UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number 1-10485

TYLER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Delaware						75-2303920
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification no.)


5101 TENNYSON PARKWAY	PLANO	Texas	75024
(Address of principal executive offices)	(City)	(State)	(Zip code)

(972) 713-3700

(Registrant’s telephone number, including area code)


Title of each class	Trading symbol	Name of each exchange on which registered
COMMON STOCK, $0.01 PAR VALUE	TYL	New York Stock Exchange

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 definition of “large accelerated filer," "accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

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 Act). Yes ☐ No ☒

The number of shares of common stock of registrant outstanding on ~~July 28, 2022~~April 25, 2023 was ~~41,581,473.~~41,925,317.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Revenues:	Revenues:									Revenues:
Subscriptions										Subscriptions	$	280,465	$	245,443
Maintenance										Maintenance	115,130		117,029
Professional services										Professional services	60,929		70,015
Software licenses and royalties	Software licenses and royalties	$	15,009	$	17,604	$	31,515	$	32,537	Software licenses and royalties	10,130		16,506
Subscriptions		255,816		199,558		501,259		302,037
Software services		63,125		53,337		124,622		100,977
Maintenance		116,815		119,621		233,844		238,733
Appraisal services		8,812		6,265		17,330		12,730
Hardware and other	Hardware and other	9,108		7,690		16,222		11,863		Hardware and other	5,199		7,115
Total revenues	Total revenues	468,685		404,075		924,792		698,877		Total revenues	471,853		456,108

Cost of revenues:	Cost of revenues:									Cost of revenues:
Subscriptions, maintenance, and professional services										Subscriptions, maintenance, and professional services	252,415		242,832
Software licenses and royalties	Software licenses and royalties	2,869		1,368		5,478		2,604		Software licenses and royalties	2,313		1,445
Amortization of software development										Amortization of software development	2,588		1,164
Amortization of acquired software	Amortization of acquired software	14,039		11,823		27,260		19,787		Amortization of acquired software	8,920		13,221
Subscriptions, software services and maintenance		244,192		199,771		481,088		334,091
Appraisal services		5,976		4,429		11,912		9,046
Hardware and other	Hardware and other	8,161		4,623		13,188		7,081		Hardware and other	5,780		5,028
Total cost of revenues	Total cost of revenues	275,237		222,014		538,926		372,609		Total cost of revenues	272,016		263,690

Gross profit	Gross profit	193,448		182,061		385,866		326,268		Gross profit	199,837		192,418

Selling, general and administrative expenses		99,701		108,922		197,596		187,696
Sales and marketing expense										Sales and marketing expense	37,103		35,206
General and administrative expense										General and administrative expense	72,360		62,689
Research and development expense	Research and development expense	23,386		23,428		47,327		45,241		Research and development expense	26,987		23,941
Amortization of other intangibles	Amortization of other intangibles	13,604		11,420		28,318		16,832		Amortization of other intangibles	18,407		14,714

Operating income	Operating income	56,757		38,291		112,625		76,499		Operating income	44,980		55,868

Interest expense	Interest expense	(6,214)		(12,437)		(11,018)		(12,915)		Interest expense	(7,684)		(4,804)
Other income, net	Other income, net	216		238		581		804		Other income, net	1,246		364
Income before income taxes	Income before income taxes	50,759		26,092		102,188		64,388		Income before income taxes	38,542		51,428
Income tax provision		10,813		562		22,258		1,882
Income tax provision (benefit)										Income tax provision (benefit)	7,667		11,444
Net income	Net income	$	39,946	$	25,530	$	79,930	$	62,506	Net income	$	30,875	$	39,984

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.96	$	0.63	$	1.93	$	1.53	Basic	$	0.74	$	0.97
Diluted	Diluted	$	0.94	$	0.61	$	1.88	$	1.48	Diluted	$	0.73	$	0.94

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net income	Net income	$	39,946	$	25,530	$	79,930	$	62,506	Net income	$	30,875	$	39,984
Other comprehensive loss, net of tax:
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Securities available-for-sale and transferred securities:	Securities available-for-sale and transferred securities:									Securities available-for-sale and transferred securities:
Change in net unrealized holding losses on available-for-sale securities during the period		(114)		—		(743)		—
Change in net unrealized holding gains (losses) on available for sale securities during the period										Change in net unrealized holding gains (losses) on available for sale securities during the period	94		(629)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	—		—		(27)		—		Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	—		(27)
Reclassification adjustment for net loss on sale of available-for-sale securities, included in net income		48		—		7		—
Other comprehensive loss, net of tax		(66)		—		(763)		—
Reclassification adjustment for net gain on sale of available for sale securities, included in net income										Reclassification adjustment for net gain on sale of available for sale securities, included in net income	—		(41)
Other comprehensive income (loss), net of tax										Other comprehensive income (loss), net of tax	94		(697)
Comprehensive income	Comprehensive income	$	39,880	$	25,530	$	79,167	$	62,506	Comprehensive income	$	30,969	$	39,287

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)


		June 30, 2022 (unaudited)		December 31, 2021			March 31, 2023 (unaudited)		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	253,062	$	309,171	Cash and cash equivalents	$	130,845	$	173,857
Accounts receivable (less allowance for losses and sales adjustments of $12,538 in 2022 and $12,086 in 2021)		597,560		521,059
Accounts receivable (less allowance for losses and sales adjustments of $14,767 in 2023 and $14,761 in 2022)						Accounts receivable (less allowance for losses and sales adjustments of $14,767 in 2023 and $14,761 in 2022)	508,683		577,257
Short-term investments	Short-term investments	34,466		52,300		Short-term investments	28,810		37,030
Prepaid expenses	Prepaid expenses	61,938		55,513		Prepaid expenses	70,587		50,859
Income tax receivable		2,552		18,137

Other current assets	Other current assets	7,709		8,151		Other current assets	6,738		8,239
Total current assets	Total current assets	957,287		964,331		Total current assets	745,663		847,242
Accounts receivable, long-term	Accounts receivable, long-term	12,665		13,937		Accounts receivable, long-term	9,282		8,271
Operating lease right-of-use assets	Operating lease right-of-use assets	40,577		39,720		Operating lease right-of-use assets	48,627		50,989
Property and equipment, net	Property and equipment, net	177,907		181,193		Property and equipment, net	167,683		172,786
Other assets:	Other assets:					Other assets:
Software development costs, net	Software development costs, net	43,505		28,489		Software development costs, net	54,565		48,189
Goodwill	Goodwill	2,449,638		2,359,674		Goodwill	2,489,084		2,489,308
Other intangibles, net	Other intangibles, net	1,032,786		1,052,493		Other intangibles, net	976,359		1,002,164
Non-current investments	Non-current investments	26,464		46,353		Non-current investments	14,544		18,508
Other non-current assets	Other non-current assets	46,217		45,971		Other non-current assets	49,828		49,960
		$	4,787,046	$	4,732,161		$	4,555,635	$	4,687,417
LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	130,998	$	119,988	Accounts payable	$	122,361	$	104,813
Accrued liabilities	Accrued liabilities	133,910		158,424		Accrued liabilities	104,522		131,941
Operating lease liabilities	Operating lease liabilities	10,363		10,560		Operating lease liabilities	11,413		10,736

Current income tax payable						Current income tax payable	69,337		43,667
Deferred revenue	Deferred revenue	528,588		510,529		Deferred revenue	497,395		568,538
Current portion of term loans	Current portion of term loans	30,000		30,000		Current portion of term loans	30,000		30,000
Total current liabilities	Total current liabilities	833,859		829,501		Total current liabilities	835,028		889,695
Revolving credit facility		—		—
Term loans		639,464		718,511

Term loans, net						Term loans, net	243,603		362,905
Convertible senior notes due 2026, net	Convertible senior notes due 2026, net	593,624		592,765		Convertible senior notes due 2026, net	594,914		594,484
Deferred revenue, long-term	Deferred revenue, long-term	—		38		Deferred revenue, long-term	1,600		2,037
Deferred income taxes	Deferred income taxes	216,947		228,085		Deferred income taxes	130,367		148,891
Operating lease liabilities, long-term	Operating lease liabilities, long-term	36,018		36,336		Operating lease liabilities, long-term	46,567		48,049
Other long-term liabilities	Other long-term liabilities	8,807		2,893		Other long-term liabilities	17,423		16,967
Total liabilities	Total liabilities	2,328,719		2,408,129		Total liabilities	1,869,502		2,063,028
Commitments and contingencies	Commitments and contingencies	—		—		Commitments and contingencies	—		—
Shareholders' equity:	Shareholders' equity:					Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—		—		Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of June 30, 2022 and December 31, 2021		481		481
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of March 31, 2023 and December 31, 2022						Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of March 31, 2023 and December 31, 2022	481		481
Additional paid-in capital	Additional paid-in capital	1,128,821		1,075,650		Additional paid-in capital	1,239,945		1,209,725
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(809)		(46)		Accumulated other comprehensive loss, net of tax	(750)		(844)
Retained earnings	Retained earnings	1,353,544		1,273,614		Retained earnings	1,468,729		1,437,854
Treasury stock, at cost; 6,583,971 and 6,832,640 shares in 2022 and 2021, respectively		(23,710)		(25,667)
Treasury stock, at cost; 6,243,409 and 6,364,991 shares in 2023 and 2022, respectively						Treasury stock, at cost; 6,243,409 and 6,364,991 shares in 2023 and 2022, respectively	(22,272)		(22,827)
Total shareholders' equity	Total shareholders' equity	2,458,327		2,324,032		Total shareholders' equity	2,686,133		2,624,389
		$	4,787,046	$	4,732,161		$	4,555,635	$	4,687,417

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	79,930	$	62,506	Net income	$	30,875	$	39,984
Adjustments to reconcile net income to cash provided by operating activities:	Adjustments to reconcile net income to cash provided by operating activities:					Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	75,866		60,976		Depreciation and amortization	38,112		38,149
Gains from sale of investments	Gains from sale of investments	(53)		—		Gains from sale of investments	—		(55)
Share-based compensation expense	Share-based compensation expense	51,079		50,899		Share-based compensation expense	27,896		25,279

Operating lease right-of-use assets expense		5,104		4,034
Amortization of operating lease right-of-use assets						Amortization of operating lease right-of-use assets	3,804		3,082
Deferred income tax benefit	Deferred income tax benefit	(19,136)		(6,430)		Deferred income tax benefit	(18,556)		(9,438)
Other						Other	499		—
Changes in operating assets and liabilities, exclusive of effects of acquired companies:	Changes in operating assets and liabilities, exclusive of effects of acquired companies:					Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	Accounts receivable	(73,396)		(46,312)		Accounts receivable	77,563		20,637
Income tax receivable		15,586		7,276
Income tax payable						Income tax payable	25,670		19,512
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(6,033)		(10,434)		Prepaid expenses and other current assets	(18,381)		(5,481)
Accounts payable	Accounts payable	9,130		(57,471)		Accounts payable	17,547		6,294
Operating lease liabilities	Operating lease liabilities	(6,522)		(4,361)		Operating lease liabilities	(2,246)		(3,071)
Accrued liabilities	Accrued liabilities	(24,723)		(30,217)		Accrued liabilities	(36,951)		(30,642)
Deferred revenue	Deferred revenue	17,474		20,868		Deferred revenue	(71,579)		(56,551)
Other long-term liabilities	Other long-term liabilities	5,914		22		Other long-term liabilities	456		5,842
Net cash provided by operating activities	Net cash provided by operating activities	130,220		51,356		Net cash provided by operating activities	74,709		53,541

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to property and equipment	Additions to property and equipment	(12,757)		(14,223)		Additions to property and equipment	(2,020)		(4,579)
Purchase of marketable security investments	Purchase of marketable security investments	(4,592)		(68,054)		Purchase of marketable security investments	(10,617)		(4,592)
Proceeds and maturities from marketable security investments	Proceeds and maturities from marketable security investments	40,595		91,395		Proceeds and maturities from marketable security investments	22,975		22,672

Investment in software		(16,463)		(8,947)
Investment in software development						Investment in software development	(9,079)		(7,947)
Cost of acquisitions, net of cash acquired	Cost of acquisitions, net of cash acquired	(117,313)		(1,998,902)		Cost of acquisitions, net of cash acquired	(1,875)		(116,698)
Other	Other	152		39		Other	16		(29)
Net cash used by investing activities	Net cash used by investing activities	(110,378)		(1,998,692)		Net cash used by investing activities	(600)		(111,173)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net borrowings on revolving credit facility		—		65,000

Payment on term loans	Payment on term loans	(80,000)		—		Payment on term loans	(120,000)		(20,000)
Proceeds from term loans		—		900,000
Proceeds from issuance of convertible senior notes		—		600,000
Payment of debt issuance costs		—		(27,127)
Purchase of treasury shares		—		(12,975)

Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award	Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award	(4,107)		29,388		Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award	(158)		8,045
Contributions from employee stock purchase plan	Contributions from employee stock purchase plan	8,156		6,200		Contributions from employee stock purchase plan	3,037		3,678
Net cash (used) provided by financing activities		(75,951)		1,560,486
Net cash used by financing activities						Net cash used by financing activities	(117,121)		(8,277)

Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(56,109)		(386,850)		Net decrease in cash and cash equivalents	(43,012)		(65,909)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	309,171		603,623		Cash and cash equivalents at beginning of period	173,857		309,171
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	253,062	$	216,773	Cash and cash equivalents at end of period	$	130,845	$	243,262

See accompanying notes.

~~TYLER TECHNOLOGIES, INC.~~

~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY~~

~~(In thousands)~~

~~(Unaudited)~~
Common Stock Additional
Paid-in
Capital Accumulated Other
Comprehensive
Income (Loss) Retained
Earnings Treasury Stock Total
Shareholders'
Equity
Shares Amount Shares Amount
Balance at March 31, 2022 48,148 $ 481 $ 1,098,933 $ (743) $ 1,313,598 (6,697) $ (24,535) $ 2,387,734
Net income — — — — 39,946 — — 39,946
Unrealized loss on available-for-sale securities, net of tax — — — (66) — — — (66)
Exercise of stock options and vesting of restricted stock units — — (288) — — 122 8,466 8,178
Employee taxes paid for withheld shares upon equity award settlement — — — — — (21) (7,743) (7,743)
Stock compensation — — 25,800 — — — — 25,800
Issuance of shares pursuant to employee stock purchase plan — — 4,376 — — 12 102 4,478
Balance at June 30, 2022 48,148 $ 481 $ 1,128,821 $ (809) $ 1,353,544 (6,584) $ (23,710) $ 2,458,327

Common Stock Additional
Paid-in
Capital Accumulated Other
Comprehensive
Income (Loss) Retained
Earnings Treasury Stock Total
Shareholders'
Equity
Shares Amount Shares Amount
Balance at March 31, 2021 48,148 $ 481 $ 941,960 $ (46) $ 1,149,132 (7,424) $ (30,534) $ 2,060,993
Net income — — — — 25,530 — — 25,530
Exercise of stock options and vesting of restricted stock units — — (9,544) — — 150 20,830 11,286
Employee taxes paid for withheld shares upon equity award settlement — — — — — (18) (7,052) (7,052)
Stock compensation — — 25,175 — — — — 25,175
Issuance of shares pursuant to employee stock purchase plan — — 3,094 — — 9 68 3,162
Treasury stock purchases — — — — — (32) (12,975) (12,975)
Purchase Consideration for Converted Stock — — 1,872 — — — — 1,872
Balance at June 30, 2021 48,148 $ 481 $ 962,557 $ (46) $ 1,174,662 (7,315) $ (29,663) $ 2,107,991


	Three Months Ended March 31,
	2023		2022
Supplemental cash flow information:
Cash paid for interest	$	6,784	$	4,059
Cash paid (received) for income taxes, net	(548)		393
Non-cash investing and financing activities:
Non-cash additions to property and equipment	$	201	$	464

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)


		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock					Total Shareholders' Equity				Common Stock					Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings				Treasury Stock					Total Shareholders' Equity
		Shares	Amount								Shares			Amount				Shares				Amount									Shares							Amount
Balance at December 31, 2021		48,148	$	481			$	1,075,650				$	(46)	$	1,273,614	(6,833)					$	(25,667)		$	2,324,032

Balance at December 31, 2022																						Balance at December 31, 2022	48,148			$	481		$	1,209,725			$	(844)		$	1,437,854			(6,365)		$	(22,827)		$	2,624,389
Net income	Net income	—	—		—				—			79,930		—		—			79,930			Net income	—			—		—				—			30,875				—		—			30,875
Unrealized gain (loss) on investment securities, net of tax		—	—		—				(763)			—		—		—			(763)
Other comprehensive gain, net of tax																						Other comprehensive gain, net of tax	—			—		—				94			—				—		—			94
Exercise of stock options and vesting of restricted stock units	Exercise of stock options and vesting of restricted stock units	—	—		(5,897)				—			—		279		22,120			16,223			Exercise of stock options and vesting of restricted stock units	—			—		(668)				—			—				136		8,802			8,134
Employee taxes paid for withheld shares for taxes upon equity award settlement		—	—		—				—			—		(50)		(20,330)			(20,330)
Employee taxes paid for withheld shares upon equity award settlement																						Employee taxes paid for withheld shares upon equity award settlement	—			—		—				—			—				(26)		(8,292)			(8,292)
Stock compensation	Stock compensation	—	—		51,079				—			—		—		—			51,079			Stock compensation	—			—		27,896				—			—				—		—			27,896
Issuance of shares pursuant to employee stock purchase plan	Issuance of shares pursuant to employee stock purchase plan	—	—		7,989				—			—		20		167			8,156			Issuance of shares pursuant to employee stock purchase plan	—			—		2,992				—			—				11		45			3,037

Balance at June 30, 2022		48,148	$	481	$	1,128,821			$	(809)		$	1,353,544	(6,584)		$	(23,710)		$	2,458,327
Balance at March 31, 2023																						Balance at March 31, 2023	48,148			$	481	$	1,239,945			$	(750)		$	1,468,729			(6,244)		$	(22,272)		$	2,686,133

Common Stock Additional
Paid-in
Capital Accumulated Other
Comprehensive
Income (Loss) Retained
Earnings Treasury Stock Total
Shareholders'
Equity
Shares Amount Shares Amount
Balance at December 31, 2020 48,148 $ 481 $ 905,332 $ (46) $ 1,112,156 (7,609) $ (31,812) $ 1,986,111
Net income — — — — 62,506 — — 62,506
Exercise of stock options and vesting of restricted stock units — — (1,623) — — 346 31,011 29,388
Employee taxes paid for withheld shares for taxes upon equity award settlement — — — — — (37) (16,010) (16,010)
Stock compensation — — 50,899 — — — — 50,899
Issuance of shares pursuant to employee stock purchase plan — — 6,077 — — 17 123 6,200
Treasury stock purchases — — — — — (32) (12,975) (12,975)
Purchase Consideration for Converted Stock — — 1,872 — — — — 1,872
Balance at June 30, 2021 48,148 $ 481 $ 962,557 $ (46) $ 1,174,662 (7,315) $ (29,663) $ 2,107,991


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2021	48,148	$	481	$	1,075,650	$	(46)	$	1,273,614	(6,833)	$	(25,667)	$	2,324,032
Net income	—	—		—		—		39,984		—	—		39,984
Unrealized loss on available-for-sale securities, net of tax	—	—		—		(697)		—		—	—		(697)
Exercise of stock options and vesting of restricted stock units	—	—		(5,609)		—		—		157	13,654		8,045
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—		—		(29)	(12,587)		(12,587)
Stock compensation	—	—		25,279		—		—		—	—		25,279
Issuance of shares pursuant to employee stock purchase plan	—	—		3,613		—		—		8	65		3,678


Balance at March 31, 2022	48,148	$	481	$	1,098,933	$	(743)	$	1,313,598	(6,697)	$	(24,535)	$	2,387,734

Tyler Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Tables in thousands, except per share data)

(1) Basis of Presentation

We prepared the accompanying condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States, or GAAP, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods. Balance sheet amounts are as of ~~June 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, and operating result amounts are for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively, and include all normal and recurring adjustments that we considered necessary for the fair summarized presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes included in our latest Form 10-K for the year ended December 31, ~~2021.~~2022. Revenues, expenses, assets, and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Certain amounts for the previous year have been reclassified to conform to the current year presentation. As of January 1, 2023, we have elected to no longer report the appraisal services revenue and related costs as separate categories in the statement of income due to less significance on our overall operating results. Therefore, we have combined the appraisal services revenue category with the professional services revenue category; and the related cost of revenue category for appraisal services is now combined with the cost of revenue category related to subscriptions, maintenance and professional services on the condensed consolidated statements of income for all reporting periods presented.

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). During the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, we had approximately ~~$66,000 and $763,000~~$94,000 of other comprehensive ~~loss,~~gain, net of taxes, from our available-for-sale investment holdings and ~~no items~~$697,000 of other comprehensive ~~income (loss)~~loss during the three ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2022.

(2) Accounting Standards and Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Except for the January 1, 2022, adoption of ASU 2021-08 -~~ ~~Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~ ~~(ASC 805)(“ASU 2021-08”), there~~There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on February ~~23, 2022,~~22, 2023, that have had a material impact on our condensed consolidated financial statements and related notes. See Recently Adopted Accounting Pronouncements below.

~~USE OF ESTIMATES~~

The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, determining the nature and timing of satisfaction of performance obligations, determining the standalone selling price (“SSP”) of performance obligations, variable consideration, and other obligations such as returns and refunds; loss contingencies; the estimated useful life of deferred commissions; the carrying amount of goodwill; the carrying amount and estimated useful lives of intangible assets; the carrying amount of operating lease right-of-use assets and operating lease liabilities; determining share-based compensation expense; the valuation allowance for receivables; and determining the potential outcome of future tax consequences of events that have been recognized on our consolidated financial statements or tax returns. Actual results could differ from estimates.

REVENUE RECOGNITION

Nature of Products and Services

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. We earn ~~revenue~~the majority of our revenues from ~~software licenses, royalties,~~ subscription-based services ~~software services,~~and post-contract customer support (“PCS” or “maintenance”),. Other sources of revenue are professional services, software licenses and royalties, and hardware and ~~appraisal services.~~other. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, we satisfy a performance obligation

Most of our software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include software services, such as training or installation, are evaluated to determine whether those services are highly interdependent or interrelated to the product’s functionality. The transaction price is allocated to the distinct performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.

~~Significant Judgments:~~

Our contracts with customers often include multiple performance obligations to a customer. When a software arrangement (license or subscription) includes both software licenses and software services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software services and recognized over time.

The transaction price is allocated to the separate performance obligations on a relative SSP basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts.We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine SSP using the expected cost-plus margin approach.

For arrangements that involve significant production, modification, or customization of the software, or where software services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the customer over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred, or value added. The progress-to-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we can provide reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit margin in the range of estimates is used until the results can be estimated more precisely. These arrangements are often implemented over an extended time period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

~~For e-filing transaction fees~~Subscriptions revenue consists of revenue derived from our software as a service ("SaaS") arrangements and transaction-based ~~revenues from~~fees primarily related to digital government services and ~~online payments,~~payment processing. We also provide electronic document filing solutions (“e-filing”) that simplify the filing and management of court related documents for courts and law offices. E-filing revenue is derived from transaction fees and fixed fee arrangements. For transaction-based fees, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period. Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates, additional revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably and its realization is probable.

Other software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include professional services, such as training or installation, are evaluated to determine whether those services are highly interdependent or interrelated to the product’s functionality. The transaction price is allocated to the distinct performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. For arrangements that involve significant production, modification, or customization of the software, or where professional services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the customer over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred, or value added. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Refer to Note ~~15 -~~4, “Disaggregation of ~~Revenue”~~Revenue,” for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenue and cash flows of our various revenue categories.

Contract Balances:

Accounts receivable and allowance for losses and sales adjustments

Timing of revenue recognition may differ from the timing of invoicing to customers. We record an unbilled receivable when revenue is recognized prior to invoicing, or deferred revenue when invoicing occurs prior to revenue ~~is recognized subsequent to invoicing.~~recognition. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record an unbilled receivable related to revenue recognized for on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.

At ~~June 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was ~~$610.2~~$518.0 million and ~~$535.0~~$585.5 million, respectively. We have recorded unbilled receivables of ~~$134.5~~$131.4 million and ~~$140.3~~$135.4 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Included in unbilled receivables are retention receivables of ~~$7.9~~$8.2 million and ~~$7.7~~$8.6 million at ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.

We maintain allowances for losses and sales adjustments, which losses are recorded against revenue at the time the loss is incurred. Since most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for losses and sales adjustments may require revision, include, but are not limited to, managing our client’s expectations regarding the scope of the services to be delivered and defects or errors in new versions or enhancements of our software products. Our allowance for losses and sales adjustments of ~~$12.5 million and $12.1~~$14.8 million at ~~June 30, 2022,~~March 31, 2023 and December 31, ~~2021, respectively,~~2022, does not include provisions for credit losses. Because we rarely experience credit losses with our clients, we have not recorded a material reserve for credit losses.

~~GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~Goodwill~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

There were no new not yet adopted accounting pronouncements currently issued that would affect the Company or have a material impact on its consolidated financial position or results of operations in future periods.

(3) Segment and Related Information

We ~~assess goodwill~~provide integrated information management solutions and services for ~~impairment annually, or more frequently whenever events or changes~~the public sector.

We provide our software systems and related professional services through six business units, which focus on the following products:

•financial management, education and planning, regulatory, and maintenance software solutions;

•financial management, municipal courts, planning, regulatory, and maintenance software solutions;

•courts and justice and public safety software solutions;

•property and recording solutions;

•platform solutions including case management and business process management; and

•digital solutions including payments and government services.

In accordance with ASC 280-10, Segment Reporting, we report our results in ~~circumstances indicate its carrying value may not be recoverable. We begin~~two reportable segments. The Enterprise Software ("ES") reportable segment provides public sector entities with the qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value before applying the quantitative assessment described below. When testing goodwillsoftware systems and services to meet their information technology and automation needs for ~~impairment quantitatively, we first compare the fair value of each reporting unit~~mission-critical “back-office” functions such as: financial management and education; planning, regulatory and maintenance; courts and justice; public safety; and property and recording solutions. The Platform Technologies ("PT") reportable segment provides public sector entities with its carrying amount. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions (Level 3 inputs). The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We base our fair value estimates on assumptions we believesoftware solutions to ~~be reasonable but are inherently uncertain.~~ perform transaction processing, streamline data processing, and improve operations and workflows such as platform solutions and digital solutions.

We evaluate performance based on several factors, of which the ~~reasonableness~~primary financial measure is business segment operating income. We define segment operating income for our business units as income before non-cash amortization of intangible assets associated with their acquisitions, interest expense, and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the ~~fair value calculations~~contractual arrangement. Corporate segment operating loss primarily consists of ~~our reporting units by comparing~~compensation costs for the ~~total of~~executive management team, certain shared services staff, and share-based compensation expense for the ~~fair value of all of our reporting units~~entire company. Corporate segment operating loss also includes revenues and expenses related to ~~our total market capitalization.~~a company-wide user conference.


For the three months ended March 31, 2023	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Subscriptions:
SaaS	$	111,042	$	15,553	$	—	$	126,595
Transaction-based fees	37,372		116,498		—		153,870
Maintenance	110,081		5,049		—		115,130
Professional services	51,499		9,430		—		60,929
Software licenses and royalties	8,068		2,062		—		10,130
Hardware and other	5,199		—		—		5,199
Intercompany	5,083		—		(5,083)		—
Total revenues	$	328,344	$	148,592	$	(5,083)	$	471,853
Segment operating income (loss)	$	99,980	$	29,537	$	(57,210)	$	72,307

~~Determining~~


For the three months ended March 31, 2022	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Subscriptions:
SaaS	$	90,771	$	11,011	$	—	$	101,782
Transaction-based fees	29,545		114,116		—		143,661
Maintenance	110,695		6,334		—		117,029
Professional services	51,167		18,848		—		70,015
Software licenses and royalties	16,105		401		—		16,506
Hardware and other	7,115		—		—		7,115
Intercompany	5,589		—		(5,589)		—
Total revenues	$	310,987	$	150,710	$	(5,589)	$	456,108
Segment operating income (loss)	$	106,529	$	30,733	$	(53,459)	$	83,803


	Three Months Ended March 31,
Reconciliation of reportable segment operating income to the Company's consolidated totals:	2023		2022
Total segment operating income	$	72,307	$	83,803
Amortization of acquired software	(8,920)		(13,221)
Amortization of other intangibles	(18,407)		(14,714)
Interest expense	(7,684)		(4,804)
Other income, net	1,246		364
Income before income taxes	$	38,542	$	51,428

(4) Disaggregation of Revenue

The tables below show disaggregation of revenue into categories that reflect how economic factors affect the ~~fair value~~nature, amount, timing, and uncertainty of revenues and cash flows.

Timing of Revenue Recognition

Timing of revenue recognition by revenue category during the period is as follows:


For the three months ended March 31, 2023	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Subscriptions:
SaaS	$	—	$	126,595	$	126,595
Transaction-based fees	—		153,870		153,870
Maintenance	—		115,130		115,130
Professional services	—		60,929		60,929
Software licenses and royalties	9,281		849		10,130
Hardware and other	5,199		—		5,199
Total	$	14,480	$	457,373	$	471,853


For the three months ended March 31, 2022	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Subscriptions:
SaaS	$	—	$	101,782	$	101,782
Transaction-based fees	—		143,661		143,661
Maintenance	—		117,029		117,029
Professional services	—		70,015		70,015
Software licenses and royalties	14,069		2,437		16,506
Hardware and other	7,115		—		7,115
Total	$	21,184	$	434,924	$	456,108

Recurring Revenues

The majority of our ~~reporting units involves the use~~revenue is comprised of ~~significant estimates~~revenues from subscriptions and ~~assumptions and considerable management judgment. We base our fair value estimates on assumptions~~maintenance, which we ~~believe~~consider to be ~~reasonable at~~recurring revenues. Subscriptions revenue primarily consists of revenues derived from our SaaS arrangements and transaction-based fees, which relate to digital government services, e-filing transactions, and payment processing. The contract terms for subscription arrangements range from one to 10 years but are typically contracted for initial periods of three to five years. Virtually all of our on-premises software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenues. That maintenance and support is generally provided under annual, or in some cases, multi-year contracts. We consider all other revenue categories to be non-recurring revenues.

Recurring revenues and non-recurring revenues recognized during the ~~time, but such assumptions~~period are ~~subject to inherent uncertainty.~~ as follows:


For the three months ended March 31, 2023	Enterprise Software		Platform Technologies		Corporate		Totals
Recurring revenues	$	258,495	$	137,100	$	—	$	395,595
Non-recurring revenues	64,766		11,492		—		76,258
Intercompany	5,083		—		(5,083)		—
Total revenues	$	328,344	$	148,592	$	(5,083)	$	471,853


For the three months ended March 31, 2022	Enterprise Software		Platform Technologies		Corporate		Totals
Recurring revenues	$	231,011	$	131,461	$	—	$	362,472
Non-recurring revenues	74,387		19,249		—		93,636
Intercompany	5,589		—		(5,589)		—
Total revenues	$	310,987	$	150,710	$	(5,589)	$	456,108

(5) Deferred Revenue and Performance Obligations

Total deferred revenue, including long-term, by segment is as follows:


	March 31, 2023		December 31, 2022
Enterprise Software	$	462,043	$	533,902
Platform Technologies	29,776		33,691
Corporate	7,176		2,982
Totals	$	498,995	$	570,575

Changes in ~~market conditions or other factors outside~~total deferred revenue, including long-term, were as follows:


	Three months ended March 31, 2023
Balance as of December 31, 2022	$	570,575
Deferral of revenue	256,257
Recognition of deferred revenue	(327,837)
Balance as of March 31, 2023	$	498,995

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized (“backlog”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of March 31, 2023, was $1.85 billion, of which we expect to recognize approximately 46% as revenue over the next 12 months and the remainder thereafter.

(6) Deferred Commissions

Sales commissions earned by our ~~control, such as~~sales force are considered incremental and recoverable costs of obtaining a ~~worsening~~contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of ~~expected impact~~associated revenue over a period of COVID-19, could cause us to change key assumptions and our judgment about a reporting unit’s prospects. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge.

~~We performed our annual assessment during the fourth quarter of 2021, in which our impairment analysis did not result in an impairment charge. Since our assessment and through June 30, 2022,~~benefit that we have ~~had~~determined to be generally three to seven years. Deferred commissions were $44.3 million and $43.8 million as of March 31, 2023, and December 31, 2022, respectively. Amortization expense was $4.3 million and $3.5 million for the three months ended March 31, 2023 and 2022, respectively. There were no ~~triggering events or change~~indicators of impairment in ~~circumstances indicating any potential impairment.~~

~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS~~

~~In October 2021,~~relation to the ~~FASB issued ASU 2021-08 - Accounting~~costs capitalized for ~~Contract Assets and Contract Liabilities from Contracts~~the periods presented. Deferred commissions have been included with Customers (ASC 805)(“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. Under this "Topic 606 approach," the acquirer applies the revenue model as if it had originated the contracts. This is a departure fromprepaid expenses for the current ~~requirement~~portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to ~~measure contract assets~~deferred commissions is included in sales and ~~contract liabilities at fair value. ASU 2021-08 is effective for all public business entities~~marketing expense in ~~annual and interim periods starting after December 15, 2022, and early adoption is permitted. An entity that early adopts should apply~~ the ~~amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning~~accompanying condensed consolidated statements of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. We early adopted as of January 1, 2022. The adoption of ASU 2021-08 resulted in no adjustments to the fair value of the deferred revenue balances assumed in our US eDirect acquisition, completed on February 8, 2022. See Note 3, “Acquisitions,” for further discussion.income.

~~(3)~~(7) Acquisitions

On ~~February 8,~~October 31, 2022, we acquired ~~US eDirect Inc. (US eDirect)~~Rapid Financial Solutions, LLC (Rapid), a ~~market-leading~~ provider of ~~technology solutions for campground~~reliable, scalable, and ~~outdoor recreation management.~~secure payments with best-in-class card issuance and digital disbursement capabilities. The total purchase price, net of cash acquired of ~~$6.4~~$2.2 million, was approximately ~~$116.7~~$67.4 million, consisting of ~~$117.6~~$51.5 million paid in cash and ~~approximately $5.5~~$18.2 million ~~related to indemnity holdbacks, subject to certain post-closing adjustments.~~of common stock.

We have performed a preliminary valuation analysis of the fair market value of ~~US eDirect's~~Rapid’s assets and liabilities. ~~The following table summarizes the preliminary allocation of the purchase price as of the acquisition date:~~


~~Cash~~	$	~~6,361~~
~~Accounts receivable~~	~~1,730~~
~~Other current assets~~	~~594~~
~~Other noncurrent assets~~	~~698~~
~~Goodwill and identifiable intangible assets~~	~~125,751~~
~~Accounts payable~~	~~(1,881)~~
~~Accrued expenses~~	~~(357)~~
~~Other noncurrent liabilities~~	~~(743)~~
~~Deferred revenue~~	~~(688)~~
~~Deferred tax liabilities, net~~	~~(8,428)~~
~~Total consideration~~	$	~~123,037~~

In connection with this transaction, we acquired total tangible assets of ~~$9.4~~$12.9 million and assumed liabilities of approximately ~~$3.7~~$10.6 million. In the first quarter of 2023, we recorded $10.0 million for assumed liabilities related to litigation outstanding at the time of acquisition as the amount became probable and estimable and a related $10.0 million indemnification receivable from escrowed amounts established at acquisition. We recorded goodwill of approximately ~~$91.7~~$40.0 million, ~~none~~all of which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately ~~$34.1~~$27.6 million. The identifiable intangible assets are attributable to customer relationships, acquired software, and trade name and will be amortized over a weighted average period of approximately 13 years. We recorded net deferred tax liabilities of $8.4 million related to the tax effect of our estimated fair value allocations. Since the acquisition date, we recorded adjustments to the preliminary opening balance sheet attributed to decreases in other current assets, other noncurrent assets, identifiable intangible assets, accrued expenses, and deferred revenue and increases in accounts receivable, accounts payable, and deferred tax liabilities, resulting in a net increase to goodwill ~~of approximately $10.5 million.~~

~~The goodwill of approximately $91.7 million~~ arising from this acquisition is primarily attributed to our ability to generate increased revenues, earnings and cash flow by expanding our addressable market and client base. The $27.6 million of intangible assets are attributable to customer relationships, acquired software, and trade name and will be amortized over a weighted average period of approximately 10 years.

The operating results of ~~US eDirect~~Rapid are included with the operating results of the Platform Technologies segment since its date of ~~acquisition. The~~acquisition and the impact of ~~the US eDirect~~this acquisition on our operating results, assets, and liabilities is not material. For the six months ended June 30, 2022, we incurred fees of approximately $1.0 million for financial advisory, legal, accounting, due diligence, valuation, and other various services necessary to complete acquisitions. These costs were expensed in 2022 and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

As of ~~June 30, 2022,~~March 31, 2023, the purchase price allocation for ~~US eDirect~~Rapid is not final; therefore, certain preliminary valuation estimates of fair value assumed at the acquisition date for intangible assets, receivables, and related deferred taxes are subject to change as valuations are finalized. Our balance sheet as of ~~June 30, 2022,~~March 31, 2023, reflects the allocation of the purchase price to the net assets acquired based on their estimated fair value at the date of the acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level 3 unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following unaudited pro forma consolidated operating results information has been prepared as if the acquisition of US eDirect had occurred on January 1, 2021, after giving effect to certain adjustments, including amortization of intangibles, transaction costs, and tax effects.

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues $ 468,685 $ 409,555 $ 926,014 $ 707,967
Net income 39,946 25,991 68,183 62,099
Basic earnings per share $ 0.96 $ 0.64 $ 1.64 $ 1.52
Diluted earnings per share $ 0.94 $ 0.62 $ 1.61 $ 1.47

The pro forma information above does not purport to represent what our results of operations actually would have been had such transaction occurred on the date specified or to project our results of operations for any future period.

1213

~~(4)~~(8) Debt

The following table summarizes our total outstanding borrowings related to the 2021 Credit Agreement and Convertible Senior Notes:


		Rate	Maturity Date	June 30, 2022		December 31, 2021			Rate	Maturity Date	March 31, 2023		December 31, 2022
2021 Credit Agreement	2021 Credit Agreement							2021 Credit Agreement
Revolving credit facility	Revolving credit facility	L + 1.50%	April 2026	$	—	$	—	Revolving credit facility	S + 1.50%	April 2026	$	—	$	—
Term Loan A-1	Term Loan A-1	L + 1.50%	April 2026	570,000		585,000		Term Loan A-1	S + 1.50%	April 2026	250,000		290,000
Term Loan A-2	Term Loan A-2	L + 1.25%	April 2024	105,000		170,000		Term Loan A-2	S + 1.25%	April 2024	25,000		105,000
Convertible Senior Notes due 2026	Convertible Senior Notes due 2026	0.25%	March 2026	600,000		600,000		Convertible Senior Notes due 2026	0.25%	March 2026	600,000		600,000
Total borrowings	Total borrowings			1,275,000		1,355,000		Total borrowings			875,000		995,000
Less: unamortized debt discount and debt issuance costs	Less: unamortized debt discount and debt issuance costs			(11,912)		(13,724)		Less: unamortized debt discount and debt issuance costs			(6,483)		(7,611)
Total borrowings, net	Total borrowings, net			1,263,088		1,341,276		Total borrowings, net			868,517		987,389

Less: current portion of debt	Less: current portion of debt			(30,000)		(30,000)		Less: current portion of debt			(30,000)		(30,000)
Carrying value	Carrying value			$	1,233,088	$	1,311,276	Carrying value			$	838,517	$	957,389

2021 Credit Agreement

In connection with the completion of the acquisition of NIC on April 21, 2021, we, as borrower, entered into a new $1.4 billion Credit Agreement (the “2021 Credit Agreement”) with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender. The 2021 Credit Agreement provides for (1) a senior unsecured revolving credit facility in an aggregate principal amount of up to $500 million, including sub-facilities for standby letters of credit and swingline loans (the “Revolving Credit Facility”), (2) an amortizing five-year term loan in the aggregate amount of $600 million (the “Term Loan A-1”), and (3) a non-amortizing three-year term loan in the aggregate amount of $300 million (the “Term Loan A-2”) and, together (the “Term Loans”). The 2021 Credit Agreement matures on April 20, 2026, and the loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any ~~LIBOR~~ breakage costs. In addition to the required amortization payments on the Term Loan A-1 of 5% annually, certain mandatory quarterly prepayments of the Term Loans and the Revolving Credit Facility will be required (i) upon the issuance or incurrence of additional debt not otherwise permitted under the 2021 Credit Agreement and (ii) upon the occurrence of certain asset sales and insurance and condemnation recoveries, subject to certain thresholds, baskets, and reinvestment provisions as provided in the 2021 Credit Agreement.

~~Borrowings~~On January 28, 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the Secured Overnight Financing Rate (“SOFR”) reference rate.

In accordance with our amended 2021 Credit Agreement, the borrowings under the Revolving Credit Facility and the Term Loan A-1 bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) (the “Base Rate”) plus a margin of 0.125% to 0.75% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month ~~LIBOR~~SOFR rate plus a margin of 1.125% to 1.75%. The Term Loan A-2 bears interest, at the Company’s option, at a per annum rate of either (1) the Base Rate plus a margin of 0% to 0.5% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month ~~LIBOR~~SOFR rate plus a margin of 0.875% to 1.5%. The margin in each case is based upon the Company’s total net leverage ratio, as determined pursuant to the 2021 Credit Agreement. ~~The 2021 Credit Agreement has customary benchmark replacement language with respect to the replacement of LIBOR once LIBOR becomes unavailable.~~ In addition to paying interest on the outstanding principal of loans under the Revolving Credit Facility, the Company is required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility, ~~initially~~currently 0.25% per annum, ranging from 0.15% to 0.3% based upon the Company’s total net leverage ratio.

The amended 2021 Credit Agreement requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of ~~June 30, 2022,~~March 31, 2023, we were in compliance with those covenants.

The carrying amount is the par value of the Revolving Credit Facility and Term Loans less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the terms of the Term Loans. Interest expense is included in the accompanying condensed consolidated statements of income.

Convertible Senior Notes due 2026

On March 9, 2021, we issued 0.25% Convertible Senior Notes due 2026 in the aggregate principal amount of $600.0 million (“the Convertible Senior Notes” or “the Notes”). The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 9, 2021, with U.S. Bank National Association, as trustee. The net proceeds from the issuance of the Convertible Senior Notes were $591.4 million, net of initial purchasers’ discounts of $6.0 million and debt issuance costs of $2.6 million.

The Convertible Senior Notes are senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

The Convertible Senior Notes accrue interest at a rate of 0.25% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Convertible Senior Notes mature on March 15, 2026, unless earlier repurchased, redeemed, or converted.

Before September 15, 2025, holders of the Convertible Senior Notes have the right to convert their Convertible Senior Notes only upon the occurrence of certain events. Under the terms of the Indenture, the Convertible Senior Notes are convertible into common stock of Tyler Technologies, Inc. (referred to as “our common stock” herein) at the following times or circumstances:

•during any calendar quarter commencing after the calendar quarter ended June 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

•during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of Convertible Senior Notes, as determined following a request by their holder in accordance with the procedures in the ~~indenture,~~Indenture, for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

•upon the occurrence of certain corporate events or distributions on our common stock, including but not limited to a “Fundamental Change” (as defined in the Indenture);

•upon the occurrence of specified corporate events; or

•on or after September 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, March 15, 2026.

With certain exceptions, upon a change of control or other fundamental change (both as defined in the Indenture governing the Convertible Senior Notes), the holders of the Convertible Senior Notes may require us to repurchase all or part of the principal amount of the Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes, plus any accrued and unpaid interest to, but excluding, the redemption date.

As of ~~June 30, 2022,~~March 31, 2023, none of the conditions allowing holders of the Convertible Senior Notes to convert have been met.

From and including September 15, 2025, holders of the Convertible Senior Notes may convert their Convertible Senior Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle any conversions of the Convertible Senior Notes either entirely in cash or in a combination of cash and shares of our common stock, at our election. However, upon conversion of any Convertible Senior Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted.

The initial conversion rate is 2.0266 shares of common stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $493.44 per share of common stock. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Convertible Senior Notes are redeemable, in whole or in part, at our option at any time, and from time to time, on or after March 15, 2024 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price of the Notes on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. In addition, calling any Note for redemption constitutes a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

Effective Interest

The weighted average interest rates for the borrowings under the 2021 Credit Agreement and Convertible Senior Notes due 2026 were ~~2.71%~~6.38% and 0.25%, as of ~~June 30, 2022,~~March 31, 2023, respectively. During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, the effective interest rates for our borrowings were ~~2.38%~~6.98% and 0.54% for the 2021 Credit Agreement and the Convertible Senior Notes, respectively. The following sets forth the interest expense recognized related to the borrowings under the 2021 Credit Agreement and Convertible Senior Notes and is included in interest expense in the accompanying condensed consolidated statements of income:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Contractual interest expense - Revolving Credit Facility	Contractual interest expense - Revolving Credit Facility	$	(315)	$	(534)	$	(628)	$	(534)	Contractual interest expense - Revolving Credit Facility	$	(313)	$	(313)
Contractual interest expense - Term Loans	Contractual interest expense - Term Loans	(4,375)		(2,660)		(7,369)		(2,660)		Contractual interest expense - Term Loans	(5,641)		(2,994)
Contractual interest expense - Convertible Senior Notes	Contractual interest expense - Convertible Senior Notes	(375)		(375)		(750)		(458)		Contractual interest expense - Convertible Senior Notes	(375)		(375)
Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	(1,149)		(959)		(2,271)		(1,054)		Amortization of debt discount and debt issuance costs	(1,355)		(1,122)
Interest expense and amortization of debt issuance costs - terminated 2019 Credit Agreement and Senior Unsecured Bridge loan facility		—		(7,909)		—		(8,209)

Total	Total	$	(6,214)	$	(12,437)	$	(11,018)	$	(12,915)	Total	$	(7,684)	$	(4,804)

As of June 30, 2022, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026. Under our 2021 Credit Agreement, we had $675 million in outstanding principal for the unsecured term loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of $500 million as of June 30, 2022. As of June 30, 2022,March 31, 2023, we had one outstanding standalone letter of credit totaling ~~$2.0~~$1.5 million. The letter of credit, which guarantees our performance under a client contract, renews automatically annually unless canceled in writing, and expires in the third quarter of 2026. For the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, we repaid ~~$80.0~~$120.0 million of the ~~unsecured term loans~~Term Loans under the 2021 Credit Agreement.

In the six months ended June 30, 2022, and 2021, respectively, we made interest payments of $5.7 million and $9.4 million, associated with the 2021 Credit Agreement and the Convertible Senior Notes, including payment of a $6.4 million commitment fee related to the senior unsecured bridge loan facility paid in 2021.

~~(5)~~(9) Financial Instruments

The following table presents our financial instruments:


		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents	$	253,062	$	309,171	Cash and cash equivalents	$	130,845	$	173,857
Held-to-maturity investments		—		98,653

Available-for-sale investments	Available-for-sale investments	60,930		—		Available-for-sale investments	43,354		55,538
Equity investments	Equity investments	10,000		10,000		Equity investments	10,000		10,000
Total	Total	$	323,992	$	417,824	Total	$	184,199	$	239,395

Cash and cash equivalents consist primarily of money market funds with original maturity dates of three months or less, for which we determine fair value through quoted market prices.

Our available-for-sale securities were historically classified as held-to-maturity. During the fourth quarter of 2021, management determined that our investment portfolio would be transferred from held-to-maturity to available-for-sale, in order to have the flexibility to buy and sell investments and maximize cash liquidity for potential acquisitions or for debt repayments. Accordingly, our investment portfolio is now classified as available-for-sale as of June 30, 2022. Our available-for-sale investments primarily consist of investment grade corporate bonds, municipal bonds, and asset-backed securities with maturity dates through 2027. These investments are presented at fair value and are included in short-term investments and non-current investments in the accompanying condensed consolidated balance sheets. Unrealized gains or losses associated with the investments are included in accumulated other comprehensive loss, net of tax in the accompanying condensed consolidated balance sheets and statements of comprehensive income. For our available-for-sale investments, we do not have the intent to sell, nor is it more likely than not that we would be required to sell before recovery of their cost basis.

As of ~~June 30, 2022,~~March 31, 2023, we have an accrued interest receivable balance of approximately ~~$318,000~~$202,000 which is included in accounts receivable, net. We do not measure an allowance for credit losses for accrued interest receivables. We record any losses within the maturity period or at the time of sale of the investment and any write-offs to accrued interest receivables are recorded as a reduction to interest income in the period of the loss. During the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, we have recorded no credit losses for accrued interest receivables. Interest income and amortization of discounts and premiums are included in other income, net in the accompanying condensed consolidated statements of income.

The following table presents the components of our available-for-sale investments:


	~~June 30, 2022~~		~~December 31, 2021~~
~~Amortized cost~~	$	~~62,016~~	$	—
~~Unrealized gains~~	39		—
~~Unrealized losses~~	~~(1,125)~~		—
~~Estimated fair value~~	$	~~60,930~~	$	—


	March 31, 2023		December 31, 2022
Amortized cost	$	44,360	$	56,670
Unrealized gains	2		16
Unrealized losses	(1,008)		(1,148)
Estimated fair value	$	43,354	$	55,538

As of ~~June 30, 2022,~~March 31, 2023, we have ~~$34.5~~$28.8 million of available-for-sale debt securities with contractual maturities of one year or less and ~~$26.5~~$14.5 million with contractual maturities great than one year. As of March 31, 2023, 13 available-for-sale debt securities with a fair value of $11.6 million have been in a loss position for one year or less and 30 securities with a fair value of $24.1 million have been in a loss position for greater than one year.

The following table presents the activity on our available-for-sale investments:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Proceeds from sales and maturities	Proceeds from sales and maturities	$	17,923	$	56,364	$	40,595	$	91,395	Proceeds from sales and maturities	$	22,975	$	22,672
Realized losses on sales, net of tax		(48)		—		(7)		—
Realized gains on sales, net of tax										Realized gains on sales, net of tax	—		41

Our equity investments consist of an 18% interest in BFTR, LLC., a wholly owned subsidiary of Bison Capital Partners V L.P. BFTR, LLC is a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in common stock is ~~accounted for under the equity method~~carried at cost less any impairment write-downs because we do not have the ability to exercise significant influence over the ~~investee;~~investee and as the securities do not have readily determinable fair ~~values, our investment is carried at cost less any impairment write-downs.~~

values.

~~(6)~~(10) Other Comprehensive Income (Loss)

The following ~~tables present~~table presents the changes in the balances of accumulated other comprehensive loss, net of tax by component:

Unrealized Loss On Available-For-Sales Securities Other Accumulated Other Comprehensive Loss
Balance as of March 31, 2022 $ (743) $ — $ (743)
Other comprehensive loss before reclassifications (114) — (114)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity — — —
Reclassification adjustment for net loss on sale of available-for-sale securities, included in net income 48 — 48
Other comprehensive loss (66) — (66)
Balance as of June 30, 2022 $ (809) $ — $ (809)


	Unrealized Loss On Available-for-Sale Securities		Other		Accumulated Other Comprehensive Loss




Balance as of December 31, 2022	$	(844)	$	—	$	(844)
Other comprehensive income before reclassifications	94		—		94
Reclassification adjustment of unrealized gains (losses) on securities transferred from held-to-maturity	—		—		—
Reclassification adjustment for net (gain) loss on sale of available-for-sale securities, included in net income	—		—		—
Other comprehensive income	94		—		94
Balance as of March 31, 2023	$	(750)	$	—	$	(750)


		Unrealized Loss On Available-For-Sales Securities		Other		Accumulated Other Comprehensive Loss			Unrealized Loss On Available-for-Sale Securities		Other		Accumulated Other Comprehensive Loss

Balance as of December 31, 2021	Balance as of December 31, 2021	$	(46)	$	—	$	(46)	Balance as of December 31, 2021	$	(46)	$	—	$	(46)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(743)		—		(743)		Other comprehensive loss before reclassifications	(629)		—		(629)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	(27)		—		(27)		Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	(27)		—		(27)
Reclassification adjustment for net loss on sale of available-for-sale securities, included in net income		7		—		7
Reclassification adjustment for net gain on sale of available-for-sale securities, included in net income								Reclassification adjustment for net gain on sale of available-for-sale securities, included in net income	(41)		—		(41)
Other comprehensive loss	Other comprehensive loss	(763)		—		(763)		Other comprehensive loss	(697)		—		(697)
Balance as of June 30, 2022		$	(809)	$	—	$	(809)
Balance as of March 31, 2022								Balance as of March 31, 2022	$	(743)	$	—	$	(743)

~~(7)~~

(11) Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. Guidance on fair value measurements and disclosures establishes a valuation hierarchy for disclosure of inputs used in measuring fair value defined as follows:

•Level 1—Inputs are unadjusted quoted prices that are available in active markets for identical assets or liabilities.

•Level 2—Inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in non-active markets, inputs other than quoted prices that are observable, and inputs that are not directly observable, but are corroborated by observable market data.

•Level 3—Inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment.

The classification of a financial asset or liability within the hierarchy is determined based on the least reliable level of input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We also consider the counterparty and our own non-performance risk in our assessment of fair value.

The following table presents fair values of our financial and debt instruments categorized by their fair value hierarchy as of ~~June 30, 2022:~~March 31, 2023:


		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Available-for-sale investments	Available-for-sale investments	$	—	$	60,930	$	—	$	60,930	Available-for-sale investments	$	43,354	$	—	$	—	$	43,354
Equity investments	Equity investments	—		—		10,000		10,000		Equity investments	—		—		10,000		10,000
2021 Credit Agreement	2021 Credit Agreement									2021 Credit Agreement
Revolving Credit Facility	Revolving Credit Facility	—		—		—		—		Revolving Credit Facility	—		—		—		—
Term Loan A-1	Term Loan A-1	—		566,034		—		566,034		Term Loan A-1	—		248,679		—		248,679
Term Loan A-2	Term Loan A-2	—		103,430		—		103,430		Term Loan A-2	—		24,924		—		24,924
Convertible Senior Notes due 2026	Convertible Senior Notes due 2026	—		567,006		—		567,006		Convertible Senior Notes due 2026	—		576,714		—		576,714

Assets that are Measured at Fair Value on a Recurring Basis

Cash and cash equivalents, accounts receivable, accounts payable, short-term obligations and certain other assets at cost approximate fair value because of the short maturity of these instruments.

As of ~~June 30, 2022,~~March 31, 2023, we have ~~$60.9~~$43.4 million in ~~available-for-sale~~ investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates through 2027. The fair values of these securities are considered Level 21 as they are based on inputs from unadjusted quoted prices ~~in markets~~ that are ~~not~~available in active markets for identical assets or ~~other observable market data.~~liabilities.

Assets that are Measured at Fair Value on a Nonrecurring Basis

As of ~~June 30, 2022,~~March 31, 2023, we have an 18% interest in BFTR, LLC. As we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values, our investment is carried at cost less any impairment write-downs. Periodically, our ~~equity method investments are~~investment is assessed for impairment. We do not reassess the fair value of ~~equity method~~the investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. No events or changes in circumstances have occurred during the period that require reassessment. There has been no impairment of ~~our cost method~~this investment for the periods presented. This investment is included in other non-current assets in the accompanying condensed consolidated balance sheets.

We assess goodwill for impairment annually on October 1. In addition, we review goodwill, property and equipment, and other intangibles for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. During the fourth quarter of ~~2021,~~2022, we completed our annual assessment of goodwill which did not result in an impairment charge. Further, we identified no indicators of impairment to long-lived and other assets and therefore, no impairment was recorded as of and for the ~~three and six months~~period ended ~~June 30, 2022.~~March 31, 2023.

Financial instruments measured at fair value only for disclosure purposes

The fair value of our borrowing under our amended 2021 Credit Agreement would approximate book value as of ~~June 30, 2022,~~March 31, 2023, because our interest rates reset approximately every 30 days or less.

The carrying amount of the Revolving Credit Facility and Term Loans is the par value less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the terms of the Term Loans. Interest expense is included in the accompanying condensed consolidated statements of income.

The fair value of our Convertible Senior Notes due 2026 is determined based on quoted market prices for a similar liability when traded as an asset in an active market, a Level 2 input. See Note 4,8, “Debt,” for further discussion.

The carrying amount of the Convertible Senior Notes due 2026 is the par value less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the term of the Convertible Senior Notes. Interest expense is included in the accompanying condensed consolidated statements of income.

The following table presents the fair value and carrying value, net, of the 2021 Credit Agreement and our Convertible Notes due 2026):


		Fair Value at				Carrying Value at					Fair Value at				Carrying Value at
		June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
2021 Credit Agreement	2021 Credit Agreement									2021 Credit Agreement
Revolving Credit Facility	Revolving Credit Facility	$	—	$	—	$	—	$	—	Revolving Credit Facility	$	—	$	—	$	—	$	—
Term Loan A-1	Term Loan A-1	566,034		580,515		566,034		580,515		Term Loan A-1	248,679		288,302		248,679		288,302
Term Loan A-2	Term Loan A-2	103,430		167,997		103,430		167,996		Term Loan A-2	24,924		104,603		24,924		104,603
Convertible Notes due 2026		567,006		736,662		593,624		592,765
Convertible Senior Notes due 2026										Convertible Senior Notes due 2026	576,714		560,910		594,914		594,484
		$	1,236,470	$	1,485,174	$	1,263,088	$	1,341,276		$	850,317	$	953,815	$	868,517	$	987,389

~~(8)~~(12) Income Tax Provision

We had an effective income tax rate of ~~21.3% and 21.8%~~19.9% for the three ~~and six~~ months ended ~~June 30, 2022, respectively,~~March 31, 2023, compared to ~~2.2% and 2.9%~~22.3% for the three ~~and six~~ months ended ~~June 30, 2021, respectively.~~March 31, 2022. The ~~increase~~decrease in the effective tax ~~rates~~rate for the three ~~and six~~ months ended ~~June 30, 2022, respectively,~~March 31, 2023, as compared to the ~~same~~prior period, ~~in 2021,~~ was principally driven by an increase in research tax credit benefits, offset by a decrease in ~~the~~ excess tax benefits related to stock incentive awards and ~~an increase in reserves~~liabilities for ~~state income~~uncertain tax ~~benefits which are no longer more likely than not to be realized.~~positions.

The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 21% primarily due to the tax benefits of research tax credits and excess tax benefits related to stock incentive awards, ~~and the tax benefit of research tax credits,~~ offset by state income taxes, liabilities for uncertain tax positions, and non-deductible ~~business~~expenses.

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to currently deduct research and development expenses and ~~reserves~~requires taxpayers to capitalize and amortize them over five years for ~~unrecognized~~research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. The requirement temporarily increases our U.S. federal and state cash tax payments and reduces cash flows in fiscal year 2023 and future years until the amortization deduction normalizes. Subsequent to March 31, 2023, we have paid approximately $66.9 million of income ~~tax benefits. The excess tax benefits~~taxes related to stock incentive awards realized were $1.7 million and $4.7 million for the three and six months ended June 30, 2022, respectively, as compared to $6.4 million and $15.2 million for the three and six months ended June 30, 2021, respectively. Excluding the excess tax benefits, the effective tax rate was 24.6% and 26.4% for the three and six months ended June 30, 2022, respectively, compared to 26.7% and 26.5% for the three and six months ended June 30, 2021, respectively.

~~We made tax payments of $24.3 million and $967,000 in the six months ended June 30, 2022, and 2021, respectively.~~Section 174.

~~(9) Shareholders’ Equity~~

~~The following table details activity in our common stock ($ in thousands):~~

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Shares Amount Shares Amount Shares Amount Shares Amount
Purchases of treasury shares — $ — (32) $ (12,975) — $ — (32) $ (12,975)
Stock option exercises 51 8,178 89 11,286 101 16,223 210 29,388
Employee stock plan purchases 12 4,478 9 3,162 20 8,156 17 6,200
Restricted stock units vested, net of withheld shares upon award settlement 50 (7,743) 43 (7,052) 128 (20,330) 99 (16,010)

~~As of June 30, 2022, we have authorization from our board of directors to repurchase up to 2.4 million additional shares of our common stock.~~

~~(10)~~(13) Share-Based Compensation

The following table summarizes share-based compensation expense related to share-based awards recorded in the condensed consolidated statements of income, pursuant to ASC 718, Stock Compensation:

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Subscriptions, software services and maintenance $ 6,867 $ 5,909 $ 13,639 $ 10,909
Selling, general and administrative expenses 18,933 19,266 37,440 39,990
Total share-based compensation expense $ 25,800 $ 25,175 $ 51,079 $ 50,899


	Three Months Ended March 31,
	2023		2022
Subscriptions, maintenance, and professional services	$	6,342	$	6,772
Sales and marketing expense	2,393		2,140
General and administrative expense	19,161		16,367
Total share-based compensation expense	$	27,896	$	25,279

~~(11)~~(14) Earnings Per Share

The following table details the reconciliation of basic earnings per share to diluted earnings per share:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Numerator for basic and diluted earnings per share:	Numerator for basic and diluted earnings per share:									Numerator for basic and diluted earnings per share:
Net income	Net income	$	39,946	$	25,530	$	79,930	$	62,506	Net income	$	30,875	$	39,984
Denominator:	Denominator:									Denominator:
Weighted-average basic common shares outstanding	Weighted-average basic common shares outstanding	41,500		40,765		41,499		40,761		Weighted-average basic common shares outstanding	41,832		41,364
Assumed conversion of dilutive securities:	Assumed conversion of dilutive securities:									Assumed conversion of dilutive securities:
Stock awards	Stock awards	821		1,329		950		1,387		Stock awards	674		1,079
Convertible Senior Notes	Convertible Senior Notes	—		—		—		—		Convertible Senior Notes	—		—
Denominator for diluted earnings per share - Adjusted weighted-average shares	Denominator for diluted earnings per share - Adjusted weighted-average shares	42,321		42,094		42,449		42,148		Denominator for diluted earnings per share - Adjusted weighted-average shares	42,506		42,443
Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.96	$	0.63	$	1.93	$	1.53	Basic	$	0.74	$	0.97
Diluted	Diluted	$	0.94	$	0.61	$	1.88	$	1.48	Diluted	$	0.73	$	0.94

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ stock awards, representing the right to purchase common stock of approximately ~~486,000~~501,000 shares and ~~350,000 shares and 191,000 shares and 166,000~~215,000 shares, respectively, were not included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

We have used the if-converted method for calculating any potential dilutive effect of the Convertible Senior Notes due 2026 on our diluted net income per share. Under the if-converted method, the Notes are assumed to be converted at the beginning of the period and the resulting common shares are included in the denominator of the diluted earnings per share calculation for the entire period being presented and interest expense, net of tax, recorded in connection with the Convertible Senior Notes is not added back to the numerator, only in the periods in which such effect is dilutive. The approximately 1.2 million remaining resulting common shares related to the Notes are not included in the dilutive weighted-average common shares outstanding calculation for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ as their effect would be ~~anti-dilutive~~antidilutive given none of the conversion features have been triggered. See Note ~~4, "Debt"~~8, “Debt,” for discussion on the conversion features related to the Convertible Senior Notes.

~~(12)~~(15) Leases

We lease office facilities for use in our operations, as well as transportation and other equipment. Most of our leases are non-cancelable operating lease agreements with original maturities between one to ~~10 years from the execution date.~~12 years. Some of these leases include options to extend for up to ~~five~~six years. We have no finance leases and no related party lease agreements as of ~~June 30, 2022.~~March 31, 2023. Right-of-use lease assets and lease liabilities for our operating leases ~~were~~are recorded in the condensed consolidated balance sheets. During the three months ended March 31, 2023, we incurred lease restructuring costs, resulting in an additional $1.4 million of operating lease costs.

The components of operating lease expense were as follows:


Lease Costs	Lease Costs	Three Months Ended June 30,				Six Months Ended June 30,				Lease Costs	Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Operating lease cost	Operating lease cost	$	2,586	$	4,388	$	6,008	$	6,110	Operating lease cost	$	4,391	$	3,422
Short-term lease cost	Short-term lease cost	488		731		994		1,212		Short-term lease cost	523		506
Variable lease cost	Variable lease cost	204		496		574		927		Variable lease cost	320		370
Net lease cost	Net lease cost	$	3,278	$	5,615	$	7,576	$	8,249	Net lease cost	$	5,234	$	4,298

Supplemental information related to leases is as follows:


Other Information	Other Information	Six Months Ended June 30,						Other Information	Three Months Ended March 31,
		2022			2021				2023			2022
Cash flows:	Cash flows:							Cash flows:
Cash amounts paid included in the measurement of lease liabilities:
Cash paid amounts included in the measurement of lease liabilities:								Cash paid amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	Operating cash outflows from operating leases	$	7,238		$	6,203		Operating cash outflows from operating leases	$	2,510		$	3,613

Right-of-use assets obtained in exchange for lease obligations (non-cash):	Right-of-use assets obtained in exchange for lease obligations (non-cash):							Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	Operating leases	$	6,606		$	2,961		Operating leases	$	1,406		$	4,980

Lease term and discount rate:	Lease term and discount rate:							Lease term and discount rate:
Weighted average remaining lease term (years)	Weighted average remaining lease term (years)	5.8			3.9			Weighted average remaining lease term (years)	7.1			5.4
Weighted average discount rate	Weighted average discount rate	1.64		%	2.51		%	Weighted average discount rate	1.59		%	1.72		%

Rental Income from third parties

We own office buildings in Bangor, Falmouth, and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; and Moraine, Ohio. We lease space in some of these buildings to third-party tenants. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between ~~2022~~2023 and 2027, and some have options to extend the lease for up to 10 years. We determine if an arrangement is a lease at inception. None of our leases allow the lessee to purchase the leased asset.

Rental income from third-party tenants for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 totaled ~~$493,000 and $798,000, respectively,~~$466,000 and for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 totaled ~~$296,000 and $590,000, respectively.~~$305,000. Rental income is included in hardware and other revenue in the condensed consolidated statements of income. As of ~~June 30, 2022,~~March 31, 2023, future minimum operating rental income based on contractual agreements is as follows:


Year ending December 31,	Year ending December 31,	Amount		Year ending December 31,	Amount
2022 (Remaining)		$	914
2023		1,858
2023 (Remaining)				2023 (Remaining)	$	1,412
2024	2024	1,898		2024	1,906
2025	2025	1,363		2025	1,363
2026	2026	408		2026	408
2027				2027	131
Thereafter	Thereafter	131		Thereafter	—
Total	Total	$	6,572	Total	$	5,220

~~(13)~~(16) Commitments and Contingencies

Litigation

~~Other than routine litigation incidental~~During the first quarter of 2022, we received a notice of termination for convenience for under a contractual arrangement with a state client. Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.

The client was unresponsive to our ~~business, there~~outreach for several months. On August 23, 2022, we filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time the matter remains unresolved. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.

Purchase Commitments

We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of March 31, 2023, the remaining aggregate minimum purchase commitment under these arrangements was approximately $254 million through 2028.

(17) Subsequent Events

There have been no material ~~legal proceedings pending~~events or transactions that occurred subsequent to ~~which we are party or to which any of our properties are subject.~~March 31, 2023.

2122

~~(14) Segment and Related Information~~

~~We provide integrated information management solutions and services for the public sector.~~

~~We provide our software systems and services and appraisal services through 7 business units, which focus on the following products:~~

•~~financial management, education and planning, regulatory, and maintenance software solutions;~~

•~~financial management, municipal courts, planning, regulatory, and maintenance software solutions;~~

•~~courts and justice and public safety software solutions;~~

•~~data and insights solutions;~~

•~~appraisal and tax software solutions, land and vital records management software solutions, and property appraisal services;~~

•~~development platform solutions including case management and business process management; and~~

•~~NIC digital government and payments solutions.~~

~~In accordance with ASC 280-10,~~ ~~Segment Reporting~~, we report our results in 2 reportable segments. The Enterprise Software ("ES") reportable segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions. The business units presented in the ES reportable segment are the following: financial management, education and planning, regulatory, and maintenance software solutions; financial management, municipal courts, planning, regulatory, and maintenance software solutions; courts and justice and public safety software solutions; data and insights solutions; and appraisal and tax software solutions, land and vital records management software solutions, and property appraisal services. The Platform Technologies ("PT") reportable segment provides public sector entities with software solutions to perform transaction processing, streamline data processing, and improve operations and workflows. The business units presented in the PT reportable segment are the following: NIC digital government and payments solutions and development platform solutions.

We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before non-cash amortization of intangible assets associated with their acquisitions, interest expense, and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the contractual arrangement. Corporate segment operating loss primarily consists of compensation costs for the executive management team, certain shared services staff, and share-based compensation expense for the entire company. Corporate segment operating income also includes revenues and expenses related to a company-wide user conference.

As of January 1, 2022, the appraisal and tax software solutions, land and vital records management software solutions, and property appraisal service business unit, which was previously reported in the Appraisal & Tax ("A&T") reportable segment, was moved to the ES reportable segment and the NIC digital government and payments solutions and development platform solutions moved to the PT reportable segment to reflect changes in the way in which management makes operating decisions, allocates resources, and manages the growth and profitability of the Company. As the result of the changes in our reportable segments, the former A&T and NIC reportable segments are no longer considered separate segments. Prior year amounts for the ES and PT reportable segments have been adjusted to reflect the segment change.

For the three months ended June 30, 2022 Enterprise
Software Platform Technologies Corporate Totals
Revenues
Software licenses and royalties $ 14,623 $ 386 $ — $ 15,009
Subscriptions 128,694 127,122 — 255,816
Software services 41,841 21,284 — 63,125
Maintenance 110,760 6,055 — 116,815
Appraisal services 8,812 — — 8,812
Hardware and other 5,498 — 3,610 9,108
Intercompany 5,342 — (5,342) —
Total revenues $ 315,570 $ 154,847 $ (1,732) $ 468,685
Segment operating income (loss) $ 102,090 $ 36,301 $ (53,991) $ 84,400

For the three months ended June 30, 2021 Enterprise
Software Platform Technologies Corporate Totals
Revenues
Software licenses and royalties $ 16,239 $ 1,365 $ — $ 17,604
Subscriptions 102,617 96,941 — 199,558
Software services 42,478 10,859 — 53,337
Maintenance 109,815 9,806 — 119,621
Appraisal services 6,265 — — 6,265
Hardware and other 4,748 3 2,939 7,690
Intercompany 5,621 — (5,621) —
Total revenues $ 287,783 $ 118,974 $ (2,682) $ 404,075
Segment operating income (loss) $ 100,067 $ 26,021 $ (64,554) $ 61,534

For the six months ended June 30, 2022 Enterprise
Software Platform Technologies Corporate Totals
Revenues
Software licenses and royalties $ 30,728 $ 787 $ — $ 31,515
Subscriptions 249,010 252,249 — 501,259
Software services 84,490 40,132 — 124,622
Maintenance 221,455 12,389 — 233,844
Appraisal services 17,330 — — 17,330
Hardware and other 12,612 — 3,610 16,222
Intercompany 10,931 — (10,931) —
Total revenues $ 626,556 $ 305,557 $ (7,321) $ 924,792
Segment operating income (loss) $ 208,619 $ 67,034 $ (107,450) $ 168,203

For the six months ended June 30, 2021 Enterprise
Software Platform Technologies Corporate Totals
Revenues
Software licenses and royalties $ 30,611 $ 1,926 $ — $ 32,537
Subscriptions 201,946 100,091 — 302,037
Software services 84,895 16,082 — 100,977
Maintenance 219,284 19,449 — 238,733
Appraisal services 12,730 — — 12,730
Hardware and other 8,906 18 2,939 11,863
Intercompany 10,897 — (10,897) —
Total revenues $ 569,269 $ 137,566 $ (7,958) $ 698,877
Segment operating income (loss) $ 198,920 $ 29,244 $ (115,046) $ 113,118

Three Months Ended June 30, Six Months Ended June 30,
Reconciliation of reportable segment operating income to the Company's consolidated totals: 2022 2021 2022 2021
Total segment operating income $ 84,400 $ 61,534 $ 168,203 $ 113,118
Amortization of acquired software (14,039) (11,823) (27,260) (19,787)
Amortization of customer and trade name intangibles (13,604) (11,420) (28,318) (16,832)
Interest expense (6,214) (12,437) (11,018) (12,915)
Other income, net 216 238 581 804
Income before income taxes $ 50,759 $ 26,092 $ 102,188 $ 64,388

~~(15) Disaggregation of Revenue~~

~~The tables below show disaggregation of revenue into categories that reflect how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows.~~

~~Timing of Revenue Recognition~~

~~Timing of revenue recognition by revenue category during the period is as follows:~~

For the three months ended June 30, 2022 Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 12,683 $ 2,326 $ 15,009
Subscriptions — 255,816 255,816
Software services — 63,125 63,125
Maintenance — 116,815 116,815
Appraisal services — 8,812 8,812
Hardware and other 9,108 — 9,108
Total $ 21,791 $ 446,894 $ 468,685

For the three months ended June 30, 2021 Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 14,755 $ 2,849 $ 17,604
Subscriptions — 199,558 199,558
Software services — 53,337 53,337
Maintenance — 119,621 119,621
Appraisal services — 6,265 6,265
Hardware and other 7,690 — 7,690
Total $ 22,445 $ 381,630 $ 404,075

For the six months ended June 30, 2022 Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 26,752 $ 4,763 $ 31,515
Subscriptions — 501,259 501,259
Software services — 124,622 124,622
Maintenance — 233,844 233,844
Appraisal services — 17,330 17,330
Hardware and other 16,222 — 16,222
Total $ 42,974 $ 881,818 $ 924,792

For the six months ended June 30, 2021 Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 26,813 $ 5,724 $ 32,537
Subscriptions — 302,037 302,037
Software services — 100,977 100,977
Maintenance — 238,733 238,733
Appraisal services — 12,730 12,730
Hardware and other 11,863 — 11,863
Total $ 38,676 $ 660,201 $ 698,877

~~Recurring Revenue~~

The majority of our revenue is comprised of revenues from maintenance and subscriptions, which we consider to be recurring revenue. Virtually all of our on-premises software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenue. We generally provide maintenance and support for our on-premises clients under annual, or in some cases, multi-year contracts. The contract terms for subscription arrangements range from ~~one~~ ~~to 10 years but are typically contracted for initial periods of~~ ~~three~~ ~~to five years, providing a significant source of recurring revenues on an annual basis. We consider all other revenue categories to be non-recurring revenues.~~

~~Recurring revenues and non-recurring revenues recognized during the period are as follows:~~

For the three months ended June 30, 2022 Enterprise
Software Platform Technologies Corporate Totals
Recurring revenues $ 239,454 $ 133,177 $ — $ 372,631
Non-recurring revenues 70,774 21,670 3,610 96,054
Intercompany 5,342 — (5,342) —
Total revenues $ 315,570 $ 154,847 $ (1,732) $ 468,685

For the three months ended June 30, 2021 Enterprise
Software Platform Technologies Corporate Totals
Recurring revenues $ 212,432 $ 106,747 $ — $ 319,179
Non-recurring revenues 69,730 12,227 2,939 84,896
Intercompany 5,621 — (5,621) —
Total revenues $ 287,783 $ 118,974 $ (2,682) $ 404,075

For the six months ended June 30, 2022 Enterprise
Software Platform Technologies Corporate Totals
Recurring revenues $ 470,465 $ 264,638 $ — $ 735,103
Non-recurring revenues 145,160 40,919 3,610 189,689
Intercompany 10,931 — (10,931) —
Total revenues $ 626,556 $ 305,557 $ (7,321) $ 924,792

For the six months ended June 30, 2021 Enterprise
Software Platform Technologies Corporate Totals
Recurring revenues $ 421,230 $ 119,540 $ — $ 540,770
Non-recurring revenues 137,142 18,026 2,939 158,107
Intercompany 10,897 — (10,897) —
Total revenues $ 569,269 $ 137,566 $ (7,958) $ 698,877

~~(16) Deferred Revenue and Performance Obligations~~

~~Total deferred revenue, including long-term, by segment is as follows:~~

June 30, 2022 December 31, 2021
Enterprise Software $ 497,846 $ 479,048
Platform Technologies 28,538 29,705
Corporate 2,204 1,814
Totals $ 528,588 $ 510,567

~~Changes in total deferred revenue, including long-term, were as follows:~~


	~~Six months ended June 30, 2022~~
~~Balance as of December 31, 2021~~	$	~~510,567~~
~~Deferral of revenue~~	~~611,953~~
~~Recognition of deferred revenue~~	~~(593,932)~~
~~Balance as of June 30, 2022~~	$	~~528,588~~

~~Transaction Price Allocated to the Remaining Performance Obligations~~

The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized (“backlog”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of June 30, 2022, was $1.85 billion, of which we expect to recognize approximately 47% as revenue over the next 12 months and the remainder thereafter.

~~(17) Deferred Commissions~~

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of associated revenue over a period of benefit that we have determined to be generally ~~three~~ to seven years. Deferred commissions were $40.4 million and $38.1 million as of June 30, 2022, and December 31, 2021, respectively. Amortization expense was $3.7 million and $7.2 million for the three and six months ended June 30, 2022, respectively, and $3.2 million and $6.3 million for the three and six months ended June 30, 2021, respectively. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

~~(18) Subsequent Events~~

~~In July 2022, we repaid $100 million of the unsecured term loans under the 2021 Credit Agreement.~~

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) the continuing effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; (2) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (3) disruption to our business and harm to our competitive position resulting from cyber-attacks and security ~~vulnerabilities~~vulnerabilities; (4) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (5) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (6) material portions of our business require the ~~Internet~~internet infrastructure to be adequately maintained; (7) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (8) general economic, political and market conditions, including inflation and changes in interest rates; (9) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (10) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (11) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel; and (12) costs of compliance and any failure to comply with government and stock exchange regulations. A detailed discussion of these factors and other risks that affect our business are described in Item 1A, “Risk Factors”. We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

GENERAL

We provide integrated information management solutions and services for the public sector. We develop and market a broad line of software products and services to address the IT needs of public sector entities. We provide subscription-based services such as software as a service (“SaaS”), transaction-based services primarily related to digital government services and online payment processing, and electronic document filing solutions (“e-filing”), which simplify the filing and management of court related documents. In addition, we provide professional IT services to our clients, including software and hardware installation, data conversion, training, and for certain clients, product modifications, along with continuing maintenance and support for clients using our systems. We also provide subscription-based services such as software as a service (“SaaS”) and electronic document filing solutions (“e-filing”), which simplify the filing and management of court related documents. Additionally, we provide property appraisal outsourcing services for taxing jurisdictions.

~~Our products generally automate nine major functional areas: (1)~~ We provide our software systems and related professional services through six business units, which focus on the following products:

•financial management, ~~and~~ education ~~(2) courts~~ and ~~justice, (3) public safety, (4) property appraisal and tax, (5)~~ planning, regulatory, and maintenance ~~(6) land~~software solutions;

•financial management, municipal courts, planning, regulatory, and ~~vital records~~maintenance software solutions;

•courts and justice and public safety software solutions;

•property and recording solutions;

•platform solutions including case management ~~(7) data~~ and ~~insights, (8) development platform technologies,~~business process management; and ~~(9) NIC~~

•digital solutions including payments and government ~~and payments. We~~services.

In accordance with ASC 280-10, Segment Reporting, we report our results in two reportable segments. The ESEnterprise Software ("ES") reportable segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: financial management and ~~education, courts and justice, public safety,~~education; planning, regulatory and ~~maintenance, data~~maintenance; courts and ~~insights, appraisal~~justice; public safety; and property and ~~tax software solutions, land and vital records management software solutions, and property appraisal services.~~recording solutions. The Platform Technologies ("PT") reportable segment provides public sector entities with software solutions to perform transaction processing, streamline data processing, and improve operations and workflows such as ~~the NIC digital government and payments~~platform solutions and ~~development platform solutions.~~digital solutions.

2723

~~Our total employee count increased~~We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before non-cash amortization of intangible assets associated with their acquisitions, interest expense, and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to ~~7,143 at June 30,~~contracts involving more than one unit and are valued based on the contractual arrangement. Corporate segment operating loss primarily consists of compensation costs for the executive management team, certain shared services staff, and share-based compensation expense for the entire company. Corporate segment operating loss also includes revenues and expenses related to a company-wide user conference.

See Note 3, "Segment and Related Information," in the notes to the financial statements for additional information.

Recent Acquisitions

On October 31, 2022, ~~including 93 employees from acquisitions completed in 2021~~we acquired Rapid Financial Solutions, LLC (Rapid), a provider of reliable, scalable, and ~~2022, from 6,593 at June 30, 2021.~~

secure payments with best-in-class card issuance and digital disbursement capabilities. On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a ~~market-leading~~leading provider of technology solutions for campground and outdoor recreation management. ~~The total purchase price, net~~US eDirect and Rapid are operated as a part of the digital solutions business unit and the results of US eDirect and Rapid from their respective dates of acquisition are included with the operating results of the PT segment.

Operating Result cash acquired of $6.4 million, was approximately $116.7 million, consisting of $117.6 million paid in cash, and approximately $5.5 million related to indemnity holdbacks, subject to certain post-closing adjustments.s

For the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, total revenues increased ~~16.0% and 32.3%~~3.5%, ~~respectively,~~ compared to the prior ~~year~~ period. Excluding the 2023 incremental impact of ~~2021 and 2022~~recent acquisitions, ~~revenue~~revenues increased ~~6.0% and 6.5%~~2.1% for the three ~~and six~~ months ended ~~June 30, 2022, respectively,~~March 31, 2023, compared to the prior ~~year~~ period. ~~Revenues from acquisitions completed in 2021 and 2022 accounted for 10.0% and 25.8% of the increase in revenues for the three and six months ended June 30, 2022, respectively.~~

Subscriptions revenue grew ~~28.2% and 66.0%~~14.3% for the three ~~and six~~ months ended ~~June 30, 2022, respectively,~~March 31, 2023, compared to the prior ~~year~~ period, primarily due ~~the impact of the NIC acquisition, as well as~~to an ongoing shift toward SaaS arrangements, along with growth in our transaction-based revenues such as e-filing and online payment ~~services.~~services, offset by the decline in COVID pandemic related transaction-based revenue. Excluding the impact of ~~2021 and 2022~~recent acquisitions, subscriptions revenue increased ~~10.0% and 12.3%~~11.7% for the three ~~and six~~ months ended ~~June 30, 2022, respectively,~~March 31, 2023, compared to the prior ~~year~~ period. ~~Subscription revenues~~Subscriptions revenue from recent acquisitions ~~completed in 2021 and 2022~~ contributed ~~18.2% and 53.7%~~2.6% for the three ~~and six~~ months ~~period~~ ended ~~June 30, 2022, respectively.~~March 31, 2023.

Our backlog as of ~~June 30, 2022,~~March 31, 2023, was $1.85 billion, a ~~13.9%~~5.1% increase from last year.

Our total employee count increased to 7,229 at March 31, 2023, including 50 employees who joined us through acquisitions completed since March 31, 2022, from 6,959 at March 31, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations ~~are~~is based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of GAAP for the interim period and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, amortization and potential impairment of intangible assets and goodwill, and share-based compensation expense. As these are condensed financial statements, one should also read expanded information about our critical accounting policies and estimates provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Form 10-K for the year ended December 31, ~~2021. Except for the accounting policies for business combinations as a result of adopting~~ ~~Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~ ~~(ASC 805)(“ASU 2021-08”), there~~2022. There have been no material changes to our critical accounting policies and estimates from the information provided in our Form 10-K for the year ended December 31, ~~2021.~~2022.

Reclassifications

As of January 1, 2023, we have elected to no longer report the appraisal services revenue and related costs as separate categories in the statement of income due to less significance on our overall operating results. Therefore, we have combined the appraisal services revenue category with the professional services revenue category; and the related cost of revenue category for appraisal services is now combined with the cost of revenue category related to subscriptions, maintenance, and professional services on the condensed consolidated statements of income for all reporting periods presented.

2824

ANALYSIS OF RESULTS OF OPERATIONS
Percent of Total Revenues
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues:
Software licenses and royalties 3.2 % 4.4 % 3.4 % 4.7 %
Subscriptions 54.6 49.4 54.2 43.2
Software services 13.5 13.1 13.5 14.4
Maintenance 24.9 29.6 25.3 34.2
Appraisal services 1.9 1.6 1.9 1.8
Hardware and other 1.9 1.9 1.8 1.7
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses, royalties and acquired software 3.6 3.3 3.5 3.2
Subscriptions, software services and maintenance 52.1 49.4 52.0 47.8
Appraisal services 1.3 1.1 1.3 1.3
Hardware and other 1.7 1.1 1.4 1.0
Selling, general and administrative expenses 21.3 27.0 21.4 26.9
Research and development expense 5.0 5.8 5.1 6.5
Amortization of customer and trade name intangibles 2.9 2.8 3.1 2.4
Operating income 12.1 9.5 12.2 10.9
Interest expense (1.3) (3.1) (1.2) (1.8)
Other income, net — 0.1 0.1 0.1
Income before income taxes 10.8 6.5 11.1 9.2
Income tax provision 2.3 0.1 2.4 0.3
Net income 8.5 % 6.4 % 8.7 % 8.9 %
~~Revenues~~


	Percent of Total Revenues
	Three Months Ended March 31,
	2023		2022
Revenues:
Subscriptions	59.4	%	53.8	%
Maintenance	24.4		25.7
Professional services	12.9		15.4
Software licenses and royalties	2.1		3.6
Hardware and other	1.2		1.5
Total revenues	100.0		100.0
Cost of revenues:
Subscriptions, maintenance, and professional services	53.5		53.2
Software licenses, royalties, and amortization of acquired software	2.4		3.2
Amortization of software development	0.5		0.3
Hardware and other	1.2		1.2
Sales and marketing expense	7.9		7.7
General and administrative expense	15.3		13.8
Research and development expense	5.7		5.2
Amortization of customer and trade name intangibles	4.0		3.2
Operating income	9.5		12.2
Interest expense	(1.6)		(1.1)
Other income, net	0.3		0.1
Income before income taxes	8.2		11.2
Income tax (benefit) provision	1.7		2.4
Net income	6.5	%	8.8	%

~~Acquisitions~~

~~On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a market-leading provider of technology solutions for campground and outdoor recreation management.~~ The impact of the US eDirect acquisition on our operating results is not considered material. US eDirect is operated as a part of the NIC division and the results of NIC and US eDirect, from their respective dates of acquisition, are included with the operating results of the PT segment.

On April 21, 2021, we acquired NIC, which became a direct subsidiary of the Company and NIC’s subsidiaries became indirect subsidiaries of the Company. NIC is a leading digital government solutions and payment company that serves federal, state and local government agencies.

The following table details revenue for NIC for the three and six months ended June 30, 2022, which is presented in our condensed consolidated statements of income from the date of acquisition and included in the operating results of the PT reportable segment.

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues:
Software licenses and royalties $ — $ — $ — $ —
Subscriptions 123,433 93,281 244,815 93,281
Software services 15,778 5,643 28,887 5,643
Maintenance 203 155 405 155
Appraisal services — — — —
Hardware and other — — — —
Total revenues $ 139,414 $ 99,079 $ 274,107 $ 99,079

~~Software licenses and royalties~~

~~The following table sets forth a comparison of our software licenses and royalties revenue for the periods presented as of June 30:~~

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 14,623 $ 16,239 $ (1,616) (10) % $ 30,728 $ 30,611 $ 117 — %
PT 386 1,365 (979) (72) 787 1,926 (1,139) (59)
Total software licenses and royalties revenue $ 15,009 $ 17,604 $ (2,595) (15) % $ 31,515 $ 32,537 $ (1,022) (3) %

Software licenses and royalties revenue decreased 15% and 3% for the three and six months ended June 30, 2022, respectively, compared to the prior year periods. The decrease in software licenses and royalties revenue for the three months ended June 30, 2022, is attributed to more clients choosing our SaaS offering rather than purchasing the software under a traditional perpetual software arrangement. Our total new client mix for the six months ended June 30, 2022, was approximately 22% perpetual software license arrangements and approximately 78% subscription-based arrangements, compared to total new client mix for the six months ended June 30, 2021, of approximately 36% perpetual software license arrangements and approximately 64% subscription-based arrangements.

Although the mix of new contracts between SaaS-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect our software license growth rate to continue to decline as a growing number of clients choose our SaaS-based options, rather than purchasing the software under a traditional perpetual software license arrangement and the Company begins transitioning to cloud-based only offerings. SaaS-based arrangements generally do not result in license revenue in the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract.Revenues

Subscriptions

The following table sets forth a comparison of our subscriptions revenue for the ~~periods presented as of June 30:~~three months ended March 31($ in thousands):

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 128,694 $ 102,617 $ 26,077 25 % $ 249,010 $ 201,946 $ 47,064 23 %
PT 127,122 96,941 30,181 31 252,249 100,091 152,158 152
Total subscriptions revenue $ 255,816 $ 199,558 $ 56,258 28 % $ 501,259 $ 302,037 $ 199,222 66 %


	Three Months Ended				Change
	2023		2022		$		%
ES	$	148,414	$	120,316	$	28,098	23	%
PT	132,051		125,127		6,924		6
Total subscriptions revenue	$	280,465	$	245,443	$	35,022	14	%

Less: Revenue from recent acquisitions1	(6,249)		—		(6,249)
Total subscriptions revenue excluding acquisitions	$	274,216	$	245,443	$	28,773	12	%

Subscriptions revenue ~~primarily~~ consists of revenue derived from ~~online payments~~our SaaS arrangements and ~~SaaS arrangements. Other sources of subscription-based services are derived from~~transaction-based fees primarily related to digital government services and ~~e-filing arrangements~~payment processing. We also provide electronic document filing solutions (“e-filing”) that simplify the filing and management of court related documents for courts and law offices. E-filing revenue is derived from transaction fees and fixed fee arrangements.

1Excludes the 2023 incremental impact as a result of not having the recent acquisition for a full fiscal year.

Subscriptions revenue grew ~~28% and 66%~~14% for the three ~~and six~~ months ~~ending June 30, 2022, respectively,~~ended March 31, 2023, compared to the prior ~~period, primarily due to the inclusion of NIC’s revenues from the date of acquisition.~~period. Excluding the incremental impact of ~~revenue from 2021 and 2022~~recent acquisitions, ~~of $36.4 million and $162.2 million for the three and six months ended June 30, 2022, respectively,~~ subscriptions revenue increased ~~10.0% and 12.3% for the three and six months ended June 30, 2022, respectively.~~12%. New SaaS clients as well as existing clients who converted to our SaaS model provided the majority of the subscriptions revenue increase. In the three ~~and six~~ months ~~ending June 30, 2022, respectively,~~ended March 31, 2023, we added ~~167 and 316~~145 new SaaS clients and ~~96 and 184~~73 existing ~~on-premises~~ clients ~~converted~~elected to convert to our SaaS model. ~~Since June 30, 2021, we have added 595~~Our mix of new SaaS clients while 322 existing on-premises clients converted to our SaaS offerings. Also excluding the impact of revenue from 2021 and 2022 acquisitions, transaction-based fees contributed $4.6 million and $7.3 million to the increase in subscriptions revenuesoftware contract value for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023, was approximately 13% perpetual software license arrangements and approximately 87% subscription-based arrangements compared to total new contract value mix in 2022 ~~respectively,~~of approximately 20% perpetual software license arrangements and approximately 80% subscription-based arrangements.

Total subscriptions revenue derived from transaction-based fees was $153.9 million and $143.7 million for the three months ended March 31, 2023 and 2022, respectively. The increase of $10.2 million, or 7.1% is attributable to growth in transaction-based fees of $12.7 million due to the increased volumes of online payments and e-filing services and the incremental impact of transaction-based fees from ~~e-filing and utility billings.~~

~~Software services~~

recent acquisitions of $6.2 million in the first quarter 2023. The ~~following table sets forth a comparison~~increases in transaction-based revenue are offset by the decline of ~~our software services revenue for the periods presented as of June 30:~~

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 41,841 $ 42,478 $ (637) (1) % $ 84,490 $ 84,895 $ (405) — %
PT 21,284 10,859 10,425 96 40,132 16,082 24,050 150
Total software services revenue $ 63,125 $ 53,337 $ 9,788 18 % $ 124,622 $ 100,977 $ 23,645 23 %

~~Software services revenue primarily consists of professional services delivered~~$8.7 million in connection with implementing our software, converting client data, training client personnel, custom development activities, and consulting. New clients who acquire our software generally also contract with us to provide theCOVID-pandemic related software services. Existing clients also periodically purchase additional training, consulting, and minor programming services. Software services revenue increased 18% and 23% for the three and six months ended June 30, 2022, respectively,transaction-based revenues compared to ~~the~~ prior ~~year~~ period. Excluding the impact of revenue from 2021 and 2022 acquisitions of $3.7 million and $17.0 million for the three and six months ended June 30, 2022, respectively, software services increased 11.3% and 6.6% for the three and six months ended June 30, 2022, respectively. That increase for three months ended June 30, 2022 in software services revenue is primarily attributed to higher revenues generated by the COVID pandemic-related rent relief services, partially offset by more clients selecting our cloud solutions instead of our on-premises license arrangements which typically require more professional services.

Maintenance

The following table sets forth a comparison of our maintenance revenue for the ~~periods presented as of June 30:~~three months ended March 31($ in thousands):


		Three Months Ended				Change				Six Months Ended				Change					Three Months Ended				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%
ES	ES	$	110,760	$	109,815	$	945	1	%	$	221,455	$	219,284	$	2,171	1	%	ES	$	110,081	$	110,695	$	(614)	(1)	%
PT	PT	6,055		9,806		(3,751)		(38)		12,389		19,449		(7,060)		(36)		PT	5,049		6,334		(1,285)		(20)
Total maintenance revenue	Total maintenance revenue	$	116,815	$	119,621	$	(2,806)	(2)	%	$	233,844	$	238,733	$	(4,889)	(2)	%	Total maintenance revenue	$	115,130	$	117,029	$	(1,899)	(2)	%

Less: Revenue from recent acquisitions 1																		Less: Revenue from recent acquisitions 1	—		—		—
Total maintenance revenue excluding acquisitions																		Total maintenance revenue excluding acquisitions	$	115,130	$	117,029	$	(1,899)	(2)	%

We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue decreased 2% ~~for both the three and six months ended June 30, 2022,~~ compared to the prior ~~year~~ period. ~~For the three months ended June 30, 2022, maintenance~~Maintenance revenue ~~decreased~~declined mainly due to ~~attrition related to a legacy case management solution and~~ clients converting from on-premises license arrangements to SaaS, partially offset by annual maintenance rate increases and maintenance associated with new software license sales.

Annualized Recurring Revenues

~~Appraisal~~Subscriptions and maintenance are considered recurring revenue sources. Annualized recurring revenue ("ARR") is calculated based on total recurring revenues for the current quarter multiplied by four. ARR was $1.58 billion and $1.45 billion as of March 31, 2023 and 2022, respectively. ARR increased 9.1% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements.

Professional services

The following table sets forth a comparison of our ~~appraisal services revenue for the periods presented as of June 30:~~

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 8,812 $ 6,265 $ 2,547 41 % $ 17,330 $ 12,730 $ 4,600 36 %
PT — — — — — — — —
Total appraisal services revenue $ 8,812 $ 6,265 $ 2,547 41 % $ 17,330 $ 12,730 $ 4,600 36 %

~~Appraisal~~professional services revenue for the three ~~and six~~ months ended ~~June 30, 2022, increased by 41%~~March 31($ in thousands):


	Three Months Ended				Change
	2023		2022		$		%
ES	$	51,499	$	51,167	$	332	1	%
PT	9,430		18,848		(9,418)		(50)
Total professional services revenue	$	60,929	$	70,015	$	(9,086)	(13)	%

Less: Revenue from recent acquisitions 1	—		—		—
Total professional services revenue excluding acquisitions	$	60,929	$	70,015	$	(9,086)	(13)	%

1Excludes the 2023 incremental impact as a result of not having the recent acquisition for a full fiscal year.

Professional services revenue primarily consists of professional services billed in connection with implementing our software, converting client data, training client personnel, custom development activities, consulting and ~~36%, respectively,~~property appraisal outsourcing services. New clients who purchase our proprietary software licenses or subscriptions generally also contract with us to provide the related professional services. Existing clients also periodically purchase additional training, consulting and minor programming services.

Professional services revenue decreased 13% for the three months ended March 31, 2023, compared to the prior ~~year~~period, primarily ~~due~~attributed to lower revenues generated by the COVID pandemic-related rent relief services, which declined $11.9 million compared to prior period. The decline is partially offset by increased billable travel revenue as onsite services have increased post-pandemic.

Software licenses and royalties

The following table sets forth a comparison of our software licenses and royalties revenue for the three months ended March 31($ in thousands):


	Three Months Ended				Change
	2023		2022		$		%
ES	$	8,068	$	16,105	$	(8,037)	(50)	%
PT	2,062		401		1,661		414
Total software licenses and royalties revenue	$	10,130	$	16,506	$	(6,376)	(39)	%

Less: Revenue from recent acquisitions 1	—		—		—
Total software licenses and royalties revenue excluding acquisitions	$	10,130	$	16,506	$	(6,376)	(39)	%

Software licenses and royalties revenue decreased 39% for the three months ended March 31, 2023, compared to the ~~ramp-up~~prior period. The decrease is primarily attributed to the shift in the mix of ~~appraisal services for several~~ new ~~revaluation~~software contracts ~~which started~~toward more subscription-based agreements compared to the prior period.

Although the mix of new contracts between subscription-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect the decline in ~~recent quarters. The appraisal services business is somewhat cyclical and driven~~software license revenues will accelerate as we continue to shift our model away from perpetual licenses to SaaS. Subscription-based arrangements result in ~~part by statutory revaluation cycles~~lower software license revenue in ~~various states.~~the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract.

Cost of ~~Revenues~~revenues and ~~Gross Margins~~overall gross margin

The following table sets forth a comparison of the key components of our cost of revenues for the ~~periods presented as of June 30:~~

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Software licenses and royalties $ 2,869 $ 1,368 $ 1,501 110 % $ 5,478 $ 2,604 $ 2,874 110 %
Acquired software 14,039 11,823 2,216 19 27,260 19,787 7,473 38
Subscriptions, software services, and maintenance 244,192 199,771 44,421 22 481,088 334,091 146,997 44
Appraisal services 5,976 4,429 1,547 35 11,912 9,046 2,866 32
Hardware and other 8,161 4,623 3,538 77 13,188 7,081 6,107 86
Total cost of revenues $ 275,237 $ 222,014 $ 53,223 24 % $ 538,926 $ 372,609 $ 166,317 45 %

~~The following table sets forth a comparison of gross margin percentage by revenue type for the periods presented as of June 30:~~

Three Months Ended Six Months Ended
2022 2021 Change 2022 2021 Change
Software licenses, royalties and acquired software (12.7) % 25.1 % (37.8) % (3.9) % 31.2 % (35.1) %
Subscriptions, software services and maintenance 44.0 46.4 (2.4) 44.0 47.9 (3.9)
Appraisal services 32.2 29.3 2.9 31.3 28.9 2.4
Hardware and other 10.4 39.9 (29.5) 18.7 40.3 (21.6)
Overall gross margin 41.3 % 45.1 % (3.8) % 41.7 % 46.7 % (5.0) %

~~Software licenses, royalties and acquired software.~~ Amortization expense for acquired software comprises the majority of costs of software licenses, royalties, and acquired software. We do not have any direct costs associated with royalties. The gross margin for software licenses, royalties and acquired software is negative 12.7% and negative 3.9% for the three ~~and six~~ months ended ~~June 30, 2022, respectively, and 25.1% and 31.2%~~March 31($ in thousands):


	Three Months Ended				Change
	2023		2022		$		%
Subscriptions, maintenance, and professional services	$	252,415	$	242,832	$	9,583	4	%
Software licenses and royalties	2,313		1,445		868		60
Amortization of software development	2,588		1,164		1,424		122
Amortization of acquired software	8,920		13,221		(4,301)		(33)
Hardware and other	5,780		5,028		752		15
Total cost of revenues	$	272,016	$	263,690	$	8,326	3	%

1Excludes the 2023 incremental impact as a result of not having the recent acquisition for three and six months ended June 30, 2021, respectively. Excluding the impact of amortization expense of acquired software, the margin is 80.9% and 82.6% for the three and six months ended June 30, 2022, respectively, and 92.2% and 92.0% for three and six months ended June 30, 2021, respectively. The decline in software licenses, royalties and acquired software gross margin compared to prior year periods is due to lower revenue from software licenses and increased amortization expense related to acquired software from recent acquisitions.a full fiscal year.

3227

Subscriptions, ~~software services~~maintenance, and ~~maintenance.~~professionalservices. Cost of subscriptions, ~~software~~maintenance and professional services ~~and maintenance~~ primarily consists of personnel costs related to installation of our software, conversion of client data, training client personnel and support activities and various other services such as custom client development, ~~and ongoing~~on-going operation of SaaS, ~~and e-filing arrangements. The subscriptions, software~~property appraisal outsourcing activities, digital government services, and other transaction-based services such as e-filing. Other costs included are interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.

The cost of subscriptions, maintenance, ~~gross margin in the three~~ and six months ended June 30, 2022, decreased 2.4% and 3.9%, respectively, from the comparable prior year period, primarily due to the inclusion of NIC’s revenues, which historically have lower margins than Tyler. Excluding the impact from 2021 and 2022 acquisitions, the gross margins were 44.6% and 46.2%professional services for the three ~~and six~~ months ended ~~June 30, 2022, respectively. The decrease~~March 31, 2023, increased $9.6 million or 4% compared to the prior period. Excluding the 2023 incremental impact from recent acquisitions of ~~1.8%~~$4.4 million, cost of subscriptions, maintenance and ~~1.7% for the three and six months ended June 30, 2022, respectively, from the comparable prior periods is~~professional services increased 2% due to ~~several factors, including lower maintenance revenue resulting from attrition related to a legacy case management solution; a post-COVID return of low-margin revenues such as billable travel;~~ higher personnel costs, including costs related to ~~inflation, as well as an increase in~~onboarding new professional services employees ~~to enable delivery of our growing backlog and anticipated growth~~ who are not yet billable; and ~~higher~~duplicate hosting costs ~~related~~as we transition from our proprietary data centers to ~~our accelerated shift to~~ the public cloud. Excluding employees ~~added through~~from recent acquisitions, our ~~implementation and support~~professional services staff ~~has grown~~grew by ~~239~~180 employees since ~~June 30, 2021.~~March 31, 2022, as we increased hiring to ensure that we are well-positioned to deliver our current backlog and anticipated new business.

Software licenses and royalties. Costs of software licenses and royalties primarily consist of direct third party software costs. We do not have any direct costs associated with royalties.

~~Appraisal services.~~ ~~Appraisal services revenue was approximately 1.9%~~The cost of ~~total revenue~~software licenses and royalties for the three ~~and six~~ months ended ~~June 30, 2022, respectively. The appraisal services gross margin for the three and six months ended June 30, 2022,~~March 31, 2023, increased 2.9% and 2.4%, respectively, compared to the same period in 2021. The increase in margin is primarily due to cost savings attributed to lower travel expenses associated with appraisal projects. The appraisal services business is somewhat cyclical and driven in part by statutory revaluation cycles in various states.

~~Overall Gross Margin.~~ ~~For the three and six months ended June 30, 2022, our overall gross margin decreased 3.8% and 5.0%, respectively,~~$0.9 million or 60% compared to the prior ~~year~~ period ~~primarily~~ due to higher third party software costs.

Amortization of software development. Software development costs included in cost of revenues primarily consist of personnel costs. We begin to amortize capitalized costs when a product is available for general release to customers. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the ~~inclusion~~software’s remaining estimated economic life of, ~~NIC’s revenues, which historically have lower margins than Tyler. Excluding the impact from 2021 and 2022 acquisitions, overall gross margins were 42.3% and 44.2% for the~~generally, three ~~and six months ended June 30, 2022, respectively.~~ to five years.

For the three months ended ~~June 30,~~March 31, 2023, amortization of software development costs increased $1.4 million or 122% compared to the prior period and is attributable new capitalized software development projects going into service in the past year.

Amortization of acquired software. Amortization expense related to acquired software attributed to business combinations is included with cost of revenues. The estimated useful lives of other intangibles range from five to 10 years.

For the three months ended March 31, 2023, amortization of acquired software declined $4.3 million or 33% compared to the prior period due to assets becoming fully amortized in the fourth quarter 2022, offset by amortization of new acquired software from recent acquisitions completed in fiscal year 2022.

The following table sets forth a comparison of overall gross margin for the ~~decrease~~periods presented as of March 31:


	Three Months Ended
	2023		2022		Change
Overall gross margin	42.4	%	42.2	%	0.2	%

Overall Gross Margin. For the three months ended March 31, 2023, our overall gross margin increased 0.2%, compared to the prior period. Excluding the 2023 incremental impact from recent acquisitions of $1.3 million, overall gross margin was 42.6% for the three months ended March 31, 2023. The increase of 0.4% for the three months ended March 31, 2023, in overall gross margin compared to the prior ~~year~~ period is due to growth in subscriptions revenues and the decline in low margin COVID-related revenues and related costs. Also attributing to the increase in overall gross margin is the decline in amortization of acquired software expense compared to the prior period. The margin increases are partially offset by lower revenue from software licenses and maintenance, ~~higher personnel~~duplicate hosting costs ~~related to inflation, and "bubble costs" related to the~~as we transition from our proprietary data centers to ~~Amazon Web Services ("AWS").~~the public cloud, and higher personnel costs.

~~Selling, General~~

Sales and ~~Administrative Expenses~~marketing expense

~~Selling, general~~Sales and ~~administrative~~marketing expense (“~~SG&A”~~S&M”) ~~expenses consist~~consists primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for ~~administrative and~~ sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing ~~related~~ costs.

The following table sets forth a comparison of our ~~SG&A expenses~~S&M expense for the ~~periods presented as of June 30:~~three months ended March 31 ($ in thousands):

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Selling, general and administrative expenses $ 99,701 $ 108,922 $ (9,221) (8) % $ 197,596 $ 187,696 $ 9,900 5 %


	Three Months Ended				Change
	2023		2022		$		%
Sales and marketing expense	$	37,103	$	35,206	$	1,897	5	%

~~SG&A~~S&M as a percentage of revenues was ~~21.3% and 21.4%~~7.9% for the three ~~and six~~ months ended ~~June 30, 2022, respectively,~~March 31, 2023, compared to ~~27.0% and 26.9%~~7.7% for the three ~~and six~~ months ended ~~June 30, 2021, respectively. Excluding the impact of SG&A~~March 31, 2022. S&M expense from 2021 and 2022 acquisitions of $6.1 million and $23.8 million for the three and six months ended June 30, 2022, respectively, SG&A decreased 14.1% and 7.4% for the three and six months ending June 30, 2022, respectively,increased approximately 5% compared to the prior ~~year~~period and is primarily attributed to higher commission expense as a result of higher sales volumes compared to the prior period.

General and administrative expense

General and administrative (“G&A”) expense consists primarily of personnel salaries and share-based compensation expense for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development as well as third party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, amortization of software development for internal use, acquisition-related expenses and other administrative expenses. The ~~decrease~~following table sets forth a comparison of our G&A expense for the three months ended March 31 ($ in SGthousands):


	Three Months Ended				Change
	2023		2022		$		%
General and administrative expense	$	72,360	$	62,689	$	9,671	15	%

G&A as a percentage of ~~revenues~~revenue was 15.3% for the three months ended March 31, 2023, compared to 13.8% for the three months ended March 31, 2022. G&A expense increased approximately 15% compared to the prior period. The increase in G&A is primarily attributed to ~~lower transaction expense related to acquisitions completed~~increases in ~~2022 compared to those completed~~amortization of software development for internal use, increases in ~~2021~~travel-related expenses and other administrative costs, and higher personnel costs from increased employee headcount and share-based compensation expense. Our administrative staff grew by 23 employees since March 31, 2022. For the ~~decline in~~three months ended March 31, 2023, stock compensation expense due to the lower fair value of each share-based award issued in connection with our stock compensation plan. The decline in SG&A is partially offset by increased staff levels and other administrative expensesgrew $2.8 million compared to prior ~~periods.~~year period, generally due to a higher number of share-based awards issued in the current period. For the three months ended March 31, 2023, G&A expense also included $1.4 million related to lease restructuring and other asset write-offs.

Research and ~~Development Expense~~development expense

Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development. The following table sets forth a comparison of our research and development expense for the ~~periods presented as of June 30:~~three months ended March 31 ($ in thousands):

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Research and development expense $ 23,386 $ 23,428 $ (42) — % $ 47,327 $ 45,241 $ 2,086 5 %


	Three Months Ended				Change
	2023		2022		$		%
Research and development expense	$	26,987	$	23,941	$	3,046	13	%

Research and development ~~("R&D")~~ expense consists mainly of costs associated with development of new products and technologies from which we do not currently generate significant revenue. ~~R&D~~

Research and development expense ~~in the three and six months ended June 30, 2022, remained flat and~~ increased 5%, respectively, compared to the prior period. Excluding the impact of R&D expense from 2021 and 2022 acquisitions of $224,000 and $1.1 million for the three and six months ended June 30, 2022, respectively, R&D expense decreased 1.1% and increased 2.2% for the three and six months ending June 30, 2022, respectively, compared to prior year period. The decline in R&D expense13% for the three months ended ~~June 30. 2022, is mainly attributed~~March 31, 2023, compared to ~~a shift of some development resources to certain projects which meet~~ the ~~criteria for capitalization. The increase in R&D expense for the six months ended June 30, 2022, is~~prior period, mainly due to a number of new Tyler product development initiatives across our product suites, ~~somewhat offset~~including increased investments in research and development at recently acquired businesses. Total research and development headcount increased by ~~a shift of some development resources to certain projects which meet the criteria for capitalization.~~26 employees since March 31, 2022.

Amortization of ~~Other Intangibles~~other intangibles

~~The following table sets forth a comparison of amortization of customer and trade name intangibles for the periods presented as of June 30:~~

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Amortization of other intangibles $ 13,604 $ 11,420 $ 2,184 19 % $ 28,318 $ 16,832 $ 11,486 68 %

~~Acquisition~~Other intangibles are comprised of the excess of the purchase price ~~over~~in the fair value of net tangible assets acquired that are allocated to acquired software and customer ~~and~~related, trade name, and leases acquired intangibles. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer ~~and~~related, trade name, and leases acquired intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years. The following table sets forth a comparison of amortization of other intangibles for the three months ended March 31 ($ in thousands):


	Three Months Ended				Change
	2023		2022		$		%
Amortization of other intangibles	$	18,407	$	14,714	$	3,693	25	%

For the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, amortization ~~expense~~of other intangibles increased compared to the prior period due to the impact of intangibles added with recent acquisitions ~~completed~~and the acceleration of certain trade name intangibles due to branding changes in ~~2021 and 2022.~~2023.

Interest ~~Expense~~expense

The following table sets forth a comparison of our interest expense for the ~~periods presented as of June 30:~~three months ended March 31 ($ in thousands):

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Interest expense $ (6,214) $ (12,437) $ 6,223 (50) % $ (11,018) $ (12,915) $ 1,897 (15) %


	Three Months Ended				Change
	2023		2022		$		%
Interest expense	$	(7,684)	$	(4,804)	$	(2,880)	60	%

Interest expense is ~~primarily~~ comprised of interest expense and non-usage and other fees associated with our borrowings. The change in interest expense ~~in the three and six months ended~~ ~~June 30, 2022,~~compared to the prior period is attributable to ~~the prior year period including $6.4 million of~~an increase in amortization expense related to debt issuance costs, resulting from our accelerated repayment of the ~~senior unsecured bridge loan facility commitment fee paid in 2021 and lower levels of borrowings in the current year related to the 2021 Credit Agreement, offset by~~term loans, coupled with an increase in interest rates compared to the prior ~~year periods.~~period.

Other ~~Income, Net~~income, net

The following table sets forth a comparison of our other income, net, for the ~~periods presented as of June 30:~~three months ended March 31 ($ in thousands):

Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Other income, net $ 216 $ 238 $ (22) (9) % $ 581 $ 804 $ (223) (28) %


	Three Months Ended				Change
	2023		2022		$		%
Other income, net	$	1,246	$	364	$	882	242	%

Other income, net, is primarily comprised of interest income from invested cash. The change in other income, net, in the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, compared to the prior period is ~~attributed~~due to ~~lower levels~~increased interest income generated from invested cash as a result of ~~invested cash.~~higher interest rates in 2023 compared to 2022.

Income ~~Tax Provision~~tax provision

The following table sets forth a comparison of our income tax provision for the ~~periods presented as of June 30:~~three months ended March 31 ($ in thousands):


		Three Months Ended						Change			Six Months Ended						Change				Three Months Ended						Change
		2022			2021			$		%	2022			2021			$		%		2023			2022			$		%
Income tax provision		$	10,813		$	562		$	10,251	1,824%	$	22,258		$	1,882		$	20,376	1,083
Income tax (benefit) provision																				Income tax (benefit) provision	$	7,667		$	11,444		$	(3,777)	(33)	%

Effective income tax rate	Effective income tax rate	21.3		%	2.2		%				21.8		%	2.9		%				Effective income tax rate	19.9		%	22.3		%

The ~~increase~~decrease in the effective tax rate for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, as compared to the ~~same~~prior period, ~~in 2021,~~ was principally driven by an increase in research tax credit benefits, offset by a decrease in excess tax benefits related to stock incentive ~~awards.~~ awards and liabilities for uncertain tax positions.

The effective income tax rates for the ~~three and six months ended June 30, 2022 and 2021,~~periods presented were different from the statutory United States federal income tax rate of 21% primarily due to the tax benefits of research tax credits and excess tax benefits related to stock incentive awards, ~~and the tax benefit of research tax credits,~~ offset by state income taxes, liabilities for uncertain tax positions, and non-deductible business expenses, and reserves for unrecognized state income tax benefits. The excess tax benefits related to stock incentive awards realized were $1.7 million and $4.7 million for the three and six months ended June 30, 2022, respectively, compared to $6.4 million and $15.2 million for the three and six months ended June 30, 2021, respectively. Excluding the excess tax benefits, the effective tax rate was 24.6% and 26.4% for the three and six months ended June 30, 2022, respectively, compared to 26.7% and 26.5% for the three and six months ended June 30, 2021, respectively.expenses.

FINANCIAL CONDITION AND LIQUIDITY

As of ~~June 30, 2022,~~March 31, 2023, we had cash and cash equivalents of ~~$253.1~~$130.8 million compared to ~~$309.2~~$173.9 million at December 31, ~~2021.~~2022. We also had ~~$60.9~~$43.4 million invested in investment grade corporate ~~and~~bonds, municipal bonds and asset-backed securities as of ~~June 30, 2022.~~March 31, 2023. These investments have varying maturity dates through 2027 and are held as available-for-sale. As of ~~June 30, 2022,~~March 31, 2023, we had $275.0 million outstanding borrowings under our 2021 Credit Agreement and one outstanding letter of credit totaling $1.5 million in favor of a client contract. We believe our cash on hand, cash from operating activities, availability under our revolving line of credit, ~~facility, cash on hand,~~ and access to the capital markets ~~provides~~provide us with sufficient flexibility to meet our long-term financial needs.

The following table sets forth a summary of cash flows for the ~~six~~three months ended ~~June 30:~~
2022 2021
Cash flows provided (used) by:
Operating activities $ 130,220 $ 51,356
Investing activities (110,378) (1,998,692)
Financing activities (75,951) 1,560,486
Net decrease in cash and cash equivalents $ (56,109) $ (386,850)
March 31:


	2023		2022
Cash flows provided (used) by:
Operating activities	$	74,709	$	53,541
Investing activities	(600)		(111,173)
Financing activities	(117,121)		(8,277)
Net decrease in cash and cash equivalents	$	(43,012)	$	(65,909)

Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and capital expenditures. Other potential capital resources include cash on hand, public and private issuances of debt or equity securities, and bank borrowings. It is possible that our ability to access the capital and credit markets in the future may be limited by economic conditions or other factors. We currently believe that our cash on hand, cash provided by operating activities, and available credit are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, and share repurchases for at least the next twelve months.

For the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, operating activities provided cash of ~~$130.2~~$74.7 million. Operating activities that provided cash were primarily comprised of net income of ~~$79.9~~$30.9 million, non-cash depreciation and amortization charges of ~~$75.9~~$38.1 million, non-cash share-based compensation expense of ~~$51.1~~$27.9 million and a non-cash ~~decrease in~~amortization of operating lease right-of-use assets of ~~$5.1~~$3.8 million. Working capital, excluding cash, ~~increased~~decreased approximately ~~$81.7~~$26.5 million mainly due to ~~higher accounts receivable because of an increase~~the decline in ~~unbilled receivables attributed to revenues recognized prior to billings and our maintenance billing cycle peaking in June, the~~deferred revenue balances, timing of ~~bonuses~~bonus payments, ~~the~~ timing ~~of payments~~ of payroll related ~~taxes,~~tax payments, and decreases in operating lease liabilities and deferred taxes associated with stock option activity during the period. These ~~increases~~decreases were offset by ~~an increase in deferred revenue during the period, the timing of payments to and receipts from our government partners and end-user consumers, and~~ the timing of income tax ~~payments.~~payments and timing of collections of annual maintenance renewals and subscription renewal billings that are billed in the fourth quarter. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance renewal billings. Our renewal dates occur throughout the year, but our largest renewal billing cycles occur in the second and fourth quarters. ~~In addition, subscription~~Subscription renewals are billed throughout the year.

~~Our days~~Days sales outstanding (“DSO”) ~~was 115~~in accounts receivable were 95 days at ~~June 30, 2022,~~March 31, 2023, compared to ~~108~~115 days at December 31, ~~2021,~~2022, and ~~131~~99 days at ~~June 30, 2021. The increase in DSO compared to December~~March 31, 2021, is primarily attributed to our maintenance billing cycle, which typically peaks at its highest level in June and second highest level in December of each year, followed by collections in the subsequent quarter.2022. DSO is calculated based on quarter-end accounts receivable divided by the quotient of annualized quarterly revenues divided by 360 days. The decrease in DSO compared to ~~June 30, 2021,~~December 31, 2022 and March 31, 2022, is attributed to improved collection ~~efforts.~~efforts and timing of receipts from our government partners.

Investing activities used cash of ~~$110.4~~approximately $600,000 in the three months ended March 31, 2023. We invested $10.6 million and received $23.0 million in ~~the six months ending June 30, 2022.~~ ~~On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a market-leading provider of technology solutions for campground~~proceeds from investment grade corporate bonds, municipal bonds and ~~outdoor recreation management. The total purchase price, net of~~ cash acquired of $6.4 million, was approximately $116.7 million, consisting of $117.6 million paid in cash, and approximately $5.5 million related to indemnity holdbacks, subject to certain post-closing adjustments. In addition, approximately $16.5asset-backed securities with maturity dates ranging from 2023 through 2027. Approximately $9.1 million of software development costs were capitalized. Approximately $2.0 million was invested in property and equipment, including $744,000 related to real estate. We paid $1.9 million primarily related to a small acquisition completed during first quarter 2023. The remaining additions were for computer equipment and furniture and fixtures in support of ~~internal~~ growth, particularly ~~with respect to~~as we transition from our proprietary data centers ~~supporting growth in our cloud-based offerings.~~to the public cloud.

Financing activities used cash of ~~$76.0~~$117.1 million in the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, primarily attributable to repayment of ~~$80.0~~$120.0 million of ~~the unsecured~~ term ~~loans and~~debt, partially offset by payments received from stock option exercises, ~~and employee stock purchase plan activity,~~ net of withheld shares for taxes upon equity ~~award.~~award and employee stock purchase plan activity.

In February 2019, our board of directors authorized the repurchase of ~~an additional~~ 1.5 million shares of our common stock. The repurchase program, which was approved by our board of directors, was originally announced in October 2002 and was amended at various times from 2003 through 2019. As of ~~June 30, 2022,~~April 26, 2023, we have authorization from our board of directors to repurchase up to ~~2.4~~2.3 million additional shares of our common stock. Our share repurchase program allows us to repurchase shares at our discretion. Market conditions influence the timing of the buybacks and the number of shares repurchased, as well as the volume of employee stock option exercises. Share repurchases are generally funded using our existing cash balances and borrowings under our credit facility and may occur through open market purchases and transactions structured through investment banking institutions, privately negotiated transactions and/or other mechanisms. There is no expiration date specified for the authorization and we intend to repurchase stock ~~under the plan~~ from time to time.

~~We made tax payments of $24.3 million and $967,000 in the six months ended June 30, 2022, and 2021, respectively.~~

As of ~~June 30, 2022,~~March 31, 2023, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026.

On January 28, 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the Secured Overnight Financing Rate (“SOFR”) reference rate.

Under our amended 2021 Credit Agreement, we had ~~$675~~$275 million in outstanding principal for the ~~unsecured term loans,~~Term Loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of $500 million as of ~~June 30, 2022.~~March 31, 2023. As of ~~June 30, 2022,~~March 31, 2023, we had one outstanding ~~standalone~~ letter of credit totaling ~~$2.0~~$1.5 million. The letter of credit, which guarantees our performance under a client contract, renews automatically annually unless canceled in writing and expires in the third quarter of 2026. For the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, we repaid ~~$80.0~~$120.0 million of the ~~unsecured term loans~~Term Loans under amended 2021 Credit Agreement.

~~Subsequent to June 30, 2022, we repaid $100 million of the unsecured term loans under the 2021 Credit Agreement in July 2022.~~

In the ~~six~~three months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively, we ~~made~~paid interest ~~payments~~ of ~~$5.7~~$6.8 million and ~~$9.4 million, associated with~~$4.1 million. See Note 8, "Debt," to the ~~2021 Credit Agreement and~~condensed consolidated financial statements for discussions of the Convertible Senior Notes ~~including payment of a $6.4 million commitment fee related to the senior unsecured bridge loan facility paid in 2021.~~

~~See Note 4, "Debt"~~, ~~to the Condensed Consolidated Financial Statements for discussions of~~and the 2021 Credit ~~Agreement~~Agreement.

We received income tax refunds, net of taxes paid of $548,000 and ~~Convertible Senior Notes.~~paid income taxes, net of refunds received, of $393,000 in the three months ended March 31, 2023, and 2022, respectively. In the three months ended March 31, 2023, stock option exercise activity generated net tax benefits of $703,000 and reduced tax payments accordingly, as compared to $3.0 million in the same period in 2022.

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to IRC Section 174. The requirement temporarily increases our U.S. federal and state cash tax payments and reduces cash flows in fiscal year 2023 and future years until the amortization deduction normalizes. Subsequent to March 31, 2023, we have paid approximately $66.9 million of income taxes related to Section 174.

We anticipate that 2023 capital spending will be between $63 million and $65 million, including approximately $37 million related to real estate and approximately $37 million of software development. We expect the majority of the other capital spending will consist of computer equipment and software for infrastructure replacements and expansion. We also expect cash tax payments to be higher as a result of IRC Section 174. Capital spending and cash tax payments are expected to be funded from existing cash balances and cash flows from operations.

From time to time we engage in discussions with potential acquisition candidates. In order to pursue such opportunities, which could require significant commitments of capital, we may be required to incur debt or to issue additional potentially dilutive securities in the future. No assurance can be given as to our future acquisition opportunities and how such opportunities will be financed.

We anticipate that 2022 capital spending will be between $58 million and $62 million, including approximately $34 million of capitalized software development. We expect the majority of the other capital spending will consist of computer equipment and software for infrastructure replacements and expansion. Capital spending is expected to be funded from existing cash balances and cash flows from operations.

We lease office facilities for use in our operations, as well as transportation and other ~~equipment used in~~equipment. Most of our ~~operations under~~leases are non-cancelable operating lease agreements ~~expiring at various dates through 2027.~~and they expire from one to 12 years. Some of these leases include options to extend for up to six years.

3632

Other than the accelerated repayment of $120.0 million of the Term Loans under the amended 2021 Credit Agreement, there were no material changes to our future minimum contractual obligations since December 31, 2022, as previously disclosed in our Annual Report on Form 10-K filed with the SEC on February 22, 2023. Our estimated future obligations consist of debt, uncertain tax positions, leases, and purchase commitments as of March 31, 2023. Refer to Note 8, “Debt,” Note 12, “Income Tax,” Note 15, “Leases,” and Note 16, “Commitment and Contingencies,” to the condensed consolidated financial statements for related discussions.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and interest rates.

As of ~~June 30, 2022,~~March 31, 2023, we had ~~$675.0~~$275.0 million of outstanding borrowings under our amended 2021 Credit Agreement and available borrowing capacity under the 2021 Credit Agreement was $500.0 million.

~~Borrowings~~In accordance with our amended 2021 Credit Agreement, the borrowings under the Revolving Credit Facility and the Term Loan A-1 bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) (the “Base Rate”) plus a margin of 0.125% to 0.75% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month ~~LIBOR~~SOFR rate plus a margin of 1.125% to 1.75%. The Term Loan A-2 bears interest, at the Company’s option, at a per annum rate of either (1) the Base Rate plus a margin of 0% to 0.5% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month ~~LIBOR~~SOFR rate plus a margin of 0.875% to 1.5%.

During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, the effective interest rate for our borrowings was ~~2.38%~~6.98%. Based on the aggregate outstanding principal balance under the 2021 Credit Agreement as of ~~June 30, 2022,~~March 31, 2023, of ~~$675.0~~$275.0 million, each quarter point change in interest rates would result in a ~~$1.7 million~~$687,500 change in annual interest expense.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time ~~period~~periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer,~~chief financial officer, as appropriate to allow timely decisions regarding required disclosures. Management, with the participation of the ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer,~~chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~the end of the period covered by this report.~~March 31, 2023. Based on this evaluation, the ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer~~chief financial officer have concluded that ourdisclosure controls and procedures were effective as of ~~June 30, 2022.~~March 31, 2023.

Changes in Internal Control over Financial Reporting

~~There~~During the three months ended March 31, 2023, there were no changes in our internal control over financial reporting, ~~(as~~as defined in Securities Exchange Act Rule 13a-15(f) ~~of the Exchange Act) during the three months ended June 30, 2022,~~, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3733

Part II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The client was unresponsive to our ~~business, there are no material legal proceedings pending~~outreach for several months. On August 23, 2022, we filed a lawsuit to ~~which~~enforce our rights and remedies under the applicable contractual arrangement. Although we believe our products and services were delivered in accordance with the terms of our contract and that we are ~~party or~~entitled to ~~which any of~~payment in connection with the termination for convenience, at this time the matter remains unresolved. We can provide no assurances that we will not incur additional costs as we pursue our ~~properties are subject.~~rights and remedies under the contract.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, one should carefully consider the discussion of various risks and uncertainties contained in Part I, “Item 1A. Risk Factors” in our ~~2021~~2022 Annual Report on Form 10-K. We believe those risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. Please note, however, that those are not the only risk factors facing us. Additional risks that we do not consider material, or of which we are not currently aware, may also have an adverse impact on us. Our business, financial condition and results of operations could be seriously harmed if any of these risks or uncertainties actually occurs or materializes. In that event, the market price for our common stock could decline, and our shareholders may lose all or part of their investment. During the three months ended ~~June 30, 2022,~~March 31, 2023, there were no material changes in the information regarding risk factors contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information

None

ITEM 6. Exhibits


Exhibit 31.1						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1						Certifications Pursuant Certifications Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 4.1						Third Amendment to the Credit Agreement dated January 27, 2023, among Tyler Technologies, Inc. and Wells Fargo Bank, N. A. as Administrative Agent and other lenders party hereto (filed as Exhibit 4.2 to our Form 10-K dated February 22, 2023, and incorporated by reference herein).
Exhibit 10.1						Amended and Restated Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and John S. Marr, Jr.(filed as Exhibit 10.1 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
Exhibit 10.2						Amended and Restated Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and H. Lynn Moore, Jr. (filed as Exhibit 10.2 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
Exhibit 10.3						Amended and Restated Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and Brian K. Miller (filed as Exhibit 10.3 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
Exhibit 10.4						Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and Jeffrey D. Puckett (filed as Exhibit 10.4 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
Exhibit 10.5						Code of Business Conduct and Ethics of Tyler Technologies, Inc. dated October 30, 2020 (filed as Exhibit 99.1 to our form 8-K dated March 31, 2023, and incorporated by reference herein).
Exhibit 10.6						Tyler Technologies, Inc. Insider Trading and Confidentiality Policy dated May 1, 2018 (filed as Exhibit 99.2 to our form 8-K dated March 31, 2023, and incorporated by reference herein).
Exhibit 101.INS						Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags, including Cover Page XBRL tags, are embedded within the Inline XBRL Document.
Exhibit 101.SCH						Inline XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB						Inline XBRL Extension Labels Linkbase Document.
Exhibit 101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit 101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Exhibit 104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

3835

SIGNATURES

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


			TYLER TECHNOLOGIES, INC.
By:			/s/ Brian K. Miller
			Brian K. Miller
			Executive Vice President and Chief Financial Officer
			(principal financial officer and an authorized signatory)

Date: ~~July 29, 2022~~April 26, 2023

3936


For the six months ended June 30, 2022	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Software licenses and royalties	$	30,728	$	787	$	—	$	31,515
Subscriptions	249,010		252,249		—		501,259
Software services	84,490		40,132		—		124,622
Maintenance	221,455		12,389		—		233,844
Appraisal services	17,330		—		—		17,330
Hardware and other	12,612		—		3,610		16,222
Intercompany	10,931		—		(10,931)		—
Total revenues	$	626,556	$	305,557	$	(7,321)	$	924,792
Segment operating income (loss)	$	208,619	$	67,034	$	(107,450)	$	168,203


For the six months ended June 30, 2021	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Software licenses and royalties	$	30,611	$	1,926	$	—	$	32,537
Subscriptions	201,946		100,091		—		302,037
Software services	84,895		16,082		—		100,977
Maintenance	219,284		19,449		—		238,733
Appraisal services	12,730		—		—		12,730
Hardware and other	8,906		18		2,939		11,863
Intercompany	10,897		—		(10,897)		—
Total revenues	$	569,269	$	137,566	$	(7,958)	$	698,877
Segment operating income (loss)	$	198,920	$	29,244	$	(115,046)	$	113,118