,852
Deferred income tax liability			292,630						260,758
Debt, net of current maturities			115,000						100,083
Other long-term liabilities			50,996						59,311
Total long-term liabilities			530,111						496,004
Total liabilities			1,073,941						1,016,864
STOCKHOLDERS' EQUITY
Preferred stock - $1 par value; 500,000 shares authorized, none issued			—						—
Common stock - $0.01 par value; 250,000,000 shares authorized; 103,921,724 shares issued at June 30, 2022; 103,795,169 shares issued at June 30, 2021			1,039						1,038
Additional paid-in capital			551,360						518,960
Retained earnings			2,636,342						2,412,496
Less treasury stock at cost 31,042,903 shares at June 30, 2022; 29,792,903 shares at June 30, 2021			(1,807,118)						(1,613,202)
Total stockholders' equity			1,381,623						1,319,292
Total liabilities and equity			$	2,455,564					$	2,336,156

See notes to consolidated financial statements

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,
			2022						2021						2020
PREFERRED SHARES:			—						—						—
COMMON SHARES:
Shares, beginning of year			103,795,169						103,622,563						103,496,026
Shares issued for equity-based payment arrangements			46,669						92,747						52,336
Shares issued for Employee Stock Purchase Plan			79,886						79,859						74,201
Shares, end of year			103,921,724						103,795,169						103,622,563
COMMON STOCK - PAR VALUE $0.01 PER SHARE:
Balance, beginning of year			$	1,038					$	1,036					$	1,035
Shares issued for equity-based payment arrangements			—						1						—
Shares issued for Employee Stock Purchase Plan			1						1						1
Balance, end of year			$	1,039					$	1,038					$	1,036
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year			$	518,960					$	495,005					$	472,029
Shares issued for equity-based payment arrangements			—						(1)						—
Tax withholding related to share based compensation			(4,152)						(7,720)						(3,739)
Shares issued for Employee Stock Purchase Plan			11,772						10,930						9,832
Stock-based compensation expense			24,780						20,746						16,883
Balance, end of year			$	551,360					$	518,960					$	495,005
RETAINED EARNINGS:
Balance, beginning of year			$	2,412,496					$	2,235,320					$	2,066,073
Cumulative effect of ASU 2016-13 adoption			—						(493)						—
Net income			362,916						311,469						296,668
Dividends			(139,070)						(133,800)						(127,421)
Balance, end of year			$	2,636,342					$	2,412,496					$	2,235,320
TREASURY STOCK:
Balance, beginning of year			$	(1,613,202)					$	(1,181,673)					$	(1,110,124)
Purchase of treasury shares			(193,916)						(431,529)						(71,549)
Balance, end of year			$	(1,807,118)					$	(1,613,202)					$	(1,181,673)
TOTAL STOCKHOLDERS' EQUITY			$	1,381,623					$	1,319,292					$	1,549,688
Dividends declared per share			$	1.90					$	1.78					$	1.66

See notes to consolidated financial statements.

JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
			Year Ended
			June 30,
			2022						2021						2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income			$	362,916					$	311,469					$	296,668
Adjustments to reconcile net income from operations to net cash from operating activities:
Depreciation			50,789						52,515						52,206
Amortization			126,835						123,233						119,599
Change in deferred income taxes			31,872						16,760						24,581
Expense for stock-based compensation			24,780						20,746						16,883
(Gain)/loss on disposal of assets and businesses			400						(1,988)						4,735
Changes in operating assets and liabilities:
Change in receivables			(41,508)						(6,112)						10,540
Change in prepaid expenses, deferred costs and other			(82,565)						(57,059)						(25,759)
Change in accounts payable			6,646						(94)						(47)
Change in accrued expenses			1,190						7,045						19,720
Change in income taxes			16,704						(10,927)						(3,723)
Change in deferred revenues			6,572						6,541						(4,871)
Net cash from operating activities			504,631						462,129						510,532
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired			—						(2,300)						(30,376)
Capital expenditures			(34,659)						(22,988)						(53,538)
Proceeds from the sale of assets			45						6,187						11,130
Purchased software			(8,491)						(6,506)						(6,710)
Computer software developed			(148,239)						(128,343)						(117,262)
Proceeds from investments			—						5,000						—
Purchase of investments			(5,000)						(13,300)						(1,150)
Net cash from investing activities			(196,344)						(162,250)						(197,906)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facilities			332,000						200,000						55,000
Repayments on credit facilities and financing leases			(317,127)						(100,114)						(55,033)
Purchase of treasury stock			(193,916)						(431,529)						(71,549)
Dividends paid			(139,070)						(133,800)						(127,421)
Proceeds from issuance of common stock upon exercise of stock options			—						1						—
Tax withholding payments related to share based compensation			(4,152)						(7,721)						(3,739)
Proceeds from sale of common stock			11,773						10,931						9,833
Net cash from financing activities			(310,492)						(462,232)						(192,909)
NET CHANGE IN CASH AND CASH EQUIVALENTS			$	(2,205)					$	(162,353)					$	119,717
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			$	50,992					$	213,345					$	93,628
CASH AND CASH EQUIVALENTS, END OF PERIOD			$	48,787					$	50,992					$	213,345

See notes to consolidated financial statements

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," "JKHY," or the "Company") is a leading provider of technology solutions and payment processing services primarily for the financial services industry. The Company has developed and acquired a number of banking and credit union software systems. The Company's revenues are predominately earned by marketing those systems to financial institutions nationwide by providing the conversion and implementation services for financial institutions to utilize JKHY systems, and by providing payment processing other related services. JKHY also provides continuing support and services to customers using on-premise or JKHY cloud-based systems.

CONSOLIDATION

The consolidated financial statements include the accounts of JKHY and all of 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.

Risks and Uncertainties

The novel coronavirus ("COVID-19") pandemic adversely impacted global economic activity and contributed to significant volatility in financial markets during calendar 2020 through calendar 2022 year to date. The Company has not, to this point in time, experienced material impacts from the COVID-19 pandemic, but did assess certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company as of and for its fiscal year ended June 30, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses, as well as the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements for fiscal 2022 and no material impacts expected for foreseeable future, the Company will continue to monitor assessments of COVID-19, as well as other factors that could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

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.

Significant Judgments in Application of the Guidance

Identification of Performance Obligations

The Company enters into contracts with customers that may include multiple types of goods and services. At contract inception, the Company assesses the solutions and services promised in its contracts with customers and identifies 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.

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 customer. The Company’s contracts with its customers 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 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 the Company’s applications or service offerings. Whether the Company recognizes revenue based on the gross amount billed to the customer or the net amount retained involves judgment in determining whether the Company controls the good or service before it is transferred to the customer. This assessment is made at the performance obligation level.

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.

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. On July 1, 2020, the Company adopted FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses, ("CECL") (see "Recent Accounting Pronouncements" below). As a result, the Company changed its accounting policy for allowance for credit losses. The accounting policy pursuant to CECL is disclosed below. The adoption of CECL resulted in an immaterial cumulative effect adjustment recorded in retained earnings as of July 1, 2020.

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, 2022, and 2021:

			Year Ended June 30,
			2022						2021
Allowance for credit losses - beginning balance			$	7,266					$	6,719
Cumulative effect of accounting standards update adoption			—						493
Current provision for expected credit losses			1,740						2,130
Write-offs charged against allowance			(1,389)						(2,070)
Recoveries of amounts previously written off			(1)						(3)
Other			—						(3)
Allowance for credit losses - ending balance			$	7,616					$	7,266

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 INVESTMENT

At June 30, 2022 and 2021, the Company had $18,250 and $13,250, respectively, invested in the preferred stock of Automated Bookkeeping, Inc. ("Autobooks"), which represents a non-controlling share of the voting equity of Autobooks. This investment was recorded at cost and is included within other non-current assets on the Company's balance sheet. The fair value of this investment has 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 a similar or identical investment. An impairment and/or an observable price change would be an adjustment to recorded cost. Fair value will not be estimated unless there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. Equity transactions are monitored quarterly to assess whether there are indicators of fair value.

COMPREHENSIVE INCOME

Comprehensive income for each of the fiscal years ending June 30, 2022, 2021, and 2020 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.

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, 2022, there were 31,043 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,948 additional shares of its common stock. The total cost of treasury shares at June 30, 2022 was $1,807,118. During fiscal 2022, the Company repurchased 1,250 shares of its common stock for $193,916 to be held in treasury. At June 30, 2021, there were 29,793 shares in treasury stock and the Company had authority to repurchase up to 5,198 additional shares 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 December of 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions and simplifies other requirements of Topic 740 guidance. The ASU was effective for the Company on July 1, 2021. The Company adopted ASU 2019-12 effective July 1, 2021 and the adoption did not have a material impact on its consolidated financial statements.

Not Adopted at Fiscal Year End

In October of 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company plans to adopt the ASU effective July 1, 2023, and will apply it prospectively to business combinations occurring on or after that date.

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 customer.

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. Customers 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 customer. 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 customer 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 customers and remitted to governmental authorities are not included in revenue. The Company includes reimbursements from customers 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.

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 customers outside the United States comprising less than 1% of total revenue.

			Year Ended June 30,
			2022						2021						2020
Private and Public Cloud			$	561,500					$	504,548					$	464,066
Product Delivery and Services			250,843						208,856						259,110
On-Premise Support			344,022						334,802						328,275
Services and Support			1,156,365						1,048,206						1,051,451
Processing			786,519						710,019						645,616
Total Revenue			$	1,942,884					$	1,758,225					$	1,697,067

Contract Balances

The following table provides information about contract assets and contract liabilities from contracts with customers.

			June 30, 2022						June 30, 2021
Receivables, net			$	348,072					$	306,564
Contract Assets- Current			24,447						22,884
Contract Assets- Non-current			68,261						52,920
Contract Liabilities (Deferred Revenue)- Current			330,687						319,748
Contract Liabilities (Deferred Revenue)- Non-current			71,485						75,852

Contract assets primarily result from revenue being recognized when or as control of a solution or service is transferred to the customer, 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 customers in advance of delivery of the related goods and services to the customer. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period.

The Company analyzes contract language to identify if a significant financing component does exist and 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, 2022, 2021, and 2020, the Company recognized revenue of $270,972, $256,952, and $259,887, 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, 2022, estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period totaled $5,659,080. The Company expects to recognize approximately 26% over the next 12 months, 20% in 13 - 24 months, and the balance thereafter.

Contract Costs

The Company incurs incremental costs to obtain a contract as well as costs to fulfill contracts with customers that are expected to be recovered. These costs consist primarily of sales commissions, which are incurred only if a contract is obtained, and customer conversion or implementation-related costs. Capitalized costs are amortized based on the transfer of goods or services to which the asset relates, in line with the percentage of revenue recognized for each performance obligation to which the costs are allocated.

Capitalized costs totaled $380,095 and $314,807, at June 30, 2022 and 2021, respectively.

During the fiscal years ended June 30, 2022, 2021, and 2020, amortization of deferred contract costs totaled $133,174, $122,143, and $117,763, 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.

Fair value of financial assets included in current assets is as follows:

						Estimated Fair Value Measurements																		Total Fair
						Level 1						Level 2						Level 3						Value
June 30, 2022
Financial Assets:
Certificates of Deposit						$	—					$	1,212					$	—					$	1,212
Financial Liabilities:
Revolving credit facility						$	—					$	115,000					$	—					$	115,000
June 30, 2021
Financial Assets:
Certificates of Deposit						$	—					$	1,200					$	—					$	1,200
Financial Liabilities:
Revolving credit facility						$	—					$	100,000					$	—					$	100,000

NOTE 4. LEASES

The Company adopted ASU 2016-02 and its related amendments (collectively known as “ASC 842”) on July 1, 2019 using the optional transition method in ASU 2018-11. Therefore, the reported results for fiscal years ended June 30, 2022, 2021, and 2020 reflect the application of ASC 842.

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 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 1 to 11 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, 2022, and 2021, the Company had operating lease assets of $46,869 and $55,977 and financing lease assets of $65 and $188, respectively. At June 30, 2022, total operating lease liabilities of $51,452 were comprised of current operating lease liabilities of $10,681 and noncurrent operating lease liabilities of $40,771, and all of the financing lease liabilities of $67 were current financing lease liabilities. At June 30, 2021, total operating lease liabilities of $60,828 were comprised of current operating lease liabilities of $11,460 and noncurrent operating lease liabilities of $49,368, and total financing lease liabilities of $193 were comprised of current financing lease liabilities of $110 and noncurrent financing lease liabilities of $83.

Operating lease assets are included within other non-current assets and operating lease liabilities are included 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 $31,006 and $23,813 as of June 30, 2022, and 2021, respectively. Financing lease assets are included within property and equipment, net and financing lease liabilities are included within notes payable (current portion) and long-term debt (noncurrent portion) in the Company’s consolidated balance sheet. Financing lease assets were recorded net of accumulated amortization of $255 and $153 as of June 30, 2022, and 2021, respectively.

Operating lease costs for the fiscal years ended June 30, 2022, 2021, and 2020 were $13,058, $14,676, and $16,029, respectively. Financing lease costs for the fiscal years ended June 30, 2022, 2021, and 2020 were $105, $121, and $41, respectively. Total operating and financing lease costs for the fiscal years ended June 30, 2022, 2021, and 2020 included variable lease costs of approximately $2,333, $3,831, and $4,017, respectively. Operating and financing lease expense are included within cost of services, research and development, and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s consolidated statement of income.

For the fiscal years ended June 30, 2022, 2021, and 2020, operating cash flows for payments on operating leases were $13,082, $13,672, and $14,348, respectively, and ROU assets obtained in exchange for operating lease liabilities were $2,407, $4,691, and $4,212, respectively. Financing cash flows for payments on financing leases for the fiscal years ended June 30, 2022, 2021, and 2020 were $109, $117, and $33, respectively.

As of June 30, 2022, 2021, and 2020, the weighted-average remaining lease terms for the Company's operating leases were 76 months, 81 months, and 88 months, respectively, and the weighted-average discount rates were 2.58%, 2.67%, and 2.76%, respectively. As of June 30, 2022, 2021, and 2020, the weighted-average remaining lease terms for the Company's financing leases were 9 months, 21 months, and 33 months, respectively, and the weighted-average discount rates were 2.29%, 2.39%, and 2.42%, respectively.

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, 2022*:

Due dates						Future Minimum Rental Payments
2023						$	11,917
2024						10,246
2025						7,490
2026						6,572
2027						5,777
Thereafter						13,899
Total lease payments						$	55,901
Less: interest						(4,449)
Present value of lease liabilities						$	51,452

*Financing leases were immaterial to the fiscal year, so a maturity of lease liabilities table has only been included for operating leases.

Future lease payments include $5,464 related to options to extend lease terms that are reasonably certain of being exercised. At June 30, 2022, there were $797 in legally binding lease payments for a lease signed but not yet commenced. The commencement date of the lease is July 1, 2022 and has a term of 84 months.

NOTE 5. PROPERTY AND EQUIPMENT

The classification of property and equipment, together with their estimated useful lives is as follows:

			June 30,
			2022						2021						Estimated Useful Life
Land			$	16,781					$	22,885
Land improvements			23,571						23,783						5 - 20 years
Buildings			129,313						149,041						20 - 30 years
Leasehold improvements			51,708						55,407						5 - 30 years			(1)
Equipment and furniture			400,856						391,507						3 - 10 years
Aircraft and equipment			41,492						41,047						4 - 10 years
Construction in progress			2,547						3,639
Finance lease right of use asset (2)			320						341
			666,588						687,650
Less accumulated depreciation			454,879						435,169
Property and equipment, net			$	211,709					$	252,481

(1) Lesser of lease term or estimated useful life

(2) See Note 4 for details

The change in property and equipment in accrued liabilities was a decrease of $4,097 and an increase of $8,699 for the fiscal years ended June 30, 2022, and 2021, respectively. The changes in property and equipment acquired through capital leases were decreases of $21 and $14 for the fiscal years ended June 30, 2022, and 2021, respectively, and an increase of $355 for the fiscal year ended June 30, 2020. These amounts were excluded from capital expenditures on the statements of cash flows.

No impairments of property and equipment were recorded in the fiscal years ended June 30, 2022, 2021, or 2020.

During the quarter ended March 31, 2022, the Company received an offer to purchase one of its facilities and management has committed to sell the facility. At June 30, 2022, this facility's assets were classified as assets held for sale by the Company in the amount of $20,201, and were not included in property and equipment, net. Total assets held for sale by the Company at June 30, 2021, were $0.

NOTE 6. OTHER ASSETS

Goodwill

The carrying amount of goodwill for the fiscal years ended June 30, 2022 and 2021, by reportable segments, is as follows:

			June 30,
Core			2022						2021
Beginning balance			$	195,578					$	199,956
Goodwill, acquired during the year			—						—
Goodwill, transferred during the year1			—						(4,017)
Goodwill, adjustments related to dispositions			—						(361)
Ending balance			$	195,578					$	195,578
Payments
Beginning balance			$	325,326					$	325,326
Goodwill, acquired during the year			—						—
Goodwill, adjustments related to dispositions			—						—
Ending balance			$	325,326					$	325,326
Complementary
Beginning balance			$	166,554					$	161,052
Goodwill, acquired during the year			—						1,485
Goodwill, transferred during the year1			—						4,017
Goodwill, adjustments related to dispositions			—						—
Ending balance			$	166,554					$	166,554

1Related to the transfer of our Call Center line of business from Core to Complementary, $4,017 of goodwill was transferred in fiscal 2021 between the two based upon the estimated fair value of that line of business.

Goodwill acquired during fiscal 2022 and 2021 was $0 and $1,485, 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.

Other Intangible Assets

Information regarding other identifiable intangible assets is as follows:

			June 30, 2022
			Gross Carrying Amount						Accumulated Amortization						Net
Customer relationships			$	316,401					$	(246,898)					$	69,503
Computer software			$	1,111,308					$	(700,351)					$	410,957
Other intangible assets:			$	108,688					$	(83,551)					$	25,137
			June 30, 2021
			Gross Carrying Amount						Accumulated Amortization						Net
Customer relationships			$	316,401					$	(234,559)					$	81,842
Computer software			$	978,099					$	(610,005)					$	368,094
Other intangible assets:			$	102,615					$	(76,486)					$	26,129

Customer relationships have useful lives ranging from 5 to 20 years.

Computer software includes cost of software to be sold, leased, or marketed of $173,402 and costs of internal-use software of $237,555 at June 30, 2022. At June 30, 2021, costs of software to be sold, leased, or marketed totaled $146,090, and costs of internal-use software totaled $222,004.

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 $105,036, $99,305, and $92,460 for the fiscal years ended June 30, 2022, 2021, and 2020, respectively. During fiscal 2020, computer software projects totaling $8,710, primarily related to Enterprise Risk Mitigation Solution and Payments Hub, were written off and are included in selling, general, and administrative on the Company's consolidated statement of income and as (gain)/loss on disposal of assets and businesses on the Company's consolidated statement of cash flows. There were no material impairments in fiscal years ended June 30, 2022 and 2021.

The Company's other intangible assets have useful lives ranging from 3 to 20 years.

Amortization expense for all intangible assets was $126,835, $123,233, and $119,599 for the fiscal years ended June 30, 2022, 2021, and 2020, respectively. The estimated aggregate future amortization expense for each of the next five years for all intangible assets remaining as of June 30, 2022, is as follows:

Years Ending June 30,			Computer Software						Customer Relationships						Other Intangible Assets						Total
2023			$	100,314					$	9,745					$	8,137					$	118,196
2024			83,312						8,363						5,519						97,194
2025			64,739						7,910						3,118						75,767
2026			42,986						7,544						1,458						51,988
2027			19,521						7,451						1,379						28,351

NOTE 7. DEBT

The Company had $67 outstanding short-term debt and $115,000 outstanding long-term debt at June 30, 2022, related to financing leases and the revolving credit facility. The Company had $110 outstanding short-term debt and $100,083 outstanding long-term debt at June 30, 2021.

Revolving credit facility

On February 10, 2020, the Company entered into a five-year senior, unsecured revolving credit facility. The credit facility allows for borrowings of up to $300,000, which may be increased by the Company at any time until maturity to $700,000. The credit facility bears interest at a variable rate equal to (a) a rate based on a eurocurrency rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% and (iv) the eurocurrency rate for a one-month interest period on such day for dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's

leverage ratio. The credit facility is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit facility agreement. As of June 30, 2022, the Company was in compliance with all such covenants. The revolving credit facility terminates February 10, 2025. There was $115,000 outstanding balance under this credit facility at June 30, 2022 and $100,000 outstanding balance under this credit facility at June 30, 2021.

Other lines of credit

The Company has an unsecured bank credit line which provides for funding of up to $5,000 and bears interest at the prime rate less 1%. The credit line was renewed in May 2019 and modified in March 2021 to extend the expiration to April 30, 2023. There was no balance outstanding at June 30, 2022 or 2021.

Interest

The Company paid interest of $1,788, $852, and $475 during the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

NOTE 8. INCOME TAXES

The provision for income taxes consists of the following:

			Year Ended June 30,
			2022						2021						2020
Current:
Federal			$	59,390					$	55,598					$	46,137
State			18,089						13,897						13,690
Deferred:
Federal			24,391						14,401						21,130
State			7,481						2,360						3,451
			$	109,351					$	86,256					$	84,408

The tax effects of temporary differences related to deferred taxes shown on the balance sheets were:

			June 30,
			2022						2021
Deferred tax assets:
Contract and service revenues			$	15,340					$	13,428
Expense reserves and accruals (bad debts, compensation, and payroll tax)			15,382						17,566
Leasing liabilities			12,868						15,182
Net operating loss and tax credit carryforwards			2,107						3,242
Other, net			3,311						2,634
Total gross deferred tax assets			49,008						52,052
Valuation allowance			(200)						(270)
Net deferred tax assets			48,808						51,782
Deferred tax liabilities:
Accelerated tax depreciation			(33,390)						(37,066)
Accelerated tax amortization			(192,187)						(175,804)
Contract and service costs			(104,139)						(85,696)
Leasing right-of-use assets			(11,722)						(13,974)
Total gross deferred liabilities			(341,438)						(312,540)
Net deferred tax liability			$	(292,630)					$	(260,758)

The following analysis reconciles the statutory federal income tax rate to the effective income tax rates reflected above:

			Year Ended June 30,
			2022						2021						2020
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			4.3		%				3.2		%				3.6		%
Research and development credit			(2.0)		%				(2.4)		%				(2.4)		%
Other (net)			(0.1)		%				(0.1)		%				(0.1)		%
			23.2		%				21.7		%				22.1		%

As of June 30, 2022, the Company has $918 of gross federal net operating loss (“NOL”) pertaining to the acquisition of Goldleaf Financial Solutions, Inc. which is expected to be utilized after the application of IRC Section 382. Separately, as of June 30, 2022, the Company has state NOL and tax credit carryforwards with a tax-effected value of $215 and $1,700, respectively. The federal and state loss and credit carryover have varying expiration dates, ranging from fiscal 2023 to 2042. Based on state tax rules which restrict utilization of these losses and tax credits, the Company believes it is more likely than not that $200 of these losses and tax credits will expire unutilized. Accordingly, valuation allowances of $200 and $270 have been recorded against the state net operating losses and tax credit carryforwards as of June 30, 2022 and 2021, respectively.

The Company paid income taxes, net of refunds, of $60,553, $80,220, and $63,692 in fiscal 2022, 2021, and 2020, respectively.

At June 30, 2022, the Company had $8,990 of gross unrecognized tax benefits, $8,066 of which, if recognized, would affect its effective tax rate. At June 30, 2021, the Company had $8,762 of unrecognized tax benefits, $8,119 of which, if recognized, would affect its effective tax rate. The Company had accrued interest and penalties of $1,234 and $1,180 related to uncertain tax positions at June 30, 2022 and 2021, respectively. The income tax provision included interest expense and penalties (or benefits) on unrecognized tax benefits of $73, $(310), and $38 in the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

A reconciliation of the unrecognized tax benefits for the fiscal years ended June 30, 2022, 2021, and 2020 follows:

			Unrecognized Tax Benefits
Balance at July 1, 2019			$	10,495
Additions for current year tax positions			1,451
Additions for prior year tax positions			867
Additions related to business combinations			192
Reductions related to expirations of statute of limitations			(2,893)
Balance at June 30, 2020			10,112
Additions for current year tax positions			1,598
Additions for prior year tax positions			490
Reductions for prior year tax positions			(30)
Reductions related to expirations of statute of limitations			(3,408)
Balance at June 30, 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

The U.S. federal income tax returns for fiscal 2019 and all subsequent years remain subject to examination as of June 30, 2022 under statute of limitations rules. The U.S. state income tax returns that remain subject to examination as of June 30,2022 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 $1,500 - $4,000 within twelve months of June 30, 2022.

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. All billings to customers are due 30 days from date of billing. Reserves are maintained for potential credit losses. Customer-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, 2022, 2021, and 2020 includes $24,780, $20,746, and $16,883, respectively, of equity-based compensation costs, of which $22,703, $18,817, and $15,148, 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, 2022, 2021, and 2020 were $4,252, $3,258, and $3,072, respectively. These income tax benefits included income tax net excess benefits from stock option exercises and restricted stock vestings of $652, $719, and $340 for the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

Stock Option Awards

On November 10, 2015, the Company adopted the 2015 Equity Incentive Plan ("2015 EIP") for its employees and non-employee directors. The plan allows for grants of stock options, stock appreciation rights, restricted stock shares or units, and performance shares or units. The maximum number of shares authorized for issuance under the plan is 3,000. For stock options, terms and vesting periods of the options were determined by the Compensation Committee of the Board of Directors when granted. The option period must expire not more than ten years from the options grant date. The options granted under this plan are 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.

A summary of option plan activity under the plan is as follows:

			Number of Shares						Weighted Average Exercise Price						Aggregate Intrinsic Value
Outstanding July 1, 2019			32						$	87.27
Granted			—						—
Forfeited			—						—
Exercised			(10)						87.27
Outstanding July 1, 2020			22						87.27
Granted			—						—
Forfeited			—						—
Exercised			—						—
Outstanding July 1, 2021			22						87.27
Granted			—						—
Forfeited			—						—
Exercised			(10)						87.27
Outstanding June 30, 2022			12						$	87.27					$	1,084
Vested and Expected to Vest June 30, 2022			12						$	87.27					$	1,084
Exercisable June 30, 2022			12						$	87.27					$	1,084

There were no options granted in the fiscal years ended June 30, 2022, 2021, and 2020.

The Company utilized a Black-Scholes option pricing model to estimate fair value of the stock option grants at the grant date. All remaining options were granted on July 1, 2016. Assumptions such as expected life, volatility, risk-

free interest rate, and dividend yield impact the fair value estimate. These assumptions are subjective and generally require significant analysis and judgment to develop. The risk-free interest rate used in the Company's estimate was determined from external data, while volatility, expected life, and dividend yield assumptions were derived from its historical experience with share-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.

At June 30, 2022, there was no compensation cost yet to be recognized related to outstanding options.

The total intrinsic value of options exercised was $1,005, $0, and $809 for the fiscal years ended June 30, 2022, 2021, and 2020, respectively. There were 10 options exercised for the fiscal year ended June 30, 2022.

Restricted Stock Awards

The Restricted Stock Plan was adopted by the Company on November 1, 2005, for its employees. The plan expired on November 1, 2015. Up to 3,000 shares of common stock were available for issuance under the plan. The 2015 EIP was adopted by the Company on November 10, 2015, for its employees. Up to 3,000 shares of common stock are available for issuance under the 2015 EIP. Upon issuance, shares of restricted stock were subject to forfeiture and to restrictions which limited the sale or transfer of the shares during the restriction period. The restrictions were lifted over periods ranging from 3 years to 5 years from grant date.

The following table summarizes non-vested share awards activity:

Share awards			Shares						Weighted Average Grant Date Fair Value
Outstanding July 1, 2019			6						$	87.27
Granted			—						—
Vested			(6)						87.27
Forfeited			—						—
Outstanding July 1, 2020			—						—
Granted			—						—
Vested			—						—
Forfeited			—						—
Outstanding July 1, 2021			—						—
Granted			—						—
Vested			—						—
Forfeited			—						—
Outstanding June 30, 2022			—						—

No shares of restricted stock were granted during the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

The non-vested share awards granted prior to July 1, 2016, did not participate in dividends during the restriction period. As a result, the weighted-average fair value of the non-vested share awards was based on the fair market value of the Company’s equity shares on the grant date, less the present value of the expected future dividends to be declared during the restriction period, consistent with the methodology for calculating compensation expense on such awards. The non-vested share awards granted after July 1, 2016, did participate in dividends during the restriction period and the weighted-average fair value of such participating awards was based on the fair market value on the grant date.

Restricted Stock Unit Awards

An amendment to the Restricted Stock Plan was adopted by the Company on August 20, 2010, whereby restricted stock unit ("unit/s") awards were made to employee participants rather than restricted stock. The awarding of units continued with the 2015 Equity Incentive Plan. It is the intention of the Company to settle the unit awards in shares of the Company’s stock. Unit awards that have service requirements only and are not tied to performance measures generally vest over a period of 1 to 3 years.

The following table summarizes non-vested unit awards with service requirements only and those tied to service requirements and performance measures as of June 30, 2022, 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, 2019			298						$	107.00
Granted1			139						157.94
Vested			(69)						98.25
Forfeited2			(61)						85.33
Outstanding July 1, 2020			307						136.41
Granted1			113						170.69
Vested			(124)						111.08
Forfeited2			(2)						140.46
Outstanding July 1, 2021			294						160.22
Granted1			135						178.60
Vested			(71)						145.50
Forfeited2			(55)						189.33
Outstanding June 30, 2022			303						$166.50						$54,548

1Granted includes restricted stock unit awards and performance unit awards at 100% achievement.

2Forfeited 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.

The 135 unit awards granted in fiscal 2022 had service requirements and performance measures, with 87 only having service requirements. The unit awards with only service requirements were valued at the weighted average fair value of the non-vested units based on the fair market value of the Company’s equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period, consistent with the methodology for calculating compensation expense on such awards.

The remaining 48 unit awards granted in fiscal 2022 have performance targets along with service requirements. 19 of these performance and service requirement unit awards were valued at grant by estimating 100% payout at release and using the fair market value of the Company equity shares on the grant date, less the present value of expected future dividends to be declared during the vesting period. The payout at release of approximately half of these unit awards will be determined based on the Company's compound annual growth rate ("CAGR") for revenue (excluding adjustments) for the three-year vesting period compared against goal thresholds as defined in the award agreement. The performance payout at release of the other half of these unit awards will be determined based on the expansion of the Company's non-GAAP operating margin over the three-year vesting period compared against goal thresholds as defined in the award agreement. The other 29 performance and service requirement unit awards were valued at grant using a Monte Carlo pricing model as of the measurement date customized to the specific provisions of the Company’s plan design. Per the Company's award vesting and settlement provisions, the awards that utilized a Monte Carlo pricing model were valued at grant on the basis of Total Shareholder Return ("TSR") in comparison to the custom peer group ("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 Compensation Committee of the Company's Board of Directors for fiscal year 2022. For fiscal years 2021 and 2020, TSR was in comparison to two separate groups—a custom peer group, the Compensation Peer Group in the table below, and the Standard & Poor's 1500 Information Technology Index ("S&P 1500 IT Index") participants—as approved by the Compensation Committee for each of those fiscal years. 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 weighted average assumptions used in the Monte Carlo pricing model to estimate fair value at the grant dates for awards with performance targets and service requirements are as follows:

			Year Ended June 30,
Monte Carlo award inputs:			2022						2021						2020
Compensation Peer Group:1
Volatility			28.6		%				25.2		%				16.8		%
Risk free interest rate			0.32		%				0.11		%				1.34		%
Annual dividend based on most recent quarterly dividend			$	1.84					$	1.72					$	1.60
Dividend yield			1.1		%				1.0		%				1.1		%
Beginning average percentile rank for TSR			65		%				37		%				63		%
S&P 1500 IT Index:
Volatility									25.2		%				16.8		%
Risk free interest rate									0.11		%				1.34		%
Annual dividend based on most recent quarterly dividend									$	1.72					$	1.60
Dividend yield									1.0		%				1.1		%
Beginning average percentile rank for TSR									30		%				61		%

1For fiscal 2022, S&P 1500 S&S Index participants were included in the Compensation Peer Group.

At June 30, 2022, there was $19,076 of compensation expense, excluding forfeitures, that has yet to be recognized related to non-vested restricted stock unit awards, which will be recognized over a weighted-average remaining contractual term of 1.12 years.

The fair value of restricted units at vest date totaled $12,139, $21,652, and $11,248 for the fiscal years ended June 30, 2022, 2021, and 2020, respectively.

NOTE 11. EARNINGS PER SHARE

The following table reflects the reconciliation between basic and diluted earnings per share.

			Year Ended June 30,
			2022						2021						2020
Net Income			$	362,916					$	311,469					$	296,668
Common share information:
Weighted average shares outstanding for basic earnings per share			73,324						75,546						76,787
Dilutive effect of stock options, restricted stock units, and restricted stock			162						112						147
Weighted average shares outstanding for diluted earnings per share			73,486						75,658						76,934
Basic earnings per share			$	4.95					$	4.12					$	3.86
Diluted earnings per share			$	4.94					$	4.12					$	3.86

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 restricted stock 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 7 anti-dilutive weighted average shares excluded from the weighted average shares outstanding for diluted earnings per share for fiscal 2022, 11 shares were excluded for fiscal 2021, and 2 shares were excluded for fiscal 2020.

NOTE 12. EMPLOYEE BENEFIT PLANS

The Company established an employee stock purchase plan in 2006. The plan allows the majority of employees 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, 2022, 2021 and 2020, employees

purchased 80, 80, and 74 shares under this plan at average prices of $147.36, $136.87, and $132.51, respectively. As of June 30, 2022, approximately 1,070 shares remained available for future issuance under the plan. The plan does not meet the criteria as a non-compensatory plan. As a result, the Company records the total dollar value of the stock discount given to employees under the plan as expense.

The Company has a defined contribution plan for its employees: 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 employee contributions up to 5% of eligible compensation. In order to receive matching contributions, employees 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 $28,259, $26,783, and $25,155 for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

NOTE 13. BUSINESS ACQUISITIONS

Geezeo

On July 1, 2019, the Company acquired all of the equity interest of Geezeo for $37,776 paid in cash. The primary reason for the acquisition was to expand the Company's digital financial management solutions and the purchase was funded by cash generated from operations. Geezeo is a Boston-based provider of retail and business digital financial management solutions.

Costs incurred related to the acquisition of Geezeo in fiscal 2020 totaled $30 for professional services, travel, and other fees, and were expensed as incurred and reported within cost of revenue and selling, general, and administrative expense.

The Company's consolidated statement of income for the fiscal years ended June 30, 2022, 2021, and 2020 included revenue of $12,733, $13,233, and $8,969, respectively, and after-tax net income of $4,679, $4,805, and $654, respectively, resulting from Geezeo's operations.

The accompanying consolidated statement of income for the fiscal year ended June 30, 2020 does not include any revenues and expenses related to this acquisition prior to the acquisition date. The impact of this acquisition was considered immaterial to the current and prior periods of our consolidated financial statements and pro forma financial information has not been provided.

NOTE 14. REPORTABLE SEGMENT INFORMATION

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

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, and risk management products and services. The Complementary segment provides additional software and services that can be integrated with the Company's core solutions or used independently. The Corporate and Other segment includes revenue and costs from hardware and other products not attributable to the other three segments, as well as operating costs not directly attributable to the other three segments.

The Company evaluates the performance of its segments and allocates resources to them based on various factors, including performance against trend, budget, and forecast. Only revenue and costs of revenue are considered in the evaluation for each segment.

Immaterial adjustments were made in fiscal 2022 to reclassify cost of revenue in fiscal 2021 from the Core segment to the Corporate and Other segment to be consistent with the current fiscal year allocation of cost of revenue by segment. The amounts reclassified for the fiscal year ended June 30, 2021, were $135.

During the second quarter of fiscal 2021, the Company's call center was consolidated into the Complementary segment. As a result of this consolidation, immaterial adjustments were made during fiscal 2021 to reclassify related revenue and costs recognized during the fiscal year ended June 30, 2020, from the Core to the Complementary segment. The total related revenue reclassified was $20,797 for fiscal 2020. The total related cost of revenue reclassified was $12,386 for fiscal 2020.

			Year Ended
			June 30, 2022
			Core						Payments						Complementary						Corporate and Other						Total
REVENUE
Services and Support			$	583,752					$	78,402					$	444,485					$	49,726					$	1,156,365
Processing			38,690						628,617						116,726						2,486						786,519
Total Revenue			622,442						707,019						561,211						52,212						1,942,884
Cost of Revenue			261,585						380,954						232,088						253,987						1,128,614
Research and Development																											121,355
Selling, General, and Administrative																											218,296
Total Expenses																											1,468,265
SEGMENT INCOME			$	360,857					$	326,065					$	329,123					$	(201,775)
OPERATING INCOME																											474,619
INTEREST INCOME (EXPENSE)																											(2,352)
INCOME BEFORE INCOME TAXES																											$	472,267

			Year Ended
			June 30, 2021
			Core						Payments						Complementary						Corporate and Other						Total
REVENUE
Services and Support			$	529,193					$	63,445					$	410,930					$	44,638					$	1,048,206
Processing			34,903						578,863						94,998						1,255						710,019
Total Revenue			564,096						642,308						505,928						45,893						1,758,225
Cost of Revenue			247,150						353,581						212,627						250,041						1,063,399
Research and Development																											109,047
Selling, General, and Administrative																											187,060
Total Expenses																											1,359,506
SEGMENT INCOME			$	316,946					$	288,727					$	293,301					$	(204,148)
OPERATING INCOME																											398,719
INTEREST INCOME (EXPENSE)																											(994)
INCOME BEFORE INCOME TAXES																											$	397,725

			Year Ended
			June 30, 2020
			Core						Payments						Complementary						Corporate and Other						Total
REVENUE
Services and Support			$	529,997					$	66,920					$	401,639					$	52,895					$	1,051,451
Processing			31,372						530,773						82,507						964						645,616
Total Revenue			561,369						597,693						484,146						53,859						1,697,067
Cost of Revenue			240,492						319,739						203,963						244,270						1,008,464
Research and Development																											109,988
Selling, General, and Administrative																											197,988
Total Expenses																											1,316,440
SEGMENT INCOME			$	320,877					$	277,954					$	280,183					$	(190,411)
OPERATING INCOME																											380,627
INTEREST INCOME (EXPENSE)																											449
INCOME BEFORE INCOME TAXES																											$	381,076

The Company has not disclosed any additional asset information by segment, as the information is not produced internally and its preparation is impracticable.

NOTE 15. SUBSEQUENT EVENTS

Sale of Facility

On August 12, 2022, the Company closed on the sale of its San Diego, CA, facility that was committed to during the quarter ended March 31, 2022. The sales price of the facility was $27,500, and proceeds after selling costs were received on the date of closing. The facility sale included assets with a carrying value of approximately $20,201 that were reported as assets held for sale by the Company at June 30, 2022 (see Note 5). The Company expects to recognize a gain on the sale of approximately $6,000 during the first quarter of fiscal 2023.

Dividend

On August 22, 2022, the Company's Board of Directors declared a cash dividend of $0.49 per share on its common stock, payable on September 29, 2022 to stockholders of record on September 9, 2022.

Acquisition

We have entered into a definitive agreement to acquire Payrailz, LLC. We anticipate the transaction closing on August 31, 2022. In connection with the closing, we expect to amend the revolving credit facility to increase the borrowing limit to allow funding of the transaction.