Jack Henry & Associates 10-Q 2023-03-31

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 March 31, 2023

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 Principal 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 April 24, 2023, the Registrant had 72,875,305 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 March 31, 2023, and June 30, 2022 (Unaudited)			4
			Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2023 and 2022 (Unaudited)			5
			Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Nine Months Ended March 31, 2023 and 2022 (Unaudited)			6
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2023 and 2022 (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, 2022, 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 disclaims any obliga

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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 quarter ended March 31, 2023.

OVERVIEW

Jack Henry & Associates, Inc. ("JKHY") is a well-rounded financial technology company and is a leading provider of technology solutions and payment processing services primarily for financial services organizations. Its solutions consist of integrated data processing systems solutions to U.S. banks ranging from de novo to multi-billion-dollar institutions, core data processing solutions for credit unions of all sizes, and non-core highly specialized core-agnostic products and services that enable financial institutions of every asset size and charter, and diverse corporate entities outside the financial services industry, to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. JKHY's integrated solutions are available for on-premise installation and delivery in our private cloud.

Our two primary revenue streams are "services and support" and "processing." Services and support includes: "private and public cloud" fees that predominantly have contract terms of seven years or longer at inception; "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, 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.

RESULTS OF OPERATIONS

For the third quarter of fiscal 2023, total revenue increased 6%, or $30,292, compared to the same quarter in fiscal 2022. Total revenue less deconversion fee and acquisition revenues of $6,143 and $2,658, respectively, for the current fiscal quarter and less deconversion fee revenues of $17,431 for the prior fiscal quarter, results in an increase of 8%, quarter over quarter. This increase was primarily driven by growth in data processing and hosting, higher card and payment processing, and increased hardware revenues.

Operating expenses increased 9% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Total operating expenses less deconversion expenses of $1,013 and acquisition-related expenses of $6,167 for the current fiscal quarter, and reducing operating expenses by deconversion expenses of $1,949 for the prior fiscal year quarter, results in an 8% increase quarter over quarter. This increase was primarily driven by higher personnel costs, including benefits expenses, resulting from a 3% headcount increase in the trailing twelve months, higher direct costs as revenue increased, increased amortization of intangible assets, and increased cost of hardware.

Operating income decreased 3% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Total operating income less deconversion fee operating income of $5,130 plus an acquisition operating loss of $3,508 for the current fiscal quarter, and less deconversion fee operating income of $15,482 for the prior fiscal quarter, results in an 11% increase quarter over quarter. This increase was primarily driven by revenue growth partially offset by increased operating expenses detailed above.

The provision for income taxes decreased 6% for the third quarter of fiscal 2023 compared to the prior fiscal year third quarter. The effective tax rate for the third quarter of fiscal 2023 was 23.2% compared to 23.6% for the same quarter a year ago.

Due to the above changes, net income decreased 4% for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. Total net income less deconversion fee net income of $3,861 plus acquisition net loss of $4,938 for the current fiscal quarter, and less deconversion fee net income of $11,666 for the prior fiscal quarter, results in a 13% increase quarter over quarter.

For the nine months ended March 31, 2023, total revenue increased 6%, or $82,857, compared to the same period in fiscal year 2022. Total revenue less deconversion fee and acquisition revenues of $17,042 and $5,975, respectively, for the current fiscal period and less deconversion fee revenues of $48,058 for the prior fiscal period, results in an increase of 8%, period over period. This increase was primarily driven by growth in data processing and hosting fees and card, payment, and digital processing revenues.

Operating expenses increased 9% for the nine months ended March 31, 2023, compared to the same period in fiscal year 2022. Total operating expenses less deconversion expenses of $2,583 and acquisition-related expenses of $15,609 plus the gain on sale of assets of $7,384 for the current fiscal period, and reducing operating expenses by deconversion expenses of $5,036 for the prior fiscal year period, results in an 8% increase period over period. The increase in operating expenses was primarily driven by higher personnel costs, including benefits expenses, resulting from a 3% headcount increase in the trailing twelve months, increased direct costs related to growth in revenue activity, higher amortization of intangible assets, increased travel-related expenses, and increased internal licenses and fees.

Operating income decreased 4% for the nine months ended March 31, 2023, compared to the same period in fiscal year 2022. Total operating income less deconversion fee operating income of $14,459, plus an acquisition operating loss of $9,634, less the gain on disposal of assets, net, of $7,384 for the current fiscal period, less deconversion fee operating income of $43,022 for the prior fiscal period, results in a 5% increase period over period. This increase was primarily driven by revenue growth partially offset by increased operating expenses detailed above.

The provision for income taxes decreased 6% for the nine months ended March 31, 2023, compared to the same period in fiscal year 2022. The effective tax rate for the nine months ended March 31, 2023, was 23.3% compared to 23.5% for the same period a year ago.

Due to the above changes, net income decreased 5% for the nine months ended March 31, 2023, compared to the same period a year ago. Total net income less deconversion fee net income of $10,880, plus acquisition net loss of $12,213, less the gain on disposal of assets, net, of $5,556 for the current fiscal period, and less deconversion fee net income of $32,417 for the prior fiscal period, results in a 6% increase period over period.

Our third fiscal quarter was significantly impacted by a continuing slowdown of merger and acquisition activity in the financial institution industry, which has caused decreases in deconversion fee revenue, as noted, and in conversion/merger services revenue. However, we move into the fourth quarter of fiscal 2023 with significant portions of our business continuing to come from recurring revenues and our sales pipeline remaining encouraging. Our customers continue to face regulatory and operational challenges which our products and services address, and we believe they have a great 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 nine months ended March 31, 2023, follows. Discussions compare the current fiscal year's three and nine months ended March 31, 2023, to the prior fiscal year's three and nine months ended March 31, 2022.

REVENUE

Services and Support			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Services and Support			$	291,922					$	282,921					3		%				$	902,771					$	876,625					3		%
Percentage of total revenue			57		%				59		%										59		%				60		%

Services and support revenue increased 3% for the third quarter of fiscal 2023 compared to the same quarter a year ago. Reducing services and support revenue for deconversion fee revenue from each quarter, which was $6,143 for the current fiscal quarter and $17,431 for the prior fiscal year quarter and acquisition revenue of $1 for the current fiscal quarter, results in growth of 8% quarter over quarter. This increase was primarily driven by growth in data processing and hosting fee and hardware revenues.

Services and support revenue increased 3% for the nine months ended March 31, 2023 compared to the same period a year ago. Reducing services and support revenue for deconversion fee revenue from each period, which was $17,042 for the current fiscal period and $48,058 for the prior fiscal period, and acquisition revenue of $45 for the current fiscal period, results in growth of 7% period over period. This increase was primarily driven by growth in

data processing and hosting fees, software usage and subscription fees, and hardware revenues. Growth in software usage fee revenues reflects a continuing shift of customers to our time-based license model.

Processing			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Processing			$	216,630					$	195,339					11		%				$	640,298					$	583,587					10		%
Percentage of total revenue			43		%				41		%										41		%				40		%

Processing revenue increased 11% for the third quarter of fiscal 2023 compared to the same quarter last fiscal year. Reducing processing revenue for acquisition revenue of $2,657 for the current fiscal quarter, results in growth of 10% quarter over quarter. This increase was primarily driven by higher card processing, payment processing, including iPay, and Jack Henry digital revenue, including Banno, as well as other processing fee revenues, as new customers are added and the active user base expands.

Processing revenue increased 10% for the nine months ended March 31, 2023, compared to the same period last fiscal year. Reducing processing revenue for acquisition revenue of $5,930 for the current fiscal period, results in growth of 9% period over period. This increase was primarily driven by higher card processing, payment processing, including iPay, and Jack Henry digital revenue, including Banno, as well as other processing fee revenues, as new customers are added and the active user base expands.

OPERATING EXPENSES

Cost of Revenue			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Cost of Revenue			$	307,345					$	282,339					9		%				$	910,195					$	841,799					8		%
Percentage of total revenue			60		%				59		%										59		%				58		%

Cost of revenue for the third quarter of fiscal 2023 increased 9% over the prior fiscal year third quarter. Reducing cost of revenue for deconversion costs from each quarter, which were $470 for the current fiscal year quarter and $1,129 for the prior fiscal year quarter, and for acquisition costs of $5,133 from the current fiscal year quarter, results in a 7% increase quarter over quarter. This increase was primarily due to higher direct costs in line with related increases in revenue, higher personnel costs, including benefits expenses, increased amortization of intangible assets, and increased cost of hardware. Cost of revenue increased 1% compared to the prior fiscal year quarter as a percentage of total revenue.

Cost of revenue increased 8% for the nine months ended March 31, 2023, compared to the same period last fiscal year. Reducing cost of revenue for deconversion costs from each period, which were $1,435 for the current fiscal period and $3,067 for the prior fiscal period, and for acquisition costs of $12,533 from the current fiscal period, results in a 7% increase period over period. This increase was primarily due to higher direct costs in line with related increases in revenue, higher personnel costs, including benefits expenses, increased amortization of intangible assets, and increased internal licenses and fees. Cost of revenue increased 1% compared to the prior fiscal period as a percentage of total revenue.

Research and Development			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Research and Development			$	34,625					$	30,725					13		%				$	104,179					$	87,394					19		%
Percentage of total revenue			7		%				6		%										7		%				6		%

Research and development expense increased 13% for the third quarter of fiscal 2023 over the prior fiscal year third quarter. Reducing research and development expense for the effects of acquisitions of $606 for the current fiscal quarter, results in an 11% increase quarter over quarter. This increase was primarily due to an increase in personnel costs, net of capitalization, including benefits expenses, partially resulting from a 10% headcount increase in the trailing twelve months. Research and development expense for the quarter increased 1% compared to the prior fiscal year quarter as a percentage of total revenue.

Research and development expense increased 19% for the nine months ended March 31, 2023, compared to the same period last fiscal year. Reducing research and development expense for the effects of acquisitions of $1,213 for the current fiscal period, results in an 18% increase period over period. This increase was primarily due to an

increase in personnel costs, net of capitalization, including benefits expenses, partially resulting from a 10% headcount increase in the trailing twelve months. Research and development expense for the current fiscal period increased 1% compared to the prior fiscal year period as a percentage of total revenue.

Selling, General, and Administrative			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Selling, General, and Administrative			$	58,192					$	53,607					9		%				$	172,205					$	160,172					8		%
Percentage of total revenue			11		%				11		%										11		%				11		%

Selling, general, and administrative expense increased 9% in the third quarter of fiscal 2023 over the same quarter in the prior fiscal year. Reducing selling, general, and administrative expense for the effects of deconversion fees from each quarter, which were $543 for the current fiscal year quarter and $820 for the prior fiscal year quarter, and for the effects of acquisitions of $427 for the current fiscal year quarter, results in an 8% increase quarter over quarter. This increase was primarily due to higher personnel costs, including commissions and benefits expenses, partially resulting from a 5% headcount increase in the trailing twelve months. Selling, general, and administrative expense remained consistent as a percentage of total revenue this fiscal quarter versus the prior fiscal year quarter.

Selling, general, and administrative expense increased 8% in the nine months ended March 31, 2023, compared to the same period last fiscal year. Reducing selling, general, and administrative expense for the effects of deconversion fees from each period, which were $1,148 for the current fiscal year period and $1,968 for the prior fiscal year period, and for the effects of acquisitions of $1,864 plus the gain on disposal of assets, net, of $7,384 for the current fiscal period, results in a 12% increase period over period. This increase was primarily due to higher personnel costs, including commissions and benefits expenses, partially resulting from a 5% headcount increase in the trailing twelve months and increased travel-related expenses. Selling, general, and administrative expense remained consistent as a percentage of total revenue this fiscal period versus the prior fiscal year period.

INTEREST INCOME (EXPENSE)			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Interest Income			$	2,391					$	3					79,600		%				$	3,783					$	16					23,544		%
Interest Expense			$	(4,666)					$	(691)					575		%				$	(9,649)					$	(1,387)					596		%

Interest income fluctuated due to changes in invested balances and yields on invested balances during the third quarter of fiscal 2023 and nine months ended March 31, 2023, compared to the same periods a year ago. Interest expense increased when compared to the prior fiscal year quarter and year-to-date period due to recent increases in prevailing interest rates, length of borrowing time, and amounts borrowed. There was a $375,000 outstanding balance under the credit facility at March 31, 2023, and $225,000 outstanding balance at March 31, 2022. The increase in the outstanding balance was primarily due to funding the Payrailz acquisition on August 31, 2022, and the increase in cash taxes paid during the third quarter ended March 31, 2023, due to tax law changes.

PROVISION FOR INCOME TAXES			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Provision for Income Taxes			$	24,566					$	26,194					(6)		%				$	81,751					$	86,986					(6)		%
Effective Rate			23.2		%				23.6		%										23.3		%				23.5		%

The change in effective tax rate for the third quarter of fiscal 2023 compared to the same quarter a year ago was primarily due to greater benefits recognized from tax credits during the current fiscal year quarter.

NET INCOME			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Net income			$	81,549					$	84,707					(4)		%				$	268,873					$	282,490					(5)		%
Diluted earnings per share			$	1.12					$	1.16					(4)		%				$	3.68					$	3.84					(4)		%

Net income decreased 4% to $81,549, or $1.12 per diluted share, for the third quarter of fiscal 2023 compared to $84,707, or $1.16 per diluted share in the same quarter of fiscal 2022. Reducing net income by deconversion fee net income of $3,861 for the current fiscal quarter and $11,666 for the prior year fiscal quarter, and increasing net

income for the current fiscal quarter by an acquisition net loss of $4,938, results in a 13% increase quarter over quarter.

Net income decreased 5% to $268,873, or $3.68 per diluted share, for the nine months ended March 31, 2023, compared to $282,490, or $3.84 per diluted share, in the same period of fiscal 2022. Reducing net income by deconversion fee net income of $10,880 and a gain on disposal of assets, net, of $5,556 for the current fiscal period and $32,417 for the prior year fiscal period, and increasing net income for the current fiscal period by an acquisition net loss of $12,213, results in a 6% increase period over period.

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 March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Revenue			$	156,903					$	150,799					4		%				$	487,417					$	470,962					3		%
Cost of Revenue			$	71,705					$	66,576					8		%				$	212,269					$	198,032					7		%

Revenue in the Core segment increased 4% and cost of revenue increased 8% for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. Reducing Core revenue for deconversion fee revenue in both quarters, which totaled $2,315 for the third quarter of fiscal 2023 and $8,154 for the third quarter of fiscal 2022, results in an 8% increase quarter over quarter. This increase was primarily driven by growth in data processing and hosting fee revenue. The cost of revenue increase was primarily driven by higher personnel costs, including benefits expenses, and increased direct support costs. Core segment deconversion fee costs did not significantly affect the Core cost of revenue increase quarter over quarter. Cost of revenue increased 2% as a percentage of revenue for the third quarter of fiscal 2023 compared to the same quarter of fiscal 2022.

Revenue in the Core segment increased 3% and cost of revenue increased 7% for the nine months ended March 31, 2023, compared to the nine months ended March 31, 2022. Reducing Core revenue for deconversion fee revenue in both periods, which totaled $6,248 for the nine months ended March 31, 2023, and $21,176 for the nine months ended March 31, 2022, results in a 7% increase period over period. This increase was primarily driven by the growth in data processing and hosting and software usage fee revenues. Reducing Core cost of revenue for deconversion fee costs in both periods, which totaled $656 for the nine months ended March 31, 2023 and $1,378 for the nine months ended March 31, 2022 results in an 8% increase period over period. This increase was primarily due to increased direct support costs and higher personnel costs, including benefits expenses. Cost of revenue increased 2% as a percentage of revenue for the nine months ended March 31, 2023, compared to the same period of fiscal 2022.

Payments
			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Revenue			$	191,840					$	180,518					6		%				$	569,867					$	538,615					6		%
Cost of Revenue			$	106,878					$	95,970					11		%				$	316,104					$	287,518					10		%

Revenue in the Payments segment increased 6% and cost of revenue increased 11% for the third quarter of fiscal 2023 compared to the equivalent quarter of the prior fiscal year. Reducing Payments revenue for deconversion fee revenue in both quarters, which totaled $1,643 for the third quarter of fiscal 2023 and $4,703 for the third quarter of fiscal 2022 and for revenue from acquisitions of $2,658 from the current fiscal year quarter, results in a 7% increase quarter over quarter. This increase was primarily due to higher card and payment processing fee revenues. Reducing Payments cost of revenue for deconversion fee costs in both quarters, which totaled $62 for the third quarter of fiscal 2023 and $28 for the third quarter of fiscal 2022, and for cost of revenue from acquisition of $5,102 from the current fiscal year quarter, results in a 6% increase quarter over quarter. This increase was primarily due to higher direct costs in line with associated revenues, higher amortization of intangible assets, and higher personnel costs, including benefits expenses. Cost of revenue as a percentage of revenue increased 3% for the third quarter of fiscal 2023 compared to the same quarter of fiscal 2022.

Revenue in the Payments segment increased 6% and cost of revenue increased 10% for the nine months ended March 31, 2023, compared to the equivalent period of the prior fiscal year. The revenue increase was primarily due to increased card and payment processing fee revenues. Payments segment deconversion fee and acquisition revenues did not significantly affect the Payments segment revenue increase period over period. Reducing Payments cost of revenue for deconversion fee costs in both periods, which totaled $221 for the nine months ended March 31, 2023 and $317 for the nine months ended March 31, 2022, and for cost of revenue from acquisition of $12,444 from the current fiscal year period, results in a 6% increase period over period. This increase was primarily due to higher direct costs in line with associated revenues, higher amortization of intangible assets, and higher personnel costs, including benefits expenses. Cost of revenue as a percentage of revenue increased 2% for the nine months ended March 31, 2023, compared to the same period of fiscal 2022.

Complementary
			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Revenue			$	142,122					$	133,821					6		%				$	432,769					$	408,137					6		%
Cost of Revenue			$	61,366					$	57,740					6		%				$	179,074					$	168,139					7		%

Revenue in the Complementary segment increased 6% and cost of revenue increased 6% for the third quarter of fiscal 2023 compared to the equivalent quarter of the prior fiscal year. Reducing Complementary revenue for deconversion fee revenue in both quarters, which totaled $2,170 for the third quarter of fiscal 2023 and $4,540 for the third quarter of fiscal 2022, results in an 8% increase quarter over quarter. This increase was primarily driven by higher hosting fees and Jack Henry digital revenues. Reducing Complementary cost of revenue for deconversion fee costs in both quarters, which totaled $165 for the third quarter of fiscal 2023 and $475 for the third quarter of fiscal 2022, results in a 7% increase quarter over quarter. This increase was primarily due to increased amortization of intangible assets and direct costs in line with associated revenues. Cost of revenue as a percentage of revenue remained consistent for the third quarter of fiscal 2023 compared to the same quarter of fiscal 2022.

Revenue in the Complementary segment increased 6% and cost of revenue increased 7% for the nine months ended March 31, 2023, compared to the equivalent period of the prior fiscal year. Reducing Complementary revenue for deconversion fee revenue in both periods, which totaled $6,319 for the nine months ended March 31, 2023 and $13,554 for the nine months ended March 31, 2022, results in an 8% increase period over period. This increase was primarily driven by higher hosting fees and Jack Henry digital revenues. Cost of revenue growth was primarily due to increased direct costs in line with associated revenues, higher personnel costs, including benefits expenses, and increased amortization of intangible assets. Complementary segment deconversion fee costs did not significantly affect the Complementary segment cost of revenue increase period over period. Cost of revenue as a percentage of revenue remained consistent for the nine months ended March 31, 2023, compared to the same period of fiscal 2022.

Corporate and Other
			Three Months Ended March 31,												% Change						Nine Months Ended March 31,												% Change
			2023						2022												2023						2022
Revenue			$	17,687					$	13,122					35		%				$	53,016					$	42,498					25		%
Cost of Revenue			$	67,396					$	62,053					9		%				$	202,748					$	188,110					8		%

Revenue classified in the Corporate and Other segment includes revenues from other products and services and hardware not specifically attributed to any of the other three segments. Revenue in the Corporate and Other

segment increased 35% for the third quarter of fiscal 2023 compared to the equivalent quarter of the prior fiscal year. The increase quarter over quarter was primarily due to higher hardware revenues. Corporate and Other segment deconversion fee revenue did not significantly affect the Corporate and Other revenue increase quarter over quarter.

Cost of revenue for the Corporate and Other segment includes operating costs not directly attributable to any of the other three segments. The cost of revenue in the third quarter of fiscal 2023 increased 9% when compared to the prior fiscal year quarter primarily due to higher internal licenses and fees and cost of hardware. Corporate and Other segment deconversion fee and acquisition costs did not significantly affect the Corporate and Other cost of revenue increase quarter over quarter.

Revenue in the Corporate and Other segment increased 25% for the nine months ended March 31, 2023, compared to the equivalent period of the prior fiscal year. The increase period over period was primarily due to higher hardware revenues. Corporate and Other segment deconversion fee revenue did not significantly affect the Corporate and Other revenue increase period over period.

The cost of revenue in the nine months ended March 31, 2023, increased 8% when compared to the prior fiscal year period primarily due to higher internal licenses and fees, personnel costs, including benefits expenses, and hardware costs. Corporate and Other segment deconversion fee and acquisition costs did not significantly affect the Corporate and Other cost of revenue increase period over period.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents decreased to $26,552 at March 31, 2023, from $48,787 at June 30, 2022.

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

			Nine Months Ended
			March 31,
			2023						2022
Net income			$	268,873					$	282,490
Non-cash expenses			120,204						168,187
Change in receivables			110,686						83,868
Change in deferred revenue			(184,130)						(177,987)
Change in other assets and liabilities			(108,602)						(55,161)
Net cash provided by operating activities			$	207,031					$	301,397

Cash provided by operating activities for the first nine months of fiscal 2023 decreased 31% compared to the same period last year partially due to higher cash taxes paid in the current year related to tax law changes requiring capitalization of research and development and software development costs for tax purposes as well as higher year to date prepaid expenses due to timing. Cash from operations is primarily used to repay debt, pay dividends, repurchase stock, for capital expenditures, and acquisitions.

Cash used in investing activities for the first nine months of fiscal 2023 totaled $355,561 and included: $229,628 for an acquisition; $124,110 for the ongoing enhancements and development of existing and new product and service offerings; capital expenditures on facilities and equipment of $27,237; $1,471 for the purchase and development of internal use software, and $1,000 for the purchase of a certificate of deposit. Cash uses were partially offset by proceeds from the sale of assets of $27,885. Cash used in investing activities for the first nine months of fiscal 2022 totaled $145,024 and included $108,950 for the development of software; capital expenditures of $28,386; and $7,726 for the purchase and development of internal use software. Cash uses were partially offset by proceeds from the sale of assets of $38.

Financing activities provided cash of $126,295 for the first nine months of fiscal 2023 and included borrowings on credit facilities of $550,000 and $700 net cash inflow from the issuance of stock and tax withholding related to stock-based compensation. Provided cash was partially offset by payments on credit facilities and financing leases of $290,059, dividends paid to stockholders of $109,346, and purchases of treasury stock of $25,000. Financing activities used cash of $167,568 in the first nine months of fiscal 2022 including purchases of treasury stock of $193,916, repayments on credit facilities and financing leases of $167,091, and $103,376 for the payment of dividends. These uses of cash were partially offset by borrowings on credit facilities of $292,000 and $4,815 net cash inflow from the issuance of stock and tax withholding related to stock-based compensation.

Capital Requirements and Resources

The Company generally uses existing resources and funds generated from operations to meet its capital requirements. Capital expenditures totaling $27,237 and $28,386 for the nine months ended March 31, 2023, and March 31, 2022, respectively, were made primarily for additional equipment and the improvement of existing facilities. These additions were funded from cash generated by operations. Total consolidated capital expenditures on facilities and equipment for the Company for fiscal year 2023 are expected to be approximately $41,000 and have been or will be funded from our credit facilities and cash generated by operations.

On August 31, 2022, the Company acquired all of the equity interest in Payrailz, LLC ("Payrailz"). The final purchase price, following customary post-closing adjustments to the extent actual closing date working capital, cash, debt, and unpaid seller transaction expenses exceeded or were less than the amounts estimated at closing, was $230,205. Pursuant to the merger agreement for the transaction, $48,500 of the purchase price was placed in an escrow account at the closing, consisting of $2,500 for any final purchase price adjustments owed by the sellers, which amount was released to the sellers on December 15, 2022, in connection with post-closing adjustments, and $46,000 for indemnification matters under the merger agreement.

The primary reason for the acquisition was to expand the Company's digital financial management solutions and the purchase was funded by our revolving line of credit and cash generated from operations. Payrailz provides cloud-native, API-first, AI-enabled consumer and commercial digital payment solutions and experiences that enable money to be moved in the moment of need.

On September 29, 2022, the Company entered into an agreement with Twilio Inc., which added contractual spend obligations for the period October 1, 2022, through September 30, 2027, of $16,350. This commitment is in addition to the commitments discussed in our Annual Report on Form 10-K for the year ended June 30, 2022.

On December 27, 2022, the Company renewed an agreement with Microsoft, Inc., which added contractual spend obligations for the period January 1, 2023, through June 30, 2026, of $20,000 for Microsoft Azure Cloud services, and added contractual spend obligations for the period January 1, 2023, through June 30, 2026, of $49,000 for Server and Application licensing under the Microsoft Server and Cloud Enrollment Program.

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 March 31, 2023, there were 31,194 shares in treasury stock and the Company had the remaining authority to repurchase up to 3,796 additional shares. The total cost of treasury shares at March 31, 2023, was $1,832,118. During the first nine months of fiscal 2023, the Company repurchased 151 shares. 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. The total cost of treasury shares at June 30, 2022, was $1,807,118. During the first nine months of fiscal 2022, the Company repurchased 1,250 shares.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA made several changes to the U.S. tax code including, but not limited to, a 1% excise tax on net stock repurchases and tax incentives to promote clean energy. The Company does not expect the IRA to have a material impact on its financial statements.

Credit facilities

On August 31, 2022, the Company entered into a five-year senior, unsecured amended and restated credit agreement that replaced the prior credit agreement described below. The credit agreement allows for borrowings of up to $600,000, which may be increased by the Company to $1,000,000 at any time until maturity. The credit agreement bears interest at a variable rate equal to (a) a rate based on an adjusted Secured Overnight Financing Rate ("SOFR") term rate or (b) an alternate base rate (the highest of (i) 0%, (ii) the Prime Rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% per annum and (iv) the Adjusted Term SOFR Screen Rate (without giving effect to the Applicable Margin) for a one month Interest Period on such day for Dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The credit agreement is guaranteed by certain subsidiaries of the Company and is subject to various financial covenants that require the Company to maintain certain financial ratios as defined in the credit agreement. As of March 31, 2023, the Company was in compliance with all such covenants. The amended and restated credit facility terminates August 31, 2027. There was $375,000 outstanding under the amended and restated credit facility at March 31, 2023.

On June 30, 2022, there was a $115,000 outstanding balance on the prior credit facility that was entered into on February 10, 2020. The prior credit facility was a five-year senior, unsecured revolving credit facility. The credit facility allowed for borrowings of up to $300,000, which could be increased by the Company to $700,000 at any time until maturity. The prior credit facility bore interest at a variable rate equal to (a) a rate based on a eurocurrency rate

or (b) an alternate base rate (the highest of (i) 0%, (ii) the U.S. Bank prime rate for such day, (iii) the sum of the Federal Funds Effective Rate for such day plus 0.50% and (iv) the eurocurrency rate for a one-month interest period on such day for dollars plus 1.0%), plus an applicable percentage in each case determined by the Company's leverage ratio. The prior credit facility was guaranteed by certain subsidiaries of the Company and was subject to various financial covenants that required the Company to maintain certain financial ratios as defined in the prior credit agreement. As of June 30, 2022, the Company was in compliance with all such covenants. The prior credit facility's termination date was February 10, 2025.

The increase in the outstanding credit facility balance of $260,000 at March 31, 2023, compared to June 30, 2022, was primarily due to the acquisition of Payrailz and the increase in cash taxes paid during the nine months ended March 31, 2023. This borrowing, along with recent increases in prevailing interest rates, is expected to contribute to increased interest expense during fiscal 2023, and until our outstanding balances are reduced.

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, 2024. There was no balance outstanding at March 31, 2023, or June 30, 2022.

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 had $375,000 outstanding debt with variable interest rates as of March 31, 2023, and a 1% increase in our borrowing rate would increase our annual interest expense by $3,750.

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 March 31, 2023, 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 quarter ended March 31, 2023:

			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)
January 1 - January 31, 2023			—						—						—						3,947,713
February 1 - February 28, 2023			116,768						$	171.28					116,768						3,830,945
March 1 - March 31, 2023			34,680						144.15						34,680						3,796,265
Total			151,448						$	165.07					151,448						3,796,265

(1) Total stock repurchase authorizations approved by the Company's Board of Directors as of May 14, 2021, were for 35,000,000 shares. Under these authorizations, the Company has repurchased and not re-issued 31,194,351 shares and has repurchased and re-issued 9,384 shares. These 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 March 31, 2023, and June 30, 2022, (ii) the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2023, and 2022, (iii) the Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended March 31, 2023, and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2023, and 2022, 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:			May 8, 2023						/s/ David B. Foss
									David B. Foss
									Chief Executive Officer and Board Chair
Date:			May 8, 2023						/s/ Mimi L. Carsley
									Mimi L. Carsley
									Chief Financial Officer and Treasurer