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 September 30, 2022March 31, 2023
OR
☐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 PARKWAYPLANOTexas75024
 (Address of principal executive offices)(City)(State)(Zip code)
(972) 713-3700
(Registrant’s telephone number, including area code)
Title of each classTrading symbol
Name of each exchange
on which registered
COMMON STOCK, $0.01 PAR VALUETYLNew 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 OctoberApril 25, 20222023 was 41,639,898.41,925,317.



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 September 30,Nine Months Ended September 30, Three Months Ended March 31,
2022202120222021 20232022
Revenues:Revenues:    Revenues:  
SubscriptionsSubscriptions$280,465 $245,443 
MaintenanceMaintenance115,130 117,029 
Professional servicesProfessional services60,929 70,015 
Software licenses and royaltiesSoftware licenses and royalties$20,269 $22,673 $51,784 $55,210 Software licenses and royalties10,130 16,506 
Subscriptions254,346 252,942 755,604 554,979 
Professional services63,180 54,624 187,802 155,601 
Maintenance117,338 117,833 351,182 356,566 
Appraisal services8,638 7,146 25,968 19,876 
Hardware and otherHardware and other9,420 4,655 25,643 16,518 Hardware and other5,199 7,115 
Total revenuesTotal revenues473,191 459,873 1,397,983 1,158,750 Total revenues471,853 456,108 
Cost of revenues:Cost of revenues:    Cost of revenues:  
Subscriptions, maintenance, and professional servicesSubscriptions, maintenance, and professional services252,415 242,832 
Software licenses and royaltiesSoftware licenses and royalties3,162 1,547 8,640 4,151 Software licenses and royalties2,313 1,445 
Amortization of software developmentAmortization of software development2,588 1,164 
Amortization of acquired softwareAmortization of acquired software13,622 12,896 40,882 32,683 Amortization of acquired software8,920 13,221 
Subscriptions, professional services and maintenance239,928 241,944 721,017 576,035 
Appraisal services5,783 4,506 17,695 13,552 
Hardware and otherHardware and other6,033 2,764 19,219 9,845 Hardware and other5,780 5,028 
Total cost of revenuesTotal cost of revenues268,528 263,657 807,453 636,266 Total cost of revenues272,016 263,690 
Gross profitGross profit204,663 196,216 590,530 522,484 Gross profit199,837 192,418 
Selling, general and administrative expenses103,619 101,847 301,216 289,543 
Sales and marketing expenseSales and marketing expense37,103 35,206 
General and administrative expenseGeneral and administrative expense72,360 62,689 
Research and development expenseResearch and development expense25,190 24,002 72,517 69,243 Research and development expense26,987 23,941 
Amortization of other intangiblesAmortization of other intangibles14,941 14,183 43,259 31,015 Amortization of other intangibles18,407 14,714 
Operating incomeOperating income60,913 56,184 173,538 132,683 Operating income44,980 55,868 
Interest expenseInterest expense(9,258)(5,396)(20,276)(18,311)Interest expense(7,684)(4,804)
Other income, netOther income, net131 445 712 1,249 Other income, net1,246 364 
Income before income taxesIncome before income taxes51,786 51,233 153,974 115,621 Income before income taxes38,542 51,428 
Income tax (benefit) provision(1,447)7,063 20,811 8,945 
Income tax provision (benefit)Income tax provision (benefit)7,667 11,444 
Net incomeNet income$53,233 $44,170 $133,163 $106,676 Net income$30,875 $39,984 
Earnings per common share:Earnings per common share:    Earnings per common share:  
BasicBasic$1.28 $1.08 $3.21 $2.61 Basic$0.74 $0.97 
DilutedDiluted$1.26 $1.04 $3.14 $2.53 Diluted$0.73 $0.94 
See accompanying notes.
2

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30, Three Months Ended March 31,
2022202120222021 20232022
Net incomeNet income$53,233 $44,170 $133,163 $106,676 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(109)— (852)— 
Change in net unrealized holding gains (losses) on available for sale securities during the periodChange in net unrealized holding gains (losses) on available for sale securities during the period94 (629)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturityReclassification 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 income72 — 79 — 
Other comprehensive loss, net of tax(37)— (800)— 
Reclassification adjustment for net gain on sale of available for sale securities, included in net incomeReclassification adjustment for net gain on sale of available for sale securities, included in net income— (41)
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax94 (697)
Comprehensive incomeComprehensive income$53,196 $44,170 $132,363 $106,676 Comprehensive income$30,969 $39,287 
See accompanying notes.
3

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
September 30, 2022 (unaudited)December 31, 2021March 31, 2023 (unaudited)December 31, 2022
ASSETSASSETS  ASSETS  
Current assets:Current assets:  Current assets:  
Cash and cash equivalentsCash and cash equivalents$185,927 $309,171 Cash and cash equivalents$130,845 $173,857 
Accounts receivable (less allowance for losses and sales adjustments of $14,057 in 2022 and $12,086 in 2021)561,780 521,059 
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 investmentsShort-term investments39,360 52,300 Short-term investments28,810 37,030 
Prepaid expensesPrepaid expenses59,096 55,513 Prepaid expenses70,587 50,859 
Income tax receivable7,379 18,137 
Other current assetsOther current assets6,608 8,151 Other current assets6,738 8,239 
Total current assetsTotal current assets860,150 964,331 Total current assets745,663 847,242 
Accounts receivable, long-termAccounts receivable, long-term9,213 13,937 Accounts receivable, long-term9,282 8,271 
Operating lease right-of-use assetsOperating lease right-of-use assets53,202 39,720 Operating lease right-of-use assets48,627 50,989 
Property and equipment, netProperty and equipment, net175,196 181,193 Property and equipment, net167,683 172,786 
Other assets:Other assets:  Other assets:  
Software development costs, netSoftware development costs, net51,092 28,489 Software development costs, net54,565 48,189 
GoodwillGoodwill2,449,405 2,359,674 Goodwill2,489,084 2,489,308 
Other intangibles, netOther intangibles, net1,004,045 1,052,493 Other intangibles, net976,359 1,002,164 
Non-current investmentsNon-current investments22,627 46,353 Non-current investments14,544 18,508 
Other non-current assetsOther non-current assets50,443 45,971 Other non-current assets49,828 49,960 
$4,675,373 $4,732,161 $4,555,635 $4,687,417 
LIABILITIES AND SHAREHOLDERS' EQUITYLIABILITIES AND SHAREHOLDERS' EQUITY  LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:Current liabilities:  Current liabilities:  
Accounts payableAccounts payable$108,121 $119,988 Accounts payable$122,361 $104,813 
Accrued liabilitiesAccrued liabilities134,313 158,424 Accrued liabilities104,522 131,941 
Operating lease liabilitiesOperating lease liabilities10,581 10,560 Operating lease liabilities11,413 10,736 
Current income tax payableCurrent income tax payable69,337 43,667 
Deferred revenueDeferred revenue529,233 510,529 Deferred revenue497,395 568,538 
Current portion of term loansCurrent portion of term loans30,000 30,000 Current portion of term loans30,000 30,000 
Total current liabilitiesTotal current liabilities812,248 829,501 Total current liabilities835,028 889,695 
Revolving credit facility— — 
Term loans452,138 718,511 
Term loans, netTerm loans, net243,603 362,905 
Convertible senior notes due 2026, netConvertible senior notes due 2026, net594,054 592,765 Convertible senior notes due 2026, net594,914 594,484 
Deferred revenue, long-termDeferred revenue, long-term2,473 38 Deferred revenue, long-term1,600 2,037 
Deferred income taxesDeferred income taxes203,204 228,085 Deferred income taxes130,367 148,891 
Operating lease liabilities, long-termOperating lease liabilities, long-term49,759 36,336 Operating lease liabilities, long-term46,567 48,049 
Other long-term liabilitiesOther long-term liabilities14,199 2,893 Other long-term liabilities17,423 16,967 
Total liabilitiesTotal liabilities2,128,075 2,408,129 Total liabilities1,869,502 2,063,028 
Commitments and contingenciesCommitments and contingencies— — Commitments and contingencies— — 
Shareholders' equity:Shareholders' equity:  Shareholders' equity:  
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issuedPreferred 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 September 30, 2022 and December 31, 2021481 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, 2022Common 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, 2022481 481 
Additional paid-in capitalAdditional paid-in capital1,164,359 1,075,650 Additional paid-in capital1,239,945 1,209,725 
Accumulated other comprehensive loss, net of taxAccumulated other comprehensive loss, net of tax(846)(46)Accumulated other comprehensive loss, net of tax(750)(844)
Retained earningsRetained earnings1,406,777 1,273,614 Retained earnings1,468,729 1,437,854 
Treasury stock, at cost; 6,525,259 and 6,832,640 shares in 2022 and 2021, respectively(23,473)(25,667)
Treasury stock, at cost; 6,243,409 and 6,364,991 shares in 2023 and 2022, respectivelyTreasury stock, at cost; 6,243,409 and 6,364,991 shares in 2023 and 2022, respectively(22,272)(22,827)
Total shareholders' equityTotal shareholders' equity2,547,298 2,324,032 Total shareholders' equity2,686,133 2,624,389 
$4,675,373 $4,732,161 $4,555,635 $4,687,417 
See accompanying notes.
4

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, Three Months Ended March 31,
20222021 20232022
Cash flows from operating activities:Cash flows from operating activities:  Cash flows from operating activities:  
Net incomeNet income$133,163 $106,676 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 amortizationDepreciation and amortization116,950 97,864 Depreciation and amortization38,112 38,149 
Losses from sale of investments44 — 
Gains from sale of investmentsGains from sale of investments— (55)
Share-based compensation expenseShare-based compensation expense77,991 80,360 Share-based compensation expense27,896 25,279 
Operating lease right-of-use assets expense9,240 7,016 
Amortization of operating lease right-of-use assetsAmortization of operating lease right-of-use assets3,804 3,082 
Deferred income tax benefitDeferred income tax benefit(32,845)(15,681)Deferred income tax benefit(18,556)(9,438)
OtherOther499 — 
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 receivableAccounts receivable(34,163)2,403 Accounts receivable77,563 20,637 
Income tax receivable10,759 24,171 
Income tax payableIncome tax payable25,670 19,512 
Prepaid expenses and other current assetsPrepaid expenses and other current assets(6,568)(10,456)Prepaid expenses and other current assets(18,381)(5,481)
Accounts payableAccounts payable(13,750)(64,383)Accounts payable17,547 6,294 
Operating lease liabilitiesOperating lease liabilities(9,324)(3,904)Operating lease liabilities(2,246)(3,071)
Accrued liabilitiesAccrued liabilities(23,797)4,817 Accrued liabilities(36,951)(30,642)
Deferred revenueDeferred revenue20,592 29,609 Deferred revenue(71,579)(56,551)
Other long-term liabilitiesOther long-term liabilities11,306 (1,749)Other long-term liabilities456 5,842 
Net cash provided by operating activitiesNet cash provided by operating activities259,598 256,743 Net cash provided by operating activities74,709 53,541 
Cash flows from investing activities:Cash flows from investing activities:  Cash flows from investing activities:  
Additions to property and equipmentAdditions to property and equipment(17,441)(20,770)Additions to property and equipment(2,020)(4,579)
Purchase of marketable security investmentsPurchase of marketable security investments(20,428)(75,684)Purchase of marketable security investments(10,617)(4,592)
Proceeds and maturities from marketable security investmentsProceeds and maturities from marketable security investments55,052 114,563 Proceeds and maturities from marketable security investments22,975 22,672 
Investment in software(25,557)(14,966)
Investment in software developmentInvestment in software development(9,079)(7,947)
Cost of acquisitions, net of cash acquiredCost of acquisitions, net of cash acquired(117,706)(2,088,394)Cost of acquisitions, net of cash acquired(1,875)(116,698)
OtherOther326 463 Other16 (29)
Net cash used by investing activitiesNet cash used by investing activities(125,754)(2,084,788)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— — 
Payment on term loansPayment on term loans(270,000)(57,500)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— (27,165)
Purchase of treasury shares— (12,975)
Proceeds from exercise of stock options, net of withheld shares for taxes upon equity awardProceeds from exercise of stock options, net of withheld shares for taxes upon equity award298 46,433 Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award(158)8,045 
Contributions from employee stock purchase planContributions from employee stock purchase plan12,614 9,757 Contributions from employee stock purchase plan3,037 3,678 
Net cash (used) provided by financing activities(257,088)1,458,550 
Net cash used by financing activitiesNet cash used by financing activities(117,121)(8,277)
Net decrease in cash and cash equivalentsNet decrease in cash and cash equivalents(123,244)(369,495)Net decrease in cash and cash equivalents(43,012)(65,909)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period309,171 603,623 Cash and cash equivalents at beginning of period173,857 309,171 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$185,927 $234,128 Cash and cash equivalents at end of period$130,845 $243,262 
See accompanying notes.





5


TYLER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income (Loss)		Retained
Earnings		Treasury StockTotal
Shareholders'
Equity
 SharesAmountSharesAmount
Balance at June 30, 202248,148 $481 $1,128,821 $(809)$1,353,544 (6,584)$(23,710)$2,458,327 
Net income— — — — 53,233 — — 53,233 
Unrealized loss on available-for-sale securities, net of tax— — — (37)— — — (37)
Exercise of stock options and vesting of restricted stock units— — 4,232 — — 45 758 4,990 
Employee taxes paid for withheld shares upon equity award settlement— — — — — (2)(585)(585)
Stock compensation— — 26,912 — — — — 26,912 
Issuance of shares pursuant to employee stock purchase plan— — 4,394 — — 16 64 4,458 
Balance at September 30, 202248,148 $481 $1,164,359 $(846)$1,406,777 (6,525)$(23,473)$2,547,298 

Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income (Loss)		Retained
Earnings		Treasury StockTotal
Shareholders'
Equity
 SharesAmountSharesAmount
Balance at June 30, 202148,148 $481 $962,557 $(46)$1,174,662 (7,315)$(29,663)$2,107,991 
Net income— — — — 44,170 — — 44,170 
Exercise of stock options and vesting of restricted stock units— — 14,712 — — 112 2,333 17,045 
Employee taxes paid for withheld shares upon equity award settlement— — — — — (3)(1,451)(1,451)
Stock compensation— — 29,461 — — — — 29,461 
Issuance of shares pursuant to employee stock purchase plan— — 3,482 — — 9 75 3,557 
Treasury stock purchases— — — — — — — — 
Purchase Consideration for Converted Stock— — — — — — — — 
Balance at September 30, 202148,148 $481 $1,010,212 $(46)$1,218,832 (7,197)$(28,706)$2,200,773 
Three Months Ended March 31,
 20232022
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 
6


TYLER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income (Loss)		Retained
Earnings		Treasury StockTotal
Shareholders'
Equity		Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income (Loss)		Retained
Earnings		Treasury StockTotal
Shareholders'
Equity
SharesAmountSharesAmount SharesAmountSharesAmount
Balance at December 31, 202148,148 $481 $1,075,650 $(46)$1,273,614 (6,833)$(25,667)$2,324,032 
Balance at December 31, 2022Balance at December 31, 202248,148 $481 $1,209,725 $(844)$1,437,854 (6,365)$(22,827)$2,624,389 
Net incomeNet income— — — — 133,163 — — 133,163 Net income— — — — 30,875 — — 30,875 
Unrealized loss on available-for-sale securities, net of tax— — — (800)— — — (800)
Other comprehensive gain, net of taxOther comprehensive gain, net of tax— — — 94 — — — 94 
Exercise of stock options and vesting of restricted stock unitsExercise of stock options and vesting of restricted stock units— — (1,665)— — 324 22,878 21,213 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— — — — — (52)(20,915)(20,915)
Employee taxes paid for withheld shares upon equity award settlementEmployee taxes paid for withheld shares upon equity award settlement— — — — — (26)(8,292)(8,292)
Stock compensationStock compensation— — 77,991 — — — — 77,991 Stock compensation— — 27,896 — — — — 27,896 
Issuance of shares pursuant to employee stock purchase planIssuance of shares pursuant to employee stock purchase plan— — 12,383 — — 36 231 12,614 Issuance of shares pursuant to employee stock purchase plan— — 2,992 — — 11 45 3,037 
Balance at September 30, 202248,148 $481 $1,164,359 $(846)$1,406,777 (6,525)$(23,473)$2,547,298 
Balance at March 31, 2023Balance at March 31, 202348,148 $481 $1,239,945 $(750)$1,468,729 (6,244)$(22,272)$2,686,133 
Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income (Loss)		Retained
Earnings		Treasury StockTotal
Shareholders'
Equity
 SharesAmountSharesAmount
Balance at December 31, 202048,148 $481 $905,332 $(46)$1,112,156 (7,609)$(31,812)$1,986,111 
Net income— — — — 106,676 — — 106,676 
Exercise of stock options and vesting of restricted stock units— — 13,089 — — 458 33,344 46,433 
Employee taxes paid for withheld shares for taxes upon equity award settlement— — — — — (40)(17,461)(17,461)
Stock compensation— — 80,360 — — — — 80,360 
Issuance of shares pursuant to employee stock purchase plan— — 9,559 — — 26 198 9,757 
Treasury stock purchases— — — — — (32)(12,975)(12,975)
Purchase Consideration for Converted Stock— — 1,872 — — — — 1,872 
Balance at September 30, 202148,148 $481 $1,010,212 $(46)$1,218,832 (7,197)$(28,706)$2,200,773 

Common StockAdditional
Paid-in
Capital		Accumulated Other
Comprehensive
Income (Loss)		Retained
Earnings		Treasury StockTotal
Shareholders'
Equity
 SharesAmountSharesAmount
Balance at December 31, 202148,148 $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, 202248,148 $481 $1,098,933 $(743)$1,313,598 (6,697)$(24,535)$2,387,734 
7

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 September 30, 2022,March 31, 2023, and December 31, 2021,2022, and operating result amounts are for the three and nine months ended September 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 nine months ended September 30, 2022,March 31, 2023, we had approximately $37,000 and $800,000$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 nine months ended September 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”), thereThere 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.
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 the majority of our revenues from software licenses, royalties, subscription-based services professional 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
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Subscriptions revenue consists of revenue derived from our software as a service ("SaaS") arrangements and transaction-based fees primarily related to digital government services and 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.
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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 professional 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 professional 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 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. 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.
Subscriptions revenue primarily consistsRevenue is recognized net of revenue derivedallowances for sales adjustments and any taxes collected from our SaaS arrangements. Other sources of subscription-based revenuescustomers, which are derived from transaction-based fees primarily relatedsubsequently remitted to digital government services and 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 revenues from digital government services, payments, and e-filing transaction 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 revenues for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably, and its realization is probable.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 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.
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At September 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 $571.0$518.0 million and $535.0$585.5 million, respectively. We have recorded unbilled receivables of $137.7$131.4 million and $140.3$135.4 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Included in unbilled receivables are retention receivables of $7.6$8.2 million and $7.7$8.6 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, which become payable upon the completion of the contract or completion of our appraisal 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 $14.1 million and $12.1$14.8 million at September 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.
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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In October 2021,There were no new not yet adopted accounting pronouncements currently issued that would affect the FASB issued ASU 2021-08 - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASC 805)(“ASU 2021-08”). ASU 2021-08 requires an acquirerCompany or have a material impact on its consolidated financial position or results of operations 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 from the current requirement to measure contract assets and contract liabilities at fair value. ASU 2021-08 is effective for all public business entities 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 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.future periods.
(3)    Segment and Related Information
We provide integrated information management solutions and services for 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 two 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 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 software solutions to 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 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 loss also includes revenues and expenses related to a company-wide user conference.
For the three months ended March 31, 2023Enterprise
Software		Platform TechnologiesCorporateTotals
Revenues    
Subscriptions:
SaaS$111,042 $15,553 $— $126,595 
Transaction-based fees37,372 116,498 — 153,870 
Maintenance110,081 5,049 — 115,130 
Professional services51,499 9,430 — 60,929 
Software licenses and royalties8,068 2,062 — 10,130 
Hardware and other5,199 — — 5,199 
Intercompany5,083 — (5,083)— 
Total revenues$328,344 $148,592 $(5,083)$471,853 
Segment operating income (loss)$99,980 $29,537 $(57,210)$72,307 
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For the three months ended March 31, 2022Enterprise
Software		Platform TechnologiesCorporateTotals
Revenues
Subscriptions:
SaaS$90,771 $11,011 $— $101,782 
Transaction-based fees29,545 114,116 — 143,661 
Maintenance110,695 6,334 — 117,029 
Professional services51,167 18,848 — 70,015 
Software licenses and royalties16,105 401 — 16,506 
Hardware and other7,115 — — 7,115 
Intercompany5,589 — (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:20232022
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, net1,246 364 
Income before income taxes$38,542 $51,428 
(4)    Disaggregation of Revenue
The tables below show disaggregation of revenue into categories that reflect how economic factors affect the nature, amount, timing, and uncertainty of revenues and cash flows.
Timing of Revenue Recognition
Timing of revenue recognition by revenue category during the period is as follows:
For the three months ended March 31, 2023Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Subscriptions:
SaaS$— $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 royalties9,281 849 10,130 
Hardware and other5,199 — 5,199 
Total$14,480 $457,373 $471,853 
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For the three months ended March 31, 2022Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Subscriptions:
SaaS$— $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 royalties14,069 2,437 16,506 
Hardware and other7,115 — 7,115 
Total$21,184 $434,924 $456,108 
Recurring Revenues
The majority of our revenue is comprised of revenues from subscriptions and maintenance, which we consider to be 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 period are as follows:
For the three months ended March 31, 2023Enterprise
Software		Platform TechnologiesCorporateTotals
Recurring revenues$258,495 $137,100 $— $395,595 
Non-recurring revenues64,766 11,492 — 76,258 
Intercompany5,083 — (5,083)— 
Total revenues$328,344 $148,592 $(5,083)$471,853 
For the three months ended March 31, 2022Enterprise
Software		Platform TechnologiesCorporateTotals
Recurring revenues$231,011 $131,461 $— $362,472 
Non-recurring revenues74,387 19,249 — 93,636 
Intercompany5,589 — (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, 2023December 31, 2022
Enterprise Software$462,043 $533,902 
Platform Technologies29,776 33,691 
Corporate7,176 2,982 
Totals$498,995 $570,575 
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Changes in 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 revenue256,257 
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 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 $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 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 sales and marketing expense in the accompanying condensed consolidated statements of income.
(7)    Acquisitions
On February 8,October 31, 2022, we acquired US eDirect Inc. (US eDirect)Rapid Financial Solutions, LLC (Rapid), a leading provider of technology solutions for campgroundreliable, 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 $116.6$67.4 million, consisting of $117.9$51.5 million paid in cash and approximately $5.0$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'sRapid’s assets and liabilities. The following table summarizes the preliminary allocation of the purchase price as of the acquisition date:
Cash$6,361 
Accounts receivable1,730 
Other current assets594 
Other noncurrent assets698 
Goodwill and identifiable intangible assets125,643 
Accounts payable(1,881)
Accrued expenses(357)
Other noncurrent liabilities(742)
Deferred revenue(688)
Deferred tax liabilities, net(8,428)
Total consideration$122,930 
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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 $91.5$40.0 million, noneall 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 $10.4 million.
The goodwill of approximately $91.5 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 eDirectRapid are included with the operating results of the Platform Technologies segment since its date of acquisition. Theacquisition and the impact of the US eDirectthis acquisition on our operating results, assets, and liabilities is not material. For the nine months ended September 30, 2022, we incurred fees of approximately $1.2 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 September 30, 2022,March 31, 2023, the purchase price allocation for US eDirectRapid 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 September 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 September 30,Nine Months Ended September 30,
2022202120222021
Revenues$473,191 $464,608 $1,399,205 $1,172,575 
Net income53,233 43,851 121,416 105,950 
Basic earnings per share$1.28 $1.07 $2.92 $2.60 
Diluted earnings per share$1.26 $1.04 $2.86 $2.51 
The pro forma information above does not purport to represent what our results of operations actually would have been had such transaction occurred on the date specified or to project our results of operations for any future period.
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(4)(8)    Debt
The following table summarizes our total outstanding borrowings related to the 2021 Credit Agreement and Convertible Senior Notes:
RateMaturity DateSeptember 30, 2022December 31, 2021RateMaturity DateMarch 31, 2023December 31, 2022
2021 Credit Agreement2021 Credit Agreement2021 Credit Agreement
Revolving credit facilityRevolving credit facilityL + 1.50%April 2026$— $— Revolving credit facilityS + 1.50%April 2026$— $— 
Term Loan A-1Term Loan A-1L + 1.50%April 2026380,000 585,000 Term Loan A-1S + 1.50%April 2026250,000 290,000 
Term Loan A-2Term Loan A-2L + 1.25%April 2024105,000 170,000 Term Loan A-2S + 1.25%April 202425,000 105,000 
Convertible Senior Notes due 2026Convertible Senior Notes due 20260.25%March 2026600,000 600,000 Convertible Senior Notes due 20260.25%March 2026600,000 600,000 
Total borrowingsTotal borrowings1,085,000 1,355,000 Total borrowings875,000 995,000 
Less: unamortized debt discount and debt issuance costsLess: unamortized debt discount and debt issuance costs(8,808)(13,724)Less: unamortized debt discount and debt issuance costs(6,483)(7,611)
Total borrowings, netTotal borrowings, net1,076,192 1,341,276 Total borrowings, net868,517 987,389 
Less: current portion of debtLess: current portion of debt(30,000)(30,000)Less: current portion of debt(30,000)(30,000)
Carrying valueCarrying value$1,046,192 $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.
BorrowingsOn 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 LIBORSOFR 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 LIBORSOFR 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, currently 0.25% per annum, ranging from 0.15% to 0.3% based upon the Company’s total net leverage ratio.
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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 September 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.
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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 SeptemberJune 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 September 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.
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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.
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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 4.56%6.38% and 0.25%, as of September 30, 2022,March 31, 2023, respectively. During the ninethree months ended September 30, 2022,March 31, 2023, the effective interest rates for our borrowings were 3.28%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 September 30,Nine Months Ended September 30,Three Months Ended March 31,
202220212022202120232022
Contractual interest expense - Revolving Credit FacilityContractual interest expense - Revolving Credit Facility$(320)$(391)$(948)$(925)Contractual interest expense - Revolving Credit Facility$(313)$(313)
Contractual interest expense - Term LoansContractual interest expense - Term Loans(5,234)(3,492)(12,603)(6,153)Contractual interest expense - Term Loans(5,641)(2,994)
Contractual interest expense - Convertible Senior NotesContractual interest expense - Convertible Senior Notes(375)(379)(1,125)(838)Contractual interest expense - Convertible Senior Notes(375)(375)
Amortization of debt discount and debt issuance costsAmortization of debt discount and debt issuance costs(3,329)(1,134)(5,600)(2,176)Amortization of debt discount and debt issuance costs(1,355)(1,122)
Interest expense and amortization of debt issuance costs - terminated 2019 Credit Agreement and Senior Unsecured Bridge loan facility— — — (8,219)
TotalTotal$(9,258)$(5,396)$(20,276)$(18,311)Total$(7,684)$(4,804)
As of September 30, 2022, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026. Under our 2021 Credit Agreement, we had $485 million in outstanding principal for the Term Loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of $500 million as of September 30, 2022. As of September 30, 2022,March 31, 2023, we had one outstanding standalone letter of credit totaling $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 ninethree months ended September 30, 2022,March 31, 2023, we repaid $270.0$120.0 million of the Term Loans under the 2021 Credit Agreement.
In the nine months ended September 30, 2022, and 2021, respectively, we made interest payments of $14.7 million and $14.2 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.
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(5)(9)    Financial Instruments
The following table presents our financial instruments:
September 30, 2022December 31, 2021March 31, 2023December 31, 2022
Cash and cash equivalentsCash and cash equivalents$185,927 $309,171 Cash and cash equivalents$130,845 $173,857 
Held-to-maturity investments— 98,653 
Available-for-sale investmentsAvailable-for-sale investments61,987 — Available-for-sale investments43,354 55,538 
Equity investmentsEquity investments10,000 10,000 Equity investments10,000 10,000 
TotalTotal$257,914 $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 September 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 September 30, 2022,March 31, 2023, we have an accrued interest receivable balance of approximately $259,000$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 nine months ended September 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.
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The following table presents the components of our available-for-sale investments:
September 30, 2022December 31, 2021
Amortized cost$63,122 $— 
Unrealized gains50 — 
Unrealized losses(1,185)— 
Estimated fair value$61,987 $— 
March 31, 2023December 31, 2022
Amortized cost$44,360 $56,670 
Unrealized gains2 16 
Unrealized losses(1,008)(1,148)
Estimated fair value$43,354 $55,538 
As of September 30, 2022,March 31, 2023, we have $39.4$28.8 million of available-for-sale debt securities with contractual maturities of one year or less and $22.6$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 September 30,Nine Months Ended September 30,Three Months Ended March 31,
202220212022202120232022
Proceeds from sales and maturitiesProceeds from sales and maturities$14,457 $23,168 $55,052 $114,563 Proceeds from sales and maturities$22,975 $22,672 
Realized losses on sales, net of tax(72)— (79)— 
Realized gains on sales, net of taxRealized 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 methodcarried 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.
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values.

(6)(10)    Other Comprehensive Income (Loss)
The following tables presenttable presents the changes in the balances of accumulated other comprehensive loss, net of tax by component:
Unrealized Loss On Available-for-Sales SecuritiesOtherAccumulated Other Comprehensive Loss
Balance as of June 30, 2022$(809)$— $(809)
Other comprehensive loss before reclassifications(109)— (109)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity— — — 
Reclassification adjustment for net loss on sale of available for sale securities, included in net income72 — 72 
Other comprehensive loss(37)— (37)
Balance as of September 30, 2022$(846)$— $(846)
Unrealized Loss On Available-for-Sale SecuritiesOtherAccumulated Other Comprehensive Loss
Balance as of December 31, 2022$(844)$— $(844)
Other comprehensive income before reclassifications94 — 94 
Reclassification adjustment of unrealized gains (losses) on securities transferred from held-to-maturity— — — 
Reclassification adjustment for net (gain) loss on sale of available-for-sale securities, included in net income— — — 
Other comprehensive income94 — 94 
Balance as of March 31, 2023$(750)$— $(750)
Unrealized Loss On Available-for-Sales SecuritiesOtherAccumulated Other Comprehensive LossUnrealized Loss On Available-for-Sale SecuritiesOtherAccumulated Other Comprehensive Loss
Balance as of December 31, 2021Balance as of December 31, 2021$(46)$— $(46)Balance as of December 31, 2021$(46)$— $(46)
Other comprehensive loss before reclassificationsOther comprehensive loss before reclassifications(852)— (852)Other comprehensive loss before reclassifications(629)— (629)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturityReclassification adjustment of unrealized losses on securities transferred from held-to-maturity(27)— (27)Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity(27)— (27)
Reclassification adjustment for net loss on sale of available for sale securities, included in net income79 — 79 
Reclassification adjustment for net gain on sale of available-for-sale securities, included in net incomeReclassification adjustment for net gain on sale of available-for-sale securities, included in net income(41)— (41)
Other comprehensive lossOther comprehensive loss(800)— (800)Other comprehensive loss(697)— (697)
Balance as of September 30, 2022$(846)$— $(846)
Balance as of March 31, 2022Balance as of March 31, 2022$(743)$— $(743)
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(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.
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The following table presents fair values of our financial and debt instruments categorized by their fair value hierarchy as of September 30, 2022:March 31, 2023:
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Available-for-sale investmentsAvailable-for-sale investments$— $61,987 $— $61,987 Available-for-sale investments$43,354 $— $— $43,354 
Equity investmentsEquity investments— — 10,000 10,000 Equity investments— — 10,000 10,000 
2021 Credit Agreement2021 Credit Agreement2021 Credit Agreement
Revolving Credit FacilityRevolving Credit Facility— — — — Revolving Credit Facility— — — — 
Term Loan A-1Term Loan A-1— 377,611 — 377,611 Term Loan A-1— 248,679 — 248,679 
Term Loan A-2Term Loan A-2— 104,527 — 104,527 Term Loan A-2— 24,924 — 24,924 
Convertible Senior Notes due 2026Convertible Senior Notes due 2026— 574,032 — 574,032 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 September 30, 2022,March 31, 2023, we have $62.0$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 notavailable 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 September 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 areinvestment is assessed for impairment. We do not reassess the fair value of equity methodthe 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 equity methodthis 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. WeDuring the fourth quarter of 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 nine monthsperiod ended September 30, 2022.March 31, 2023.
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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 September 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.
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The following table presents the fair value and carrying value, net, of the 2021 Credit Agreement and our Convertible Notes due 2026):
Fair Value atCarrying Value at Fair Value atCarrying Value at
September 30, 2022December 31, 2021September 30, 2022December 31, 2021March 31, 2023December 31, 2022March 31, 2023December 31, 2022
2021 Credit Agreement2021 Credit Agreement2021 Credit Agreement
Revolving Credit FacilityRevolving Credit Facility$— $— $— $— Revolving Credit Facility$— $— $— $— 
Term Loan A-1Term Loan A-1377,611 580,515 377,611 580,515 Term Loan A-1248,679 288,302 248,679 288,302 
Term Loan A-2Term Loan A-2104,527 167,996 104,527 167,996 Term Loan A-224,924 104,603 24,924 104,603 
Convertible Notes due 2026574,032 736,662 594,054 592,765 
Convertible Senior Notes due 2026Convertible Senior Notes due 2026576,714 560,910 594,914 594,484 
$1,056,170 $1,485,173 $1,076,192 $1,341,276  $850,317 $953,815 $868,517 $987,389 
(8)(12)    Income Tax Provision
We had an effective income tax rate of negative 2.8% and 13.5%19.9% for the three and nine months ended September 30, 2022, respectively,March 31, 2023, compared to 13.8% and 7.7%22.3% for the three and nine months ended September 30, 2021, respectively.March 31, 2022. The changesdecrease in the effective tax rate for the three and nine months ended September 30, 2022,March 31, 2023, as compared to the sameprior period, in 2021, was principally driven by an increase in research tax credit benefits, entirely offset for the three month period and somewhat offset for the nine month period by a corresponding liability for uncertain tax positions and the decrease in the excess tax benefits related to stock incentive awards.awards and liabilities for uncertain tax 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 benefits of research tax credits, offset by an increase instate income taxes, liabilities for uncertain tax positions, related to research tax credits, state income taxes, and non-deductible 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 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 excessrequirement temporarily increases our U.S. federal and state cash tax benefitspayments 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 stock incentive awards realized were $1.3 million and $6.0 million for the three and nine months ended September 30, 2022, respectively, as compared to $6.3 million and $21.5 million for the three and nine months ended September 30, 2021, respectively. The tax benefits of research tax credits were $21.7 million and $24.4 million for the three and nine months ended September 30, 2022, respectively, as compared to $1.4 million and $3.3 million for the three and nine months ended September 30, 2021, respectively. The changes in net liabilities for uncertain tax positions were $6.1 million and $6.9 million for the three and nine months ended September 30, 2022, respectively, as compared to negative $1.2 million for both the three and nine months ended September 30, 2021. Excluding the excess tax benefits related to stock incentive awards, research tax credit benefits, and net liabilities for uncertain tax positions, the effective tax rate was 29.8% and 28.8% for the three and nine months ended September 30, 2022, respectively, compared to 31.1% and 30.2% for the three and nine months ended September 30, 2021, respectively.
We made tax payments of $35.3 million and $1.7 million in the nine months ended September 30, 2022, and 2021, respectively.Section 174.
(9)     Shareholders’ Equity
The following table details activity in our common stock (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
SharesAmountSharesAmountSharesAmountSharesAmount
Purchases of treasury shares— $— — $— — $— (32)$(12,975)
Stock option exercises39 4,990 103 17,045 140 21,213 313 46,433 
Employee stock plan purchases16 4,458 9 3,557 36 12,614 26 9,757 
Restricted stock units vested, net of withheld shares upon award settlement4 (585)5 (1,451)132 (20,915)104 (17,461)
As of September 30, 2022, we have authorization from our board of directors to repurchase up to 2.4 million additional shares of our common stock.
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(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 September 30,Nine Months Ended September 30,
2022202120222021
Subscriptions, professional services and maintenance$7,181 $6,303 $20,820 $17,212 
Selling, general and administrative expenses19,731 23,158 57,171 63,148 
Total share-based compensation expense$26,912 $29,461 $77,991 $80,360 
Three Months Ended March 31,
20232022
Subscriptions, maintenance, and professional services$6,342 $6,772 
Sales and marketing expense2,393 2,140 
General and administrative expense19,161 16,367 
Total share-based compensation expense$27,896 $25,279 
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(11)

(14)    Earnings Per Share
The following table details the reconciliation of basic earnings per share to diluted earnings per share:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202220212022202120232022
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 incomeNet income$53,233 $44,170 $133,163 $106,676 Net income$30,875 $39,984 
Denominator:Denominator:  Denominator:  
Weighted-average basic common shares outstandingWeighted-average basic common shares outstanding41,600 40,888 41,523 40,805 Weighted-average basic common shares outstanding41,832 41,364 
Assumed conversion of dilutive securities:Assumed conversion of dilutive securities:  Assumed conversion of dilutive securities:  
Stock awardsStock awards807 1,398 902 1,391 Stock awards674 1,079 
Convertible Senior NotesConvertible 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
42,407 42,286 42,425 42,196 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:  
BasicBasic$1.28 $1.08 $3.21 $2.61 Basic$0.74 $0.97 
DilutedDiluted$1.26 $1.04 $3.14 $2.53 Diluted$0.73 $0.94 
For the three and nine months ended September 30,March 31, 2023, and 2022, and 2021, stock awards, representing the right to purchase common stock of approximately 361,000501,000 shares and 354,000 shares and 109,000 shares and 147,000215,000 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 nine months ended September 30,March 31, 2023, and 2022, and 2021, as their effect would be 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 12 years from the execution date.years. Some of these leases include options to extend for up to six years. We have no finance leases and no related party lease agreements as of September 30, 2022.March 31, 2023. Right-of-use lease assets and lease liabilities for our operating leases wereare 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.
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The components of operating lease expense were as follows:
Lease CostsLease CostsThree Months Ended September 30,Nine Months Ended September 30,Lease CostsThree Months Ended March 31,
202220212022202120232022
Operating lease costOperating lease cost$4,601 $3,291 $10,609 $7,770 Operating lease cost$4,391 $3,422 
Short-term lease costShort-term lease cost578 547 1,572 1,759 Short-term lease cost523 506 
Variable lease costVariable lease cost276 378 850 1,305 Variable lease cost320 370 
Net lease costNet lease cost$5,455 $4,216 $13,031 $10,834 Net lease cost$5,234 $4,298 
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Supplemental information related to leases is as follows:
Other InformationOther InformationNine Months Ended September 30,Other InformationThree Months Ended March 31,
2022202120232022
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 leasesOperating cash outflows from operating leases$10,247 $7,856 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 leasesOperating leases$23,821 $17,633 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)7.35.9Weighted average remaining lease term (years)7.15.4
Weighted average discount rateWeighted average discount rate1.57 %1.91 %Weighted average discount rate1.59 %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 20222023 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 nine months ended September 30, 2022March 31, 2023 totaled $456,000 and $1.2 million, respectively,$466,000 and for the three and nine months ended September 30, 2021March 31, 2022 totaled $301,000 and $891,000, respectively.$305,000. Rental income is included in hardware and other revenue in the condensed consolidated statements of income. As of September 30, 2022,March 31, 2023, future minimum operating rental income based on contractual agreements is as follows:
Year ending December 31,Amount
2022 (Remaining)$458 
20231,858 
20241,898 
20251,363 
2026408 
Thereafter131 
Total$6,116 
20
Year ending December 31,Amount
2023 (Remaining)$1,412 
20241,906 
20251,363 
2026408 
2027131 
Thereafter— 
Total$5,220 

(13)(16)    Commitments and Contingencies
Litigation
During the first quarter of 2022, the Companywe received a notice of termination for convenience for professional services under a contractual arrangement with thea 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. As of September 30, the total exposure in our financial statements included the remaining balance of net billed accounts receivable for licenses and services rendered under the contract of approximately $12 million.
The client was unresponsive to companyour outreach for several months. On August 23, 2022, the Companywe filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. The client has not filed responsive pleadings and no other significant activity has occurred in the lawsuit. 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 are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.
(14)    Segment and Related Information
We provide integrated information management solutions and services for the public sector.
We provide our software systems and related professional services and appraisal services through seven 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 two 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 such as: financial management and education; courts and justice; public safety; planning, regulatory and maintenance; data and insights; 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 a 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.
21

For the three months ended September 30, 2022Enterprise
Software		Platform TechnologiesCorporateTotals
Revenues    
Software licenses and royalties$17,165 $3,104 $— $20,269 
Subscriptions135,337 119,009 — 254,346 
Professional services42,441 20,739 — 63,180 
Maintenance111,486 5,852 — 117,338 
Appraisal services8,638 — — 8,638 
Hardware and other7,271 — 2,149 9,420 
Intercompany5,541 — (5,541)— 
Total revenues$327,879 $148,704 $(3,392)$473,191 
Segment operating income (loss)$110,693 $33,466 $(54,683)$89,476 
Purchase Commitments
For the three months ended September 30, 2021Enterprise
Software		Platform TechnologiesCorporateTotals
Revenues
Software licenses and royalties$21,201 $1,472 $— $22,673 
Subscriptions106,841 146,101 — 252,942 
Professional services41,169 13,455 — 54,624 
Maintenance109,480 8,353 — 117,833 
Appraisal services7,146 — — 7,146 
Hardware and other4,556 11 88 4,655 
Intercompany5,142 — (5,142)— 
Total revenues$295,535 $169,392 $(5,054)$459,873 
Segment operating income (loss)$102,602 $40,182 $(59,521)$83,263 
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 events or transactions that occurred subsequent to March 31, 2023.
22

For the nine months ended September 30, 2022Enterprise
Software		Platform TechnologiesCorporateTotals
Revenues
Software licenses and royalties$47,893 $3,891 $— $51,784 
Subscriptions384,346 371,258 — 755,604 
Professional services126,931 60,871 — 187,802 
Maintenance332,941 18,241 — 351,182 
Appraisal services25,968 — — 25,968 
Hardware and other19,884 — 5,759 25,643 
Intercompany16,472 — (16,472)— 
Total revenues$954,435 $454,261 $(10,713)$1,397,983 
Segment operating income (loss)$319,312 $100,500 $(162,133)$257,679 
For the nine months ended September 30, 2021Enterprise
Software		Platform TechnologiesCorporateTotals
Revenues
Software licenses and royalties$51,812 $3,398 $— $55,210 
Subscriptions308,787 246,192 — 554,979 
Professional services126,064 29,537 — 155,601 
Maintenance328,764 27,802 — 356,566 
Appraisal services19,876 — — 19,876 
Hardware and other13,462 29 3,027 16,518 
Intercompany16,039 — (16,039)— 
Total revenues$864,804 $306,958 $(13,012)$1,158,750 
Segment operating income (loss)$301,522 $69,426 $(174,567)$196,381 
Three Months Ended September 30,Nine Months Ended September 30,
Reconciliation of reportable segment operating income to the Company's consolidated totals:2022202120222021
Total segment operating income$89,476 $83,263 $257,679 $196,381 
Amortization of acquired software(13,622)(12,896)(40,882)(32,683)
Amortization of customer and trade name intangibles(14,941)(14,183)(43,259)(31,015)
Interest expense(9,258)(5,396)(20,276)(18,311)
Other income, net131 445 712 1,249 
Income before income taxes$51,786 $51,233 $153,974 $115,621 
23

(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 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 September 30, 2022Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Software licenses and royalties$19,068 $1,201 $20,269 
Subscriptions— 254,346 254,346 
Professional services— 63,180 63,180 
Maintenance— 117,338 117,338 
Appraisal services— 8,638 8,638 
Hardware and other9,420 — 9,420 
Total$28,488 $444,703 $473,191 
For the three months ended September 30, 2021Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Software licenses and royalties$19,170 $3,503 $22,673 
Subscriptions— 252,942 252,942 
Professional services— 54,624 54,624 
Maintenance— 117,833 117,833 
Appraisal services— 7,146 7,146 
Hardware and other4,655 — 4,655 
Total$23,825 $436,048 $459,873 
For the nine months ended September 30, 2022Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Software licenses and royalties$45,820 $5,964 $51,784 
Subscriptions— 755,604 755,604 
Professional services— 187,802 187,802 
Maintenance— 351,182 351,182 
Appraisal services— 25,968 25,968 
Hardware and other25,643 — 25,643 
Total$71,463 $1,326,520 $1,397,983 
For the nine months ended September 30, 2021Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Software licenses and royalties$45,983 $9,227 $55,210 
Subscriptions— 554,979 554,979 
Professional services— 155,601 155,601 
Maintenance— 356,566 356,566 
Appraisal services— 19,876 19,876 
Hardware and other16,518 — 16,518 
Total$62,501 $1,096,249 $1,158,750 
24

Recurring Revenues
The majority of our revenue is comprised of revenues from maintenance and subscriptions, which we consider to be recurring revenues. 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. 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. Total subscriptions revenue derived from transaction-based fees included in total recurring revenues was $148.9 million and $454.3 million for the three and nine months ended September 30, 2022, respectively, and $171.2 million and $317.7 million for the three and nine months ended September 30, 2021, respectively. The contract terms for subscription arrangements range from one to 10 years but are typically for initial periods of three to five years. 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 September 30, 2022Enterprise
Software		Platform TechnologiesCorporateTotals
Recurring revenues$246,823 $124,861 $— $371,684 
Non-recurring revenues75,515 23,843 2,149 101,507 
Intercompany5,541 — (5,541)— 
Total revenues$327,879 $148,704 $(3,392)$473,191 
For the three months ended September 30, 2021Enterprise
Software		Platform TechnologiesCorporateTotals
Recurring revenues$216,321 $154,454 $— $370,775 
Non-recurring revenues74,072 14,938 88 89,098 
Intercompany5,142 — (5,142)— 
Total revenues$295,535 $169,392 $(5,054)$459,873 
For the nine months ended September 30, 2022Enterprise
Software		Platform TechnologiesCorporateTotals
Recurring revenues$717,287 $389,499 $— $1,106,786 
Non-recurring revenues220,676 64,762 5,759 291,197 
Intercompany16,472 — (16,472)— 
Total revenues$954,435 $454,261 $(10,713)$1,397,983 
For the nine months ended September 30, 2021Enterprise
Software		Platform TechnologiesCorporateTotals
Recurring revenues$637,551 $273,994 $— $911,545 
Non-recurring revenues211,214 32,964 3,027 247,205 
Intercompany16,039 — (16,039)— 
Total revenues$864,804 $306,958 $(13,012)$1,158,750 
(16)    Deferred Revenue and Performance Obligations
Total deferred revenue, including long-term, by segment is as follows:
September 30, 2022December 31, 2021
Enterprise Software$497,511 $479,048 
Platform Technologies31,329 29,705 
Corporate2,866 1,814 
Totals$531,706 $510,567 
25

Changes in total deferred revenue, including long-term, were as follows:
Nine months ended September 30, 2022
Balance as of December 31, 2021$510,567 
Deferral of revenue940,919 
Recognition of deferred revenue(919,780)
Balance as of September 30, 2022$531,706 
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 September 30, 2022, was $1.88 billion, of which we expect to recognize approximately 46% 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 $42.6 million and $38.1 million as of September 30, 2022, and December 31, 2021, respectively. Amortization expense was $4.1 million and $11.2 million for the three and nine months ended September 30, 2022, respectively, and $3.5 million and $9.6 million for the three and nine months ended September 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
On October 26, 2022, we signed a definitive agreement to acquire a payments solution provider with a purchase price of approximately $70 million, which is expected to close in the fourth quarter of 2022.
26

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 vulnerabilitiesvulnerabilities; (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 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.
27

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”), transaction-based fees 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. Additionally, we provide property appraisal outsourcing services for taxing jurisdictions.
We provide our software systems and related professional services and appraisal services through sevensix 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;
•dataproperty and insightsrecording 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 solutions including payments and government and payments solutions.services.
WeIn 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; planning, regulatory and maintenance; courts and justice; public safety; planning, regulatoryand property and maintenance; data and insights; appraisal and tax software solutions; land and vital records management software solutions; and property appraisal services.recording solutions. The PTPlatform 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 paymentsplatform solutions and development platform solutions.digital solutions.
As

23

We evaluate performance based on several factors, of January 1, 2022,which the appraisalprimary 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 tax software solutions, landincome taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and vital recordsare valued based on the contractual arrangement. Corporate segment operating loss primarily consists of compensation costs for the executive management software solutions,team, certain shared services staff, and property appraisal service business unit, which was previously reportedshare-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 Appraisal & Tax ("A&T") reportable segment, was movednotes to the ES reportable segmentfinancial statements for additional information.
Recent Acquisitions
On October 31, 2022, we acquired Rapid Financial Solutions, LLC (Rapid), a provider of reliable, scalable, and the NICsecure payments with best-in-class card issuance and 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.
Our total employee count increased to 7,176 at September 30, 2022, including 44 employees who joined us through acquisitions completed since September 30, 2021, from 6,718 at September 30, 2021.
disbursement capabilities. On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a leading provider of technology solutions for campground and outdoor recreation management. The total purchase price, netUS 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 $116.6 million, consisting of $117.9 million paid in cash, and approximately $5.0 million related to indemnity holdbacks, subject to certain post-closing adjustments.s
For the three and nine months ended September 30, 2022,March 31, 2023, total revenues increased 2.9% and 20.6%3.5%, respectively, compared to the prior year period. Excluding the 2023 incremental impact of 2021 and 2022recent acquisitions, revenues increased 1.2% and 4.6%2.1% for the three and nine months ended September 30, 2022, respectively,March 31, 2023, compared to the prior year periods.period.
Subscriptions revenue grew 0.6% and 36.2%14.3% for the three and nine months ended September 30, 2022, respectively,March 31, 2023, compared to the prior year period, primarily due to the impact of the NIC acquisition, as well as 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 2022recent acquisitions, subscriptions revenue decreased 2.4% and increased 5.9%11.7% for the three and nine months ended September 30, 2022, respectively,March 31, 2023, compared to the prior year period. Subscriptions revenue from recent acquisitions completed in 2021 and 2022 contributed 3.0% and 30.2%2.6% for the three and nine months ended September 30, 2022, respectively.March 31, 2023.
Our backlog as of September 30, 2022,March 31, 2023, was $1.88$1.85 billion, a 6.3%5.1% increase from last year.
28

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 areis 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”), there2022. 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.

24

ANALYSIS OF RESULTS OF OPERATIONS
Percent of Total Revenues
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Software licenses and royalties4.3 %4.9 %3.7 %4.8 %
Subscriptions53.8 55.0 54.0 47.9 
Professional services13.4 11.9 13.4 13.4 
Maintenance24.8 25.6 25.1 30.8 
Appraisal services1.8 1.6 1.9 1.7 
Hardware and other1.9 1.0 1.9 1.4 
Total revenues100.0 100.0 100.0 100.0 
Cost of revenues:  
Software licenses, royalties and acquired software3.5 3.1 3.5 3.2 
Subscriptions, professional services and maintenance50.7 52.6 51.6 49.7 
Appraisal services1.2 1.0 1.3 1.2 
Hardware and other1.3 0.6 1.4 0.8 
Selling, general and administrative expenses21.9 22.1 21.5 25.0 
Research and development expense5.3 5.2 5.2 6.0 
Amortization of customer and trade name intangibles3.2 3.1 3.1 2.7 
Operating income12.9 12.3 12.4 11.4 
Interest expense(2.0)(1.2)(1.5)(1.6)
Other income, net— 0.1 0.1 0.1 
Income before income taxes10.9 11.2 11.0 9.9 
Income tax (benefit) provision(0.2)1.5 1.5 0.8 
Net income11.1 %9.7 %9.5 %9.1 %
Revenues
Percent of Total Revenues
Three Months Ended March 31,
20232022
Revenues:
Subscriptions59.4 %53.8 %
Maintenance24.4 25.7 
Professional services12.9 15.4 
Software licenses and royalties2.1 3.6 
Hardware and other1.2 1.5 
Total revenues100.0 100.0 
Cost of revenues:  
Subscriptions, maintenance, and professional services53.5 53.2 
Software licenses, royalties, and amortization of acquired software2.4 3.2 
Amortization of software development0.5 0.3 
Hardware and other1.2 1.2 
Sales and marketing expense7.9 7.7 
General and administrative expense15.3 13.8 
Research and development expense5.7 5.2 
Amortization of customer and trade name intangibles4.0 3.2 
Operating income9.5 12.2 
Interest expense(1.6)(1.1)
Other income, net0.3 0.1 
Income before income taxes8.2 11.2 
Income tax (benefit) provision1.7 2.4 
Net income6.5 %8.8 %
Acquisitions
On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a 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.
29

The following table details revenues for NIC for the three and nine months ended September 30, 2022 and 2021, which are 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 September 30,Nine Months Ended September 30,
2022202120222021
Revenues:  
Software licenses and royalties$— $— $— $— 
Subscriptions115,262 142,346 360,077 235,627 
Professional services14,563 8,035 43,450 13,679 
Maintenance202 202 607 358 
Appraisal services— — — — 
Hardware and other— — — — 
Total revenues$130,027 $150,583 $404,134 $249,664 
Software licenses and royalties
The following table sets forth a comparison of our software licenses and royalties revenue for the periods presented as of September 30:
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
ES$17,165 $21,201 $(4,036)(19)%$47,893 $51,812 $(3,919)(8)%
PT3,104 1,472 1,632 111 3,891 3,398 493 15 
Total software licenses and royalties revenue$20,269 $22,673 $(2,404)(11)%$51,784 $55,210 $(3,426)(6)%
Software licenses and royalties revenue decreased 11% and 6% for the three and nine months ended September 30, 2022, respectively, compared to the prior year periods. The decrease in software licenses and royalties revenue for the three months ended September 30, 2022, is attributed to more clients choosing our SaaS offering rather than purchasing the software under a traditional perpetual software arrangement. Our total new client mix for the nine months ended September 30, 2022, was approximately 22% perpetual software license arrangements and approximately 78% subscription-based arrangements, compared to total new client mix for the nine months ended September 30, 2021, of approximately 34% perpetual software license arrangements and approximately 66% subscription-based arrangements.
Although the mix of new contracts between SaaS-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect our software licenses revenue will continue to decline as a growing percentage of clients choose our SaaS-based options, rather than purchasing the software under a traditional perpetual software license arrangement and the Company transitions to cloud-based only offerings. SaaS-based arrangements generally do not result in licenses revenue in the initial year as compared to perpetual software license arrangements but do generate higher overall revenue over the term of the contract.Revenues
Subscriptions
The following table sets forth a comparison of our subscriptions revenue for the periods presented as of September 30:three months ended March 31($ in thousands):
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
ES$135,337 $106,841 $28,496 27 %$384,346 $308,787 $75,559 24 %
PT119,009 146,101 (27,092)(19)371,258 246,192 125,066 51 
Total subscriptions revenue$254,346 $252,942 $1,404 1 %$755,604 $554,979 $200,625 36 %
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Three Months EndedChange
20232022$%
ES$148,414 $120,316 $28,098 23 %
PT132,051 125,127 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 revenuesrevenue derived from our SaaS arrangements. Other sources of subscriptions revenue are derived fromarrangements and transaction-based fees primarily related to digital government services and 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.

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Subscriptions revenue grew 1% and 36%14% for the three and nine months ending September 30, 2022, respectively,ended March 31, 2023, compared to the prior period. Excluding the incremental impact of revenue from late 2021 and 2022recent acquisitions, of $7.5 million and $167.8 million for the three and nine months ended September 30, 2022, respectively, subscriptions revenue decreased 2% and increased 6% for the three and nine months ended September 30, 2022, respectively. The decline in subscriptions revenue for the three months ended September 30, 2022, compared to prior period is attributable to a $37.2 million decline in COVID-related transaction-based revenues offset by a higher new SaaS client mix compared to prior period.12%. New SaaS clients as well as existing clients who converted to our SaaS model provided the majority of the subscriptions revenue increase for the nine months ended September 30, 2022.increase. In the three and nine months ending September 30, 2022, respectively,ended March 31, 2023, we added 153 and 469145 new SaaS clients and 70 and 25473 existing on-premises clients convertedelected to convert to our SaaS model. Since September 30, 2021, we have added 604Our mix of new SaaS clients while 325 existing on-premises clients convertedsoftware contract value for the three months ended March 31, 2023, was approximately 13% perpetual software license arrangements and approximately 87% subscription-based arrangements compared to our SaaS offerings.total new contract value mix in 2022 of approximately 20% perpetual software license arrangements and approximately 80% subscription-based arrangements.
Total subscriptions revenue derived from transaction-based fees was $148.9$153.9 million and $454.3$143.7 million for the three and nine months ended September 30, 2022, respectively, and $171.2 million and $317.7 million for the three and nine months ended September 30, 2021, respectively. The 13% decline for the three months ended September 30, 2022, compared to the prior period, is attributable to the decline in the COVID-related transaction-based revenues. The 43% increase for the nine months ended September 30, 2022, compared to the prior period, is due to the inclusion of NIC. Transaction-based revenue from acquisitions made in 2021March 31, 2023 and 2022 were $360.1 million for the nine months ended September 30, 2022; if those are excluded, transaction-based revenue increased 15% compared to the prior period as a result of a $12.1 million increase in transaction-based fees related to payment processing.
Professional services
The following table sets forth a comparison of our professional services revenue for the periods presented as of September 30:
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
ES$42,441 $41,169 $1,272 3 %$126,931 $126,064 $867 1 %
PT20,739 13,455 7,284 54 60,871 29,537 31,334 106 
Total professional services revenue$63,180 $54,624 $8,556 16 %$187,802 $155,601 $32,201 21 %
Professional services revenue primarily consists of services delivered 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 the related professional services. Existing clients also periodically purchase additional training, consulting, and minor programming services. Professional services revenue increased 16% and 21% for the three and nine months ended September 30, 2022, respectively, compared to the prior year period. Excluding the impact of revenue from 2021 and 2022 acquisitions of $67,000 and $16.8 million for the three and nine months ended September 30, 2022, respectively, professional services revenue increased 16% and 10% for the three and nine months ended September 30, 2022, respectively. The increase forof $10.2 million, or 7.1% is attributable to growth in transaction-based fees of $12.7 million due to the threeincreased volumes of online payments and nine months ended September 30, 2022, in professional services revenue is primarily attributed to higher revenues generated by the continued COVID pandemic-related rent reliefe-filing services and the returnincremental impact of billable travel revenue as onsite services have increased since prior periods.transaction-based fees from recent acquisitions of $6.2 million in the first quarter 2023. The increases in transaction-based revenue are partially offset by more clients selecting our cloud solutions insteadthe decline of our on-premises license arrangements which typically require more professional services.

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$8.7 million in COVID-pandemic related transaction-based revenues compared to prior period.
Maintenance
The following table sets forth a comparison of our maintenance revenue for the periods presented as of September 30:three months ended March 31($ in thousands):
Three Months EndedChangeNine Months EndedChangeThree Months EndedChange
20222021$%20222021$%20232022$%
ESES$111,486 $109,480 $2,006 2 %$332,941 $328,764 $4,177 1 %ES$110,081 $110,695 $(614)(1)%
PTPT5,852 8,353 (2,501)(30)18,241 27,802 (9,561)(34)PT5,049 6,334 (1,285)(20)
Total maintenance revenueTotal maintenance revenue$117,338 $117,833 $(495)— %$351,182 $356,566 $(5,384)(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 acquisitionsTotal 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 remained flat and decreased 2% for the three and nine months ended September 30, 2022, respectively, compared to the prior year period. Maintenance revenue 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.
AppraisalAnnualized Recurring Revenues
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 $1.45 billion as of March 31, 2023 and 2022, respectively. ARR increased 9.1% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements.
Professional services
The following table sets forth a comparison of our appraisal services revenue for the periods presented as of September 30:
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
ES$8,638 $7,146 $1,492 21 %$25,968 $19,876 $6,092 31 %
PT— — — — — — — — 
Total appraisal services revenue$8,638 $7,146 $1,492 21 %$25,968 $19,876 $6,092 31 %
Appraisal services revenue was approximately 1.8% and 1.9% of total revenues for the three and nine months ended September 30, 2022, respectively. Appraisalprofessional services revenue for the three and nine months ended September 30, 2022, increased by 21% and 31%, respectively, compared toMarch 31($ in thousands):
Three Months EndedChange
20232022$%
ES$51,499 $51,167 $332 1 %
PT9,430 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 prior year primarily due to2023 incremental impact as a result of not having the ramp-up of appraisal servicesrecent acquisition for several new revaluation contracts which started in recent quarters. The appraisal services business is somewhat cyclical and driven in part by statutory revaluation cycles in various states.a full fiscal year.
Annualized Recurring Revenues
The majority of our revenues are comprised of revenues from maintenance and subscriptions, which we consider to be recurring revenues. Annualized recurring revenues ("ARR") is calculated based on quarter-to-date end total recurring revenues multiplied by four. As of September 30, 2022, ARR was $1.49 billion. ARR remained flat compared to the prior year period, due to the decline in COVID-related revenues and maintenance, offset by an increase in subscriptions revenue due to an ongoing shift toward SaaS arrangements.
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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 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 period, primarily 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 EndedChange
20232022$%
ES$8,068 $16,105 $(8,037)(50)%
PT2,062 401 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 $(6,376)(39)%
Software licenses and royalties revenue decreased 39% for the three months ended March 31, 2023, compared to the prior period. The decrease is primarily attributed to the shift in the mix of new software contracts toward more subscription-based agreements compared to the prior period.
Although the mix of new contracts between subscription-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect the decline in software license revenues will accelerate as we continue to shift our model away from perpetual licenses to SaaS. Subscription-based arrangements result in lower software license revenue in the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract.
Cost of Revenuesrevenues and Gross Marginsoverall gross margin
The following table sets forth a comparison of the key components of our cost of revenues for the periods presented as of September 30:
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
Software licenses and royalties$3,162 $1,547 $1,615 104 %$8,640 $4,151 $4,489 108 %
Acquired software13,622 12,896 726 6 40,882 32,683 8,199 25 
Subscriptions, professional services, and maintenance239,928 241,944 (2,016)(1)721,017 576,035 144,982 25 
Appraisal services5,783 4,506 1,277 28 17,695 13,552 4,143 31 
Hardware and other6,033 2,764 3,269 118 19,219 9,845 9,374 95 
Total cost of revenues$268,528 $263,657 $4,871 2 %$807,453 $636,266 $171,187 27 %
The following table sets forth a comparison of gross margin percentage by revenue type for the periods presented as of September 30:
Three Months EndedNine Months Ended
20222021Change20222021Change
Software licenses, royalties and acquired software17.2 %36.3 %(19.1)%4.4 %33.3 %(28.9)%
Subscriptions, professional services and maintenance44.8 43.1 1.7 44.3 46.0 (1.7)
Appraisal services33.1 36.9 (3.8)31.9 31.8 0.1 
Hardware and other36.0 40.6 (4.6)25.1 40.4 (15.3)
Overall gross margin43.3 %42.7 %0.6 %42.2 %45.1 %(2.9)%
Software licenses, royalties and acquired software. Amortization expense for acquired software comprises the majority of costs of software licenses, royalties, and acquired software. We do not have any direct costs associated with royalties. The gross margin for software licenses, royalties and acquired software is 17.2% and 4.4% for the three and nine months ended September 30, 2022, respectively, and 36.3% and 33.3%March 31($ in thousands):
Three Months EndedChange
20232022$%
Subscriptions, maintenance, and professional services$252,415 $242,832 $9,583 4 %
Software licenses and royalties2,313 1,445 868 60 
Amortization of software development2,588 1,164 1,424 122 
Amortization of acquired software8,920 13,221 (4,301)(33)
Hardware and other5,780 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 the three and nine months ended September 30, 2021, respectively. Excluding the impact of amortization expense of acquired software, the margin is 84.4% and 83.3% for the three and nine months ended September 30, 2022, respectively, and 93.2% and 92.5% for three and nine months ended September 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.

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Subscriptions, professional servicesmaintenance, and maintenance.professionalservices. Cost of subscriptions, 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 ongoingon-going operation of SaaS, property appraisal outsourcing activities, digital government services, and e-filing arrangements. 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, and professional services and maintenance gross margin for the three and nine months ended September 30, 2022, increased 1.7% and decreased 1.7%, respectively, from the comparable prior year period.
Excluding the impact of 2021 and 2022 acquisitions, the gross margins were 45.0% and 45.7% for the three and nine months ended September 30, 2022, respectively, as compared to 43.1% and 46.0% for the three and nine months ended September 30, 2021, respectively. The increase of 1.9% for the three months ended September 30, 2022, is attributedMarch 31, 2023, increased $9.6 million or 4% compared to the decline in low margin COVID-related transaction-based revenues compared to prior year period. The decreaseExcluding the 2023 incremental impact from recent acquisitions of 0.3% for the nine months ended September 30, 2022, respectively, from the comparable prior period is$4.4 million, cost of subscriptions, maintenance and 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, related to inflation, as well asincluding costs related to onboarding new professional services employees who are not yet billable; and higherduplicate hosting costs relatedas we transition from our proprietary data centers to our accelerated shift to the public cloud. Excluding employees added throughfrom recent acquisitions, our implementation and supportprofessional services staff has growngrew by 216180 employees since September 30, 2021.
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March 31, 2022, as we increased hiring to ensure that we are well-positioned to deliver our current backlog and anticipated new business.
Appraisal servicesSoftware 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.
The appraisal servicescost of software licenses and royalties for the three months ended March 31, 2023, increased $0.9 million or 60% compared to the prior period 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 software’s remaining estimated economic life of, generally, three to five years.
For the three months ended 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 three and nine months ended September 30, 2022, decreased 3.8% and increased 0.1%, respectively, compared to the same period in 2021. The decrease in margin is primarily due to higher personnel costs related to inflation,periods presented as well as increased low margin billable travel revenue. The appraisal services business is somewhat cyclical and driven in part by statutory revaluation cycles in various states.of March 31:
Three Months Ended
20232022Change
Overall gross margin42.4 %42.2 %0.2 %
Overall Gross Margin. For the three and nine months ended September 30, 2022,March 31, 2023, our overall gross margin increased 0.6% and decreased 2.9%0.2%, respectively, compared to the prior year period. Excluding the 2023 incremental impact from recent acquisitions of 2021 and 2022 acquisitions,$1.3 million, overall gross margins were 43.6% and 44.0% for the three and nine months ended September 30, 2022, respectively, as compared to 42.7% and 45.1% for the three and nine months ended September 30, 2021, respectively. The increase of 0.9%margin was 42.6% for the three months ended September 30, 2022 is attributed to decline in lower margin COVID-related transaction-based revenues compared to prior year period. ForMarch 31, 2023. The increase of 0.4% for the ninethree months ended September 30, 2022, the 1.1% decreaseMarch 31, 2023, in overall gross margin compared to the prior year period is due to growth in subscriptions revenues and the decline in low margin COVID-related revenues and related costs. Also attributing to the increase in overall gross margin is the decline in amortization of acquired software expense compared to the prior period. The margin increases are partially offset by lower revenue from software licenses and maintenance, higher personnelduplicate hosting costs related to inflation, and "bubble costs" related to theas we transition from our proprietary data centers to Amazon Web Services ("AWS").the public cloud, and higher personnel costs.
Selling, General
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Sales and Administrative Expensesmarketing expense
Selling, generalSales and administrativemarketing expense (“SG&A”S&M”) expenses consistconsists primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for administrative and sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing related costs.
The following table sets forth a comparison of our SG&A expensesS&M expense for the periods presented as of September 30:three months ended March 31 ($ in thousands):
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
Selling, general and administrative expenses$103,619 $101,847 $1,772 2 %$301,216 $289,543 $11,673 4 %
Three Months EndedChange
20232022$%
Sales and marketing expense$37,103 $35,206 $1,897 5 %
SG&AS&M as a percentage of revenues was 21.9% and 21.5%7.9% for the three and nine months ended September 30, 2022, respectively,March 31, 2023, compared to 22.1% and 25.0%7.7% for the three and nine months ended September 30, 2021, respectively. Excluding the impact on SG&AMarch 31, 2022. S&M expense from 2021 and 2022 acquisitions of $1.2 million and $25.0 million for the three and nine months ended September 30, 2022, respectively, SG&A remained flat and decreasedincreased approximately 5% for the three and nine months ended September 30, 2022, respectively, compared to the prior yearperiod and is primarily attributed to higher commission expense as a result of higher sales volumes compared to the prior period.
General and administrative expense
General and administrative (“G&A”) expense consists primarily of personnel salaries and share-based compensation expense for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development as well as third party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, amortization of software development for internal use, acquisition-related expenses and other administrative expenses. The decreasefollowing table sets forth a comparison of our G&A expense for the three months ended March 31 ($ in SGthousands):
Three Months EndedChange
20232022$%
General and administrative expense$72,360 $62,689 $9,671 15 %
G&A as a percentage of revenuesrevenue 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 completedincreases in 2022 compared to those completedamortization of software development for internal use, increases in 2021travel-related expenses and a decline inother 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 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 $1.4 million related to lease restructuring and other asset write-offs.
Research and Development Expensedevelopment expense
Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development. The following table sets forth a comparison of our research and development expense for the periods presented as of September 30:three months ended March 31 ($ in thousands):
 Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
Research and development expense$25,190 $24,002 $1,188 5 %$72,517 $69,243 $3,274 5 %
 Three Months EndedChange
20232022$%
Research and development expense$26,987 $23,941 $3,046 13 %
Research and development ("R&D") expense consists mainly of costs associated with development of new products and technologies from which we do not currently generate significant revenue. R&D
Research and development expense increased 5%13% for both the three and nine months ended September 30, 2022,March 31, 2023, compared to the prior period. The increase in R&D expense for the three and nine months ended September 30, 2022, isperiod, mainly due to a number of new Tyler product development initiatives across our product suites, somewhat offsetincluding increased investments in research and development at recently acquired businesses. Total research and development headcount increased by a shift of some development resources to certain projects which meet the criteria for capitalization.26 employees since March 31, 2022.
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Amortization of Other Intangiblesother intangibles
The following table sets forth a comparison of amortization of customer and trade name intangibles for the periods presented as of September 30:
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
Amortization of other intangibles$14,941 $14,183 $758 5 %$43,259 $31,015 $12,244 39 %
AcquisitionOther intangibles are comprised of the excess of the purchase price overin the fair value of net tangible assets acquired that are allocated to acquired software and customer andrelated, trade name, and leases acquired intangibles. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer andrelated, trade name, and leases acquired intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years. The following table sets forth a comparison of amortization of other intangibles for the three months ended March 31 ($ in thousands):
Three Months EndedChange
20232022$%
Amortization of other intangibles$18,407 $14,714 $3,693 25 %
For the three and nine months ended September 30, 2022,March 31, 2023, amortization expenseof other intangibles increased compared to the prior period due to the impact of intangibles added with recent acquisitions completedand the acceleration of certain trade name intangibles due to branding changes in 2021 and 2022.2023.
Interest Expenseexpense
The following table sets forth a comparison of our interest expense for the periods presented as of September 30:three months ended March 31 ($ in thousands):
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
Interest expense$(9,258)$(5,396)$(3,862)72 %$(20,276)$(18,311)$(1,965)11 %
Three Months EndedChange
20232022$%
Interest expense$(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 nine months ended September 30, 2022, compared to the prior period is attributable to an increase in amortization expense related to debt issuance costs, resulting from our accelerated pay downrepayment of the term loans, coupled with an increase in interest rates compared to the prior year periods.period.
 Other Income, Netincome, net
The following table sets forth a comparison of our other income, net, for the periods presented as of September 30:three months ended March 31 ($ in thousands):
Three Months EndedChangeNine Months EndedChange
20222021$%20222021$%
Other income, net$131 $445 $(314)(71)%$712 $1,249 $(537)(43)%
Three Months EndedChange
20232022$%
Other income, net$1,246 $364 $882 242 %
Other income, net, is primarily comprised of interest income from invested cash. The change in other income, net, in the three and nine months ended September 30, 2022,March 31, 2023, compared to the prior period is attributeddue to lower levels ofincreased interest income generated from invested cash dueas a result of higher interest rates in 2023 compared to the prepayment of debt.2022.
Income Tax Provisiontax provision
The following table sets forth a comparison of our income tax provision for the periods presented as of September 30:three months ended March 31 ($ in thousands):
Three Months EndedChangeNine Months EndedChangeThree Months EndedChange
20222021$%20222021$%20232022$%
Income tax (benefit) provisionIncome tax (benefit) provision$(1,447)$7,063 $(8,510)(120)%$20,811 $8,945 $11,866 133%Income tax (benefit) provision$7,667 $11,444 $(3,777)(33)%
Effective income tax rateEffective income tax rate(2.8)%13.8 %  13.5 %7.7 %Effective income tax rate19.9 %22.3 %  
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The changesdecrease in the effective tax rate for the three and nine months ended September 30, 2022,March 31, 2023, as compared to the sameprior period, in 2021, werewas principally driven by thean increase in research tax credit benefits, offset by a corresponding liability for uncertain tax positions and the decrease in the excess tax benefits related to stock incentive awards.awards and liabilities for uncertain tax 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 benefits of research tax credits, offset by an increase instate income taxes, liabilities for uncertain tax positions, related to research tax credits, state income taxes, and non-deductible expenses. The excess tax benefits related to stock incentive awards realized were $1.3 million and $6.0 million for the three and nine months ended September 30, 2022, respectively, as compared to $6.3 million and $21.5 million for the three and nine months ended September 30, 2021, respectively. The tax benefits of research tax credits were $21.7 million and $24.4 million for the three and nine months ended September 30, 2022, respectively, as compared to $1.4 million and $3.3 million for the three and nine months ended September 30, 2021, respectively. The changes in net liabilities for uncertain tax positions were $6.1 million and $6.9 million for the three and nine months ended September 30, 2022, respectively, as compared to negative $1.2 million for both the three and nine months ended September 30, 2021. Excluding the excess tax benefits related to stock incentive awards, research tax credit benefits, and net liabilities for uncertain tax positions, the effective tax rate was 29.8% and 28.8% for the three and nine months ended September 30, 2022, respectively, compared to 31.1% and 30.2% for the three and nine months ended September 30, 2021, respectively.
FINANCIAL CONDITION AND LIQUIDITY
As of September 30, 2022,March 31, 2023, we had cash and cash equivalents of $185.9$130.8 million compared to $309.2$173.9 million at December 31, 2021.2022. We also had $62.0$43.4 million invested in investment grade corporate andbonds, municipal bonds and asset-backed securities as of September 30, 2022.March 31, 2023. These investments have varying maturity dates through 2027 and are held as available-for-sale. As of September 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 providesprovide us with sufficient flexibility to meet our long-term financial needs.
The following table sets forth a summary of cash flows for the ninethree months ended September 30:
20222021
Cash flows provided (used) by:
Operating activities$259,598 $256,743 
Investing activities(125,754)(2,084,788)
Financing activities(257,088)1,458,550 
Net decrease in cash and cash equivalents$(123,244)$(369,495)
March 31:
20232022
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 ninethree months ended September 30, 2022,March 31, 2023, operating activities provided cash of $259.6$74.7 million. Operating activities that provided cash were primarily comprised of net income of $133.2$30.9 million, non-cash depreciation and amortization charges of $117.0$38.1 million, non-cash share-based compensation expense of $78.0$27.9 million and a non-cash decrease inamortization of operating lease right-of-use assets of $9.2$3.8 million. Working capital, excluding cash, increaseddecreased approximately $77.8$26.5 million mainly due to higher accounts receivable because of an increasethe decline in unbilled receivables attributed to revenues recognized prior to billings,deferred revenue balances, timing of bonus payments, to and receipts from our government partners and end-user consumers, higher deferred commissions, the timing of bonusespayroll related tax payments, the timing of payments of payroll expenses,and decreases in operating lease liabilities and deferred taxes associated with stock option activity during the period. These increasesdecreases were offset by an increase in deferred revenue during the period 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, whichbillings. Our renewal dates occur throughout the year, but our largest renewal billing cycles occur in the second and fourth quarters. Subscription renewals are billed throughout the year.
Our daysDays sales outstanding (“DSO”) was 107in accounts receivable were 95 days at September 30, 2022,March 31, 2023, compared to 108115 days at December 31, 2021,2022, and 10599 days at September 30, 2021. The decrease in DSO compared to DecemberMarch 31, 2021, is primarily attributable 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. The increase in DSO compared to September 30, 2021, is primarily due to an increase in unbilled receivables attributable to an increase in professional services contracts accounted for using progress-to-completion method of revenue recognition in which the services are performed in one accounting period, but the billing normally occurs subsequently in another accounting period.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 December 31, 2022 and March 31, 2022, is attributed to improved collection efforts and timing of receipts from our government partners.
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Investing activities used cash of $125.8approximately $600,000 in the three months ended March 31, 2023. We invested $10.6 million and received $23.0 million in the nine months ending September 30, 2022. On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a leading provider of technology solutions for campgroundproceeds 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 $116.6 million, consisting of $117.9 million paid in cash, and approximately $5.0 million related to indemnity holdbacks, subject to certain post-closing adjustments. In addition, approximately $25.6asset-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 toas we transition from our proprietary data centers supporting growth in our cloud-based offerings.to the public cloud.
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Financing activities used cash of $257.1$117.1 million in the ninethree months ended September 30, 2022,March 31, 2023, primarily attributable to repayment of $270.0$120.0 million of the unsecured term loans,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 September 30, 2022,April 26, 2023, we have authorization from our board of directors to repurchase up to 2.42.3 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 $35.3 million and $1.7 million in the nine months ended September 30, 2022, and 2021, respectively.
As of September 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 $485$275 million in outstanding principal for the Term Loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of $500 million as of September 30, 2022.March 31, 2023. As of September 30, 2022,March 31, 2023, we had one outstanding standalone letter of credit totaling $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 ninethree months ended September 30, 2022,March 31, 2023, we repaid $270.0$120.0 million of the Term Loans under amended 2021 Credit Agreement.
In the ninethree months ended September 30,March 31, 2023, and 2022, and 2021, respectively, we madepaid interest payments of $14.7$6.8 million and $14.2 million, associated with$4.1 million. See Note 8, "Debt," to the 2021 Credit Agreement andcondensed 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 ofand the 2021 Credit AgreementAgreement.
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 inequipment. Most of our operations, underleases 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.
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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 September 30, 2022,March 31, 2023, we had $485.0$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.
BorrowingsIn 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 LIBORSOFR 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 LIBORSOFR rate plus a margin of 0.875% to 1.5%.
During the ninethree months ended September 30, 2022,March 31, 2023, the effective interest rate for our borrowings was 3.28%6.98%. Based on the aggregate outstanding principal balance under the 2021 Credit Agreement as of September 30, 2022,March 31, 2023, of $485.0$275.0 million, each quarter point change in interest rates would result in a $1.2 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 periodperiods 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 Officerchief 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 Officerchief 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 Officerchief executive officer and Chief Financial Officerchief financial officer have concluded that ourdisclosure controls and procedures were effective as of September 30, 2022.March 31, 2023.
Changes in Internal Control over Financial Reporting
ThereDuring the three months ended March 31, 2023, there were no changes in our internal control over financial reporting, (asas defined in Securities Exchange Act Rule 13a-15(f) of the Exchange Act) during the three months ended September 30, 2022,, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings
During the first quarter of 2022, the Companywe received a notice of termination for convenience for professional services under a contractual arrangement with thea 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. As of September 30, the total exposure in our financial statements included the remaining balance of net billed accounts receivable for licenses and services rendered under the contract of approximately $12 million.
The client was unresponsive to companyour outreach for several months. On August 23, 2022, the Companywe filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. The client has not filed responsive pleadings and no other significant activity has occurred in the lawsuit. 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 are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our 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 20212022 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 September 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
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ITEM 6. Exhibits
  
  
  
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 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 104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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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: October 27, 2022April 26, 2023
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