Jack Henry & Associates 10-Q 2021-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021

OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ______________ to ________________

Commission file number 0-14112

JACK HENRY & ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)

Delaware						43-1128385
(State or Other Jurisdiction of Incorporation)						(I.R.S Employer Identification No.)

663 Highway 60, P.O. Box 807, Monett, MO 65708

(Address of Principle Executive Offices)

(Zip Code)

417-235-6652

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol			Name of each exchange on which registered
Common Stock ($0.01 par value)			JKHY			Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” ”accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

As of January 28, 2022, the Registrant had 72,825,033 shares of Common Stock outstanding ($0.01 par value).

TABLE OF CONTENTS

						Page Reference
PART I			FINANCIAL INFORMATION
ITEM 1.			Condensed Consolidated Balance Sheets as of December 31, 2021, and June 30, 2021 (Unaudited)			4
			Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2021, and 2020 (Unaudited)			5
			Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended December 31, 2021, and 2020 (Unaudited)			6
			Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2021, and 2020 (Unaudited)			7
			Notes to Condensed Consolidated Financial Statements (Unaudited)			8
ITEM 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			21
ITEM 3.			Quantitative and Qualitative Disclosures about Market Risk			29
ITEM 4.			Controls and Procedures			29
PART II			OTHER INFORMATION			29
ITEM 1.			Legal Proceedings			29
ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds			30
ITEM 6.			Exhibits			31
			Signatures			32

In this report, all references to "Jack Henry," “JKHY,” the “Company,” “we,” “us,” and “our,” refer to Jack Henry & Associates, Inc., and its wholly owned subsidiaries.

FORWARD LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements may appear throughout this report, including without limitation, in Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “seek,” “anticipate,” “estimate,” “future,” “intend,” “plan,” “strategy,” “predict,” “likely,” “should,” “will,” “would,” “could,” “can,” “may,” and similar expressions. Forward-looking statements are based only on management’s current beliefs, expectations and assumptions regarding the future of the Company, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, in particular, those included in Item 1A, “Risk Factors” of such report, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Any forward-looking statement made in this report speaks only as of the date of this report, and the Company expressly dis

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This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included in this Form 10-Q for the fiscal quarter ended December 31, 2021.

OVERVIEW

Jack Henry & Associates, Inc. ("JKHY") is a leading provider of technology solutions and payment processing services primarily for financial services organizations. Its solutions are marketed and supported through three primary brands. Jack Henry Banking® provides innovative solutions to community and regional banks. Symitar® provides industry-leading solutions to credit unions of all sizes. ProfitStars® offers highly specialized solutions to financial institutions of every asset size, as well as diverse corporate entities outside of the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. JKHY's integrated solutions are generally available for on-premise installation and delivery in our JKHY private or the public cloud.

Our two primary revenue streams are "services and support" and "processing." Services and support includes: "private and public cloud" fees (formerly known as "outsourcing and cloud" fees - see Note 3 to the condensed consolidated financial statements) that predominantly have contract terms of seven years or longer at inception; "product delivery and services" revenue, which includes revenue from the sales of licenses, implementation services, deconversion fees, consulting, and hardware; and "on-premise support" revenue (formerly known as "in-house support" revenue - see Note 3 to the condensed consolidated financial statements), composed of maintenance fees which primarily contain annual contract terms. Processing revenue includes: "remittance" revenue from payment processing, remote capture, and ACH transactions; "card" fees, including card transaction processing and monthly fees; and "transaction and digital" revenue, which includes transaction and mobile processing fees. We continually seek opportunities to increase revenue while at the same time containing costs to expand margins.

All amounts in the following discussion are in thousands, except per share amounts.

COVID-19 Impact and Response

Since its outbreak in early calendar 2020, COVID-19 has rapidly spread and continues to represent a public health concern. The health, safety, and well-being of our employees and customers is of paramount importance to us. In March 2020, we established an internal task force composed of executive officers and other members of management to frequently assess updates to the COVID-19 situation and recommend Company actions. We offered remote working as a recommended option to employees whose job duties allowed them to work off-site, and we suspended all non-essential business travel. This company-wide recommendation initially extended until July 1, 2021, at which point we began transition to a return to our facilities and normalization of travel activities. However, we reimplemented our company-wide recommendation for remote work on August 3, 2021, based on new virus variants and increased infection rates. This remote work recommendation remains in effect as of February 4, 2022. For those employees who are at our facilities, we have introduced enhanced sanitation procedures and require face masks for both vaccinated and unvaccinated employees. We have not required employees who return to our facilities to receive vaccinations, but we have provided information on vaccine providers, as well as hosted on-site COVID-19 vaccination clinics at several of our facilities for our employees and their families. As of February 4, 2022, the majority of our employees were continuing to work remotely either full time or in a hybrid capacity. Once the remote work recommendation is lifted, individual decisions on returning to the office will be manager-coordinated and based on conversations with specific teams and departments. A large number of our employees have requested to remain fully remote or participate in a hybrid approach where they would split their time between remote and in-person working. While our business travel has increased in recent months, we continue to encourage a cautious approach to business travel activities.

Customers

We work closely with our customers who are scheduled for on-site visits to ensure their needs are met while taking necessary safety precautions when our employees are required to be at a customer site. Delays of customer system installations due to COVID-19 have been limited, and we have developed processes to handle remote installations when available. We expect these processes to provide flexibility and value both during and after the COVID-19 pandemic. Even though a substantial portion of our workforce has worked remotely during the outbreak and business travel has been limited, we have not yet experienced significant disruption to our operations. We

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

Financial impact

Despite the changes and restrictions caused by COVID-19, the overall financial and operational impact on our business has been limited and our liquidity, balance sheet, and business trends remain strong. We experienced positive operating cash flows during fiscal 2021 and the first six months of fiscal 2022, and we do not expect that to change in the near term. However, we are unable to accurately predict the future impact of COVID-19 due to a number of uncertainties, including further government actions; the duration, severity and recurrence of the outbreak, including the onset of variants of the virus; the effectiveness of vaccines against new variants; the development and effectiveness of treatments; the effect on the economy generally; the potential impact to our customers, vendors, and employees; and how the potential impact might affect future customer services, processing and installation-related revenue, and processes and efficiencies within the Company directly or indirectly impacting financial results. We will continue to monitor COVID-19 and its possible impact on the Company and to take steps necessary to protect the health and safety of our employees and customers.

RESULTS OF OPERATIONS

For the second quarter of fiscal 2022, total revenue increased 17%, or $71,535, compared to the same quarter in fiscal 2021. Total revenue less deconversion fee and acquisition and divestiture revenues of $26,903 and $96, respectively, for the current fiscal quarter and less deconversion fee revenues of $2,155 for the prior fiscal quarter, results in an increase of 11%, quarter over quarter. This increase was primarily driven by growth in public and private cloud revenue, card, transaction and digital, and remittance processing revenues, and increased implementation fee revenue.

Operating expenses increased 12% for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021, primarily due to increased direct costs, higher personnel costs, and increased operating licenses and fees. The increase in direct costs was primarily related to our card payment processing platform and Jack Henry digital and were in alignment with the increases in revenue described above. Higher personnel costs were primarily related to salary increases in the trailing twelve months.

Operating income increased 34% for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021. Operating income less deconversion fee operating income of $24,356 and adjusted for acquisition and divestiture operating loss of $21 for the current fiscal quarter, and less deconversion fee operating income of $1,919 and a gain on disposals of $2,040 for the prior fiscal quarter, results in a 13% increase for the second quarter of fiscal 2022, quarter over quarter. This increase in operating income was primarily driven by revenue growth partially offset by increased operating expenses, as detailed above.

The provision for income taxes increased 37% for the second quarter of fiscal 2022 compared to the prior fiscal second quarter. The effective tax rate for the second quarter of fiscal 2022 was 23.6% compared to 23.1% for the same quarter a year ago. The increase in the effective tax rate was primarily due to the relative impact of the increase in operating income, quarter over quarter.

Due to the above changes, net income increased 33% for the second quarter of fiscal 2022 compared to the second quarter of fiscal 2021.

For the six months ended December 31, 2021, total revenue increased 12%, or $107,791, over the six months ended December 31, 2020. Total revenue less deconversion fee and acquisition and divestiture revenues of $30,627 and $202, respectively, for the current fiscal year period and deconversion fee and acquisition and divestiture revenues of $8,037 and $1,182, respectively, for the prior fiscal year period, results in a 10% increase for the period compared to the same period a year ago. This total revenue increase was primarily driven by growth in public and private cloud revenue, card, remittance, and transaction and digital processing revenues, and increased implementation fee revenue.

Operating expenses for the six months ended December 31, 2021, increased 9% compared to the equivalent period in the prior fiscal year, primarily due to increased direct costs, higher personnel costs, and increased operating licenses and fees. The increased direct costs were primarily related to our card payment processing platform and Jack Henry digital and were in alignment with the increases in revenue described above. Higher personnel costs were primarily related to salary increases in the trailing twelve months.

Operating income increased 23% for the six months ended December 31, 2021, compared to the six months ended December 31, 2020. Operating income less deconversion fee operating income of $27,540 and adjusted for acquisition and divestiture operating loss of $66 for the current fiscal year period, and less deconversion fee operating income of $7,138 and income from divestitures and a gain on disposals totaling $2,409 for the prior fiscal

year period, results in a 15% increase for the six months ended December 31, 2021, compared to the same period a year ago. This increase was primarily driven by revenue growth described above partially offset by increased operating expenses, as detailed above.

The provision for income taxes increased 27% for the six months ended December 31, 2021, compared to the prior fiscal year-to-date period. The effective tax rate for the six months ended December 31, 2021, was 23.5% compared to 22.7% for the prior fiscal year-to-date period. The effective tax rate increase was primarily driven by the relative impact of the increase in operating income in the current fiscal year-to-date period and a larger excess tax benefit received from share-based compensation in the prior fiscal year-to-date period.

The result of the above changes led to net income that increased 21% for the six months ended December 31, 2021, compared to the same period in the prior fiscal year.

We move into the third quarter of fiscal 2022 with optimism following strong performance in the second quarter, but with some uncertainty as to the future impact of the COVID-19 pandemic (see "COVID-19 Impact and Response" section above). Significant portions of our business continue to come from recurring revenues and our sales pipeline also remains encouraging. Our customers continue to face regulatory and operational challenges which our products and services address, and in these uncertain times, we believe they have an even greater need for our solutions that directly address institutional profitability, efficiency, and security. Our strong balance sheet, access to extensive lines of credit, the continued strength of our existing lines of revenue, and an unwavering commitment to superior customer service should position us well to address current and future opportunities.

A detailed discussion of the major components of the results of operations for the three and six months ended December 31, 2021, follows. Discussions compare the current fiscal year's three and six months ended December 31, 2021, to the prior fiscal year's three and six months ended December 31, 2020.

REVENUE

Services and Support			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Services and Support			$	296,211					$	250,873					18		%				$	593,704					$	531,870					12		%
Percentage of total revenue			60		%				59		%										60		%				61		%

Services and support revenue increased 18% for the second quarter of fiscal 2022 compared to the same quarter a year ago. Total services and support revenue less deconversion fee revenue for the current and prior fiscal quarter of $26,903 and $2,155, respectively, results in growth of 8%, quarter over quarter. This increase was primarily driven by growth in data processing and hosting fee revenues as new customers were added and volumes continued to expand, as well as higher implementation and conversion/merger revenues when compared to the prior fiscal quarter.

For the six months ended December 31, 2021, services and support revenue increased 12% compared to the same period a year ago. Total services and support revenue less deconversion fee revenue for the current and prior fiscal periods of $30,627 and $8,037, respectively, and for revenue from acquisitions and divestitures of $1,181 from the prior fiscal year period, results in growth of 8% period over period. This increase was primarily driven by growth in data processing and hosting fee revenues, as new customers were added and volumes continued to expand, as well as higher implementation fee and software usage fee revenues when compared to the prior fiscal period.

Processing			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Processing			$	197,685					$	171,488					15		%				$	388,248					$	342,291					13		%
Percentage of total revenue			40		%				41		%										40		%				39		%

Processing revenue increased 15% for the second quarter of fiscal 2022 compared to the same quarter a year ago. The increase was driven by growth in card, Jack Henry digital, and remittance processing revenues, as customers were added and volumes expanded during the fiscal quarter compared to the prior fiscal quarter.

Each processing revenue component also experienced customer additions and volume growth in the fiscal year-to-date period, leading to an increase in processing revenue of 13% for the six months ended December 31, 2021, compared to the six months ended December 31, 2020.

OPERATING EXPENSES

Cost of Revenue			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Cost of Revenue			$	282,825					$	257,782					10		%				$	559,460					$	520,711					7		%
Percentage of total revenue			57		%				61		%										57		%				60		%

Cost of revenue for the second quarter of fiscal 2022 increased 10% over the prior fiscal year second quarter. Total cost of revenue less the effects of deconversion fees, which were $1,601 for the current fiscal quarter and $213 for the prior fiscal quarter, and the effects of acquisitions and divestitures of $67 for the current fiscal quarter, results in a 9% increase quarter over quarter. This increase was primarily due to higher direct costs associated with our card processing platform, higher personnel costs, and increased operating licenses and fees. Cost of revenue decreased 4% compared to the prior fiscal quarter as a percentage of total revenue.

For the current fiscal year-to-date period, cost of revenue increased 7% over the prior fiscal year-to-date period. This increase in costs was primarily due to higher costs associated with our card processing platform and operating licenses and fees. Cost of revenue decreased 3% compared to the prior fiscal year-to-date period as a percentage of total revenue.

Research and Development			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Research and Development			$	29,916					$	26,780					12		%				$	56,670					$	52,837					7		%
Percentage of total revenue			6		%				6		%										6		%				6		%

Research and development expense increased 12% for the second quarter of fiscal 2022 over the prior fiscal second quarter. The increase was primarily due to higher personnel costs, net of capitalization, quarter over quarter. Research and development expense remained consistent compared to the prior fiscal second quarter as a percentage of total revenue.

For the current fiscal year-to-date period, research and development expense increased 7% over the prior fiscal year-to-date period. The increase was primarily due to higher personnel costs, net of capitalization, period over period. Research and development expense remained consistent compared to the prior fiscal year-to-date period as a percentage of total revenue.

The growth of this expense category in both the second quarter and year-to-date fiscal periods reflects our continuing commitment to the development of strategic products.

Selling, General, and Administrative			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Selling, General, and Administrative			$	55,493					$	44,167					26		%				$	106,565					$	89,393					19		%
Percentage of total revenue			11		%				10		%										11		%				10		%

Selling, general, and administrative expense increased 26% in the second quarter of fiscal 2022 over the same quarter a year ago. Total selling, general, and administrative expenses less deconversion-related expenses, which were $946 for the current fiscal quarter and $24 for the prior fiscal quarter, and the effects of acquisitions and divestitures of $10 in the current fiscal quarter and an adjustment for gain on disposals in the prior fiscal quarter of $2,040, results in an 18% increase quarter over quarter. This increase was primarily due to higher personnel costs related to a 2% growth in headcount and salary increases in the trailing twelve months. Selling, general, and administrative expense increased 1% as a percentage of total revenue in fiscal second quarter versus the prior fiscal second quarter.

For the fiscal year-to-date period, selling, general, and administrative expense increased 19% over the prior fiscal year-to-date period. Total selling, general, and administrative expenses less deconversion-related expenses from each period, which were $1,149 for the current fiscal period and $250 for the prior fiscal period, and less the effects of acquisitions and divestitures, which were $20 for the current fiscal period and $28 for the prior fiscal period, and adjusted for a gain on disposals of $2,040 in the prior fiscal period, results in a 16% increase period over period. This increase was primarily due to higher personnel costs related to a 2% growth in headcount and salary increases

in the trailing twelve months. Selling, general, and administrative expense increased 1% as a percentage of total revenue for the current fiscal period versus the year-ago fiscal period.

INTEREST INCOME (EXPENSE)			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Interest Income			$	6					$	52					(88)		%				$	13					$	120					(89)		%
Interest Expense			$	(447)					$	(117)					282		%				$	(696)					$	(235)					196		%

Interest income fluctuated due to changes in invested balances and yields on invested balances during the second quarter of fiscal 2022 compared to the second quarter a year ago. Interest expense increased when compared to the prior fiscal quarter due to interest rate fluctuations, length of borrowing time, and amounts borrowed. There was a $240,000 outstanding balance under the credit facility at December 31, 2021, and no outstanding balance at December 31, 2020. The credit facility balance increase was primarily due to the increase in the Company's repurchases of common stock for the treasury during the trailing twelve months.

PROVISION FOR INCOME TAXES			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Provision for Income Taxes			$	29,551					$	21,585					37		%				$	60,791					$	47,907					27		%
Effective Rate			23.6		%				23.1		%										23.5		%				22.7		%

The increase in the effective tax rate for the second quarter of fiscal 2022 compared to the same quarter a year ago was primarily due to the relative impact of the increase in operating income, quarter over quarter.

The increase in effective tax rate for the current fiscal year-to-date period compared to the prior fiscal year-to-date period was primarily due to the relative impact of the increase in operating income in the current fiscal period and a larger excess tax benefit received from share-based compensation in the prior fiscal period.

NET INCOME			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Net income			$	95,670					$	71,982					33		%				$	197,783					$	163,198					21		%
Diluted earnings per share			$	1.30					$	0.94											$	2.68					$	2.13

Net income increased 33% to $95,670, or $1.30 per diluted share, for the second quarter of fiscal 2022 compared to $71,982, or $0.94 per diluted share in the prior fiscal second quarter, resulting in a 38% increase in diluted earnings per share.

Net income increased 21% to $197,783, or $2.68 per diluted share, for the current fiscal year-to-date period, compared to $163,198, or $2.13 per diluted share in the prior fiscal year-to-date period, resulting in a 25% increase in diluted earnings per share.

REPORTABLE SEGMENT DISCUSSION

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; ACH origination and remote deposit capture processing; and risk management products and services. The Complementary segment provides additional software, hosted processing platforms, and services, including call center support, and network security management, consulting, and monitoring, that can be integrated with our core solutions, and many can be used independently. The Corporate and Other segment includes revenue and costs from hardware and other products not attributed to any of the other three segments, as well as operating costs not directly attributable to the other three segments.

Core
			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Revenue			$	154,878					$	134,948					15		%				$	320,163					$	288,103					11		%
Cost of Revenue			$	64,554					$	58,485					10		%				$	131,456					$	122,347					7		%

Revenue in the Core segment increased 15% and cost of revenue increased 10% for the three months ended December 31, 2021, compared to the three months ended December 31, 2020. Core revenue less deconversion fee revenue for the second quarter of $10,853 and less deconversion fee revenue of $882 for the prior fiscal second quarter, results in a 7% increase, quarter over quarter. This increase was primarily driven by growth in data processing and hosting fee revenue. Cost of revenue decreased 2% as a percentage of revenue for the second quarter of fiscal 2022 compared to the prior fiscal second quarter.

For the six months ended December 31, 2021, revenue in the Core segment increased 11% compared to the prior fiscal year-to-date period. Core revenue less deconversion fee revenue in both periods, which totaled $13,021 for the current fiscal period and $2,934 for the prior fiscal period and revenue from acquisitions and divestitures of $1,182 from the prior fiscal period, results in an 8% increase, period over period. This increase was primarily driven by the growth in data processing and hosting fee revenue. Cost of revenue decreased 1% as a percentage of revenue for year-to-date fiscal 2022 compared to the year-ago period.

Payments
			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Revenue			$	182,528					$	155,182					18		%				$	352,150					$	311,915					13		%
Cost of Revenue			$	95,570					$	86,455					11		%				$	188,795					$	172,783					9		%

Revenue in the Payments segment increased 18% for the second quarter of fiscal 2022 compared to the prior fiscal quarter. Payments revenue less deconversion fee revenue in both periods, which totaled $7,933 for the second quarter of fiscal 2022 and $674 for the prior fiscal second quarter, results in a 13% increase, quarter over quarter. This growth was primarily due to increased card and remittance fee revenue within processing. Cost of revenue decreased 3% as a percentage of revenue for the second quarter of fiscal 2022 compared to the same quarter of fiscal 2021.

For the six months ended December 31, 2021, revenue in the Payments segment increased 13% compared to the same period a year ago. Payments revenue less deconversion fee revenue in both periods, which totaled $8,381 for year-to-date fiscal 2022 and $2,521 for year-to-date fiscal 2021, results in an 11% increase period over period. This Payments revenue growth was primarily due to increased card and remittance revenue within processing. Cost of revenue as a percentage of revenue decreased 2% for year-to-date fiscal 2022 compared to the same period of fiscal 2021.

Complementary
			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Revenue			$	141,724					$	121,408					17		%				$	283,205					$	251,762					12		%
Cost of Revenue			$	58,151					$	52,407					11		%				$	113,635					$	104,431					9		%

Revenue in the Complementary segment increased 17% for the second quarter of fiscal 2022 compared to the same quarter of the prior fiscal year. Complementary revenue less deconversion fee revenue in both periods, which totaled $7,917 for the second quarter of fiscal 2022 and $509 for the prior fiscal second quarter, and less acquisitions and divestitures revenue in the current quarter of $96, results in an 11% increase, quarter over quarter. This growth was primarily driven by growth in Jack Henry digital and hosting fee revenues. Cost of revenue as a percentage of revenue decreased 2% for the second quarter of fiscal 2022 compared to the same quarter of fiscal 2021.

For the six months ended December 31, 2021, revenue in the Complementary segment increased 12% compared to the same period last fiscal year. Complementary revenue less deconversion fee revenue in both periods, which

totaled $9,014 for year-to-date fiscal 2022 and $2,509 for year-to-date fiscal 2021, and less acquisitions and divestitures revenue in the current fiscal year-to-date period of $202, results in a 10% increase period over period. This increase in Complementary revenue was primarily driven by growth in Jack Henry digital and hosting fee revenues. Cost of revenue decreased 1% as a percentage of revenue for year-to-date fiscal 2022 compared to the same period of fiscal 2021.

Corporate and Other
			Three Months Ended December 31,												% Change						Six Months Ended December 31,												% Change
			2021						2020												2021						2020
Revenue			$	14,766					$	10,823					36		%				$	26,434					$	22,381					18		%
Cost of Revenue			$	64,550					$	60,435					7		%				$	125,574					$	121,150					4		%

Revenue in the Corporate and Other segment increased 36% for the second quarter of fiscal 2022 compared to the same quarter of the prior fiscal year and increased 18% for the fiscal year-to-date period compared to the prior fiscal year-to-date period. The quarter-over-quarter increase was primarily due to higher services and support revenue, including an increase in hardware revenue. Revenue classified in the Corporate and Other segment includes revenue from other products and services and hardware not specifically attributed to any of the other three segments.

The increased cost of revenue for the fiscal 2022 second quarter and year-to-date periods of 7% and 4%, respectively, when compared to the prior respective fiscal periods, was primarily due to higher operating licenses and fees for both comparisons.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents decreased to $29,120 at December 31, 2021, from $50,992 at June 30, 2021.

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

			Six Months Ended
			December 31,
			2021						2020
Net income			$	197,783					$	163,198
Non-cash expenses			113,293						104,200
Change in receivables			70,468						87,518
Change in deferred revenue			(119,822)						(126,134)
Change in other assets and liabilities			(64,371)						(34,798)
Net cash provided by operating activities			$	197,351					$	193,984

Cash provided by operating activities for the first six months of fiscal 2022 increased 2% compared to the same period last year. Cash from operations is primarily used to repay debt, pay dividends, repurchase stock, and for capital expenditures.

Cash used in investing activities for the first six months of fiscal 2022 totaled $101,052 and included: $71,353 for the ongoing enhancements and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $22,373; and $7,364 for the purchase and development of internal use software. Uses of cash were partially offset by proceeds from dispositions of $38. Cash used in investing activities for the first six months of fiscal 2021 totaled $82,544 and included: $62,804 for the development of software; $12,100 for purchase of investments; capital expenditures of $9,543; and $4,254 for the purchase and development of internal use software. Uses of cash were partially offset by proceeds from dispositions of $6,157.

Financing activities used cash of $118,171 for the first six months of fiscal 2022 and included $193,917 for purchases of treasury stock; $80,065 repayment on the revolving credit facility and payments on financing leases, and $67,696 for the payment of dividends to stockholders. Uses of cash were partially offset by borrowings on credit facilities of $220,000 and $3,507 net cash inflow from the issuance of stock and tax withholding related to stock-based compensation. Financing activities used cash of $177,023 in the first six months of fiscal 2021 and included: $109,899 for the purchase of treasury shares; $65,516 for the payment of dividends to stockholders; $1,551 from

the issuance of stock and tax withholding related to stock-based compensation; and $57 for payments on financing leases.

Capital Requirements and Resources

The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $22,373 and $9,543 for the six months ended December 31, 2021, and December 31, 2020, respectively, were made primarily for additional equipment and the improvement of existing facilities. These additions were primarily funded from cash generated by operations. Total consolidated capital expenditures on facilities and equipment for the Company for fiscal year 2022 are not expected to exceed $52,000 and will be primarily funded from cash generated by operations.

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 borrowings on its existing line of credit. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At December 31, 2021, there were 31,043 shares of treasury stock, and the Company had the remaining authority to repurchase up to 3,948 additional shares. The total cost of treasury shares at December 31, 2021, was $1,807,119. During the first six months of fiscal 2022, the Company repurchased 1,250 shares for the treasury. At June 30, 2021, there were 29,793 shares in treasury stock and the Company had the remaining authority to repurchase up to 5,198 additional shares. The total cost of treasury shares at June 30, 2021, was $1,613,202. During the first six months of fiscal 2021, the Company repurchased 675 shares for the treasury and, the Company repurchased 2,800 shares for the treasury during all of fiscal 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 December 31, 2021, the Company was in compliance with all such covenants. The revolving credit facility terminates February 10, 2025. There was a $240,000 outstanding balance under the credit facility at December 31, 2021, and $100,000 outstanding balance at June 30, 2021. The increase in the outstanding credit facility balance was primarily due to the increase in the Company's repurchases of common stock during the current fiscal year-to-date period compared to repurchases during the prior fiscal year-to-date period.

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 expires on April 30, 2023. There was no balance outstanding at December 31, 2021, and June 30, 2021.

Dollar amounts in this item are in thousands.

Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, volatilities, correlations or other market factors such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. We are currently exposed to credit risk on credit extended to customers and at times are exposed to interest rate risk on outstanding debt. We do not currently use any derivative financial instruments. We actively monitor these risks through a variety of controlled procedures involving senior management.

Based on the controls in place and the credit worthiness of the customer base, we believe the credit risk associated with the extension of credit to our customers will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

We have $240,000 outstanding debt with variable interest rates as of December 31, 2021, and a 1% increase in our borrowing rate would increase our annual interest expense by $2,400.

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of our management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation (required in Exchange Act Rules 13a-15(b) and 15d-15(b)), the CEO and CFO concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. For this purpose, disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended December 31, 2021, there were no changes in internal control over financial reporting which were identified in connection with management’s evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

We are subject to various routine legal proceedings and claims arising in the ordinary course of our business. In the opinion of management, any liabilities resulting from current lawsuits are not expected, either individually or in the aggregate, to have a material adverse effect on our consolidated financial statements. In accordance with U.S. GAAP, we record a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These liabilities are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case or proceeding.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following shares of the Company were repurchased during the fiscal quarter ended December 31, 2021:

			Total Number of Shares Purchased						Average Price of Share						Total Number of Shares Purchased as Part of Publicly Announced Plans						Maximum Number of Shares that May Yet Be Purchased Under the Plans (1)
October 1 - October 31, 2021			—						$	—					—						5,197,713
November 1 - November 30, 2021			800,000						154.44						800,000						4,397,713
December 1 - December 31, 2021			450,000						156.37						450,000						3,947,713
Total			1,250,000						155.13						1,250,000						3,947,713

(1) Total stock repurchase authorizations approved by the Company's Board of Directors as of May 17, 2021 were for 35 million shares. The Company has repurchased 31,042,903 shares under these authorizations. The authorizations have no specific dollar or share price targets and no expiration dates.

31.1 Certification of the Chief Executive Officer.

31.2 Certification of the Chief Financial Officer.

32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS* XBRL Instance Document- the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document

101.SCH* XBRL Taxonomy Extension Schema Document

101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* XBRL Taxonomy Extension Label Linkbase Document

101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

• Furnished with this quarterly report on Form 10-Q are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at December 31, 2021, and June 30, 2021, (ii) the Condensed Consolidated Statements of Income for the three and six months ended December 31, 2021, and 2020, (iii) the Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended December 31, 2021, and 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2021, and 2020, and (v) Notes to Condensed Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

									JACK HENRY & ASSOCIATES, INC.
Date:			February 9, 2022						/s/ David B. Foss
									David B. Foss
									Board Chair and Chief Executive Officer
Date:			February 9, 2022						/s/ Kevin D. Williams
									Kevin D. Williams
									Chief Financial Officer and Treasurer