UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 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 | | (I.R ...

Financial Data and Key Metrics Changes - Total revenues for Q1 2023 were $471.9 million, an increase of 3.5% year-over-year, with organic revenue growth of 7.2% excluding COVID-related revenues [1][15] - Operating margins were pressured due to the shift to cloud services and a decline in license revenues, with expectations for margins to trough in 2023 and expand in 2024 [4][6] - Cash flow from operations was robust at $74.7 million, up 39.5%, and free cash flow was $63.6 million, up 55.1% [5] Business Line Data and Key Metrics Changes - License revenue declined by 39% as the company shifted towards SaaS, while professional services revenue decreased by 13% but rose 4.7% organically [2] - Subscription revenue increased by 14.3%, with SaaS revenues growing 24.4% to $126.6 million and transaction revenues growing 7.1% to $153.9 million [2][3] - The company added 145 new SaaS arrangements and converted 73 existing clients to SaaS, with a total new software contract value of approximately $86 million [3] Market Data and Key Metrics Changes - The public sector market showed strong demand, with a high level of request for proposals and demo activity, particularly in the ERP space [14][15] - SaaS deals comprised 87% of new software contract value in Q1, up from 80% the previous year, indicating a strong market shift towards cloud solutions [15] Company Strategy and Development Direction - The company is focused on cloud transition initiatives and enhancing its payments business, with over 120 new payment deals signed in Q1 [16][34] - The acquisition of Rapid Financial Solutions is expected to enhance payment capabilities and drive growth [16][60] - The company aims to strengthen its balance sheet while continuing to evaluate M&A opportunities that align with long-term strategic goals [5][117] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand environment and solid client budgets, despite challenges in the labor market affecting clients [28][112] - The company anticipates that operating margins will improve by Q4 2023, with a focus on intentionality in business operations beyond just cloud transition [48][76] - The upcoming Investor Day is expected to provide further insights into the company's strategic growth roadmap and financial targets [45][146] Other Important Information - The company expects total revenues for 2023 to be between $1.935 billion and $1.970 billion, implying organic growth of approximately 8% [6] - GAAP diluted EPS is expected to be between $3.65 and $3.80, while non-GAAP diluted EPS is projected to be between $7.50 and $7.65 [7] Q&A Session Summary Question: What is the current demand environment and pipeline opportunities? - Management noted that RFP volume and demo activity are at almost all-time highs, indicating strong demand, although it may take several quarters to convert into business [28] Question: Can you provide insights on margin expectations? - Management indicated that while Q1 margins were better than expected, they do not anticipate seeing year-over-year margin improvement until Q4 2023 [48][75] Question: How is the integration of Rapid Financial Solutions progressing? - The integration is progressing well, with early traction seen in upselling opportunities and synergies with existing services [60][83] Question: What is the outlook for free cash flow and tax impacts? - The company expects a significant impact on free cash flow due to cash tax payments related to Section 174, but anticipates a free cash flow margin in the mid-teens range [64][113] Question: How does the company view M&A opportunities? - The company continues to evaluate M&A opportunities, particularly those that align with its strategic goals, while focusing on deleveraging [117]

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Tyler Technologies' unaudited condensed consolidated financial statements, highlighting income, balance sheet, and cash flow changes for Q1 2023 and 2022 [ITEM 1. Financial Statements](index=2&type=section&id=ITEM%201.%20Financial%20Statements) This section provides Tyler Technologies' unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, cash flows, and shareholders' equity [Condensed Consolidated Statements of Income](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income (in thousands) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------- | :--------- | | **Revenues:** | | | | | | Subscriptions | $280,465 | $245,443 | $35,022 | 14.3% | | Maintenance | $115,130 | $117,029 | $(1,899) | -1.6% | | Professional services | $60,929 | $70,015 | $(9,086) | -13.0% | | Software licenses and royalties | $10,130 | $16,506 | $(6,376) | -38.6% | | Hardware and other | $5,199 | $7,115 | $(1,916) | -26.9% | | **Total revenues** | **$471,853** | **$456,108** | **$15,745** | **3.5%** | | **Gross profit** | **$199,837** | **$192,418** | **$7,419** | **3.9%** | | Operating income | $44,980 | $55,868 | $(10,888) | -19.5% | | Net income | $30,875 | $39,984 | $(9,109) | -22.8% | | Basic EPS | $0.74 | $0.97 | $(0.23) | -23.7% | | Diluted EPS | $0.73 | $0.94 | $(0.21) | -22.3% | [Condensed Consolidated Statements of Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | | :------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | :--------- | | Net income | $30,875 | $39,984 | $(9,109) | | Other comprehensive income (loss), net of tax | $94 | $(697) | $791 | | **Comprehensive income** | **$30,969** | **$39,287** | **$(8,318)** | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change ($) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | :--------- | | Cash and cash equivalents | $130,845 | $173,857 | $(43,012) | | Total current assets | $745,663 | $847,242 | $(101,579) | | Total assets | $4,555,635 | $4,687,417 | $(131,782) | | Total current liabilities | $835,028 | $889,695 | $(54,667) | | Total liabilities | $1,869,502 | $2,063,028 | $(193,526) | | Total shareholders' equity | $2,686,133 | $2,624,389 | $61,744 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :--------- | | Net cash provided by operating activities | $74,709 | $53,541 | $21,168 | | Net cash used by investing activities | $(600) | $(111,173) | $110,573 | | Net cash used by financing activities | $(117,121) | $(8,277) | $(108,844) | | Net decrease in cash and cash equivalents | $(43,012) | $(65,909) | $22,897 | | Cash and cash equivalents at end of period | $130,845 | $243,262 | $(112,417) | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Consolidated Statements of Shareholders' Equity (in thousands) | Metric | Balance at December 31, 2022 (in thousands) | Balance at March 31, 2023 (in thousands) | Change ($) | | :-------------------------------- | :------------------------------------------ | :--------------------------------------- | :--------- | | Total Shareholders' Equity | $2,624,389 | $2,686,133 | $61,744 | | Net income | $0 | $30,875 | $30,875 | | Other comprehensive gain, net of tax | $0 | $94 | $94 | | Stock compensation | $0 | $27,896 | $27,896 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section details accounting policies, segment information, revenue recognition, debt, and acquisitions, providing context for the financial statements [Basis of Presentation](index=8&type=section&id=Basis%20of%20Presentation) - As of January 1, 2023, appraisal services revenue and related costs are no longer reported as separate categories in the statement of income due to reduced significance, now combined with professional services revenue and subscriptions, maintenance, and professional services cost of revenue[21](index=21&type=chunk) [Accounting Standards and Significant Accounting Policies](index=8&type=section&id=Accounting%20Standards%20and%20Significant%20Accounting%20Policies) - No material changes to significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2022[23](index=23&type=chunk) - The majority of revenues are earned from subscription-based services (SaaS, transaction-based fees, e-filing) and post-contract customer support (maintenance)[24](index=24&type=chunk)[26](index=26&type=chunk) Contract Balance (in thousands) | Contract Balance | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Total current and long-term accounts receivable, net | $518,000 | $585,500 | | Unbilled receivables | $131,400 | $135,400 | | Allowance for losses and sales adjustments | $14,800 | $14,800 | [Segment and Related Information](index=10&type=section&id=Segment%20and%20Related%20Information) - The company operates in two reportable segments: Enterprise Software (ES) and Platform Technologies (PT), providing integrated information management solutions and services for the public sector[32](index=32&type=chunk)[33](index=33&type=chunk) Segment Performance (in thousands) | Segment | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :---------------------- | :------------------------------------------------ | :------------------------------------------------ | | **Total Revenues:** | | | | Enterprise Software | $328,344 | $310,987 | | Platform Technologies | $148,592 | $150,710 | | Corporate (Intercompany) | $(5,083) | $(5,589) | | **Total** | **$471,853** | **$456,108** | | **Segment Operating Income (Loss):** | | | | Enterprise Software | $99,980 | $106,529 | | Platform Technologies | $29,537 | $30,733 | | Corporate | $(57,210) | $(53,459) | | **Total Segment Operating Income** | **$72,307** | **$83,803** | [Disaggregation of Revenue](index=11&type=section&id=Disaggregation%20of%20Revenue) Disaggregation of Revenue (in thousands) | Revenue Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | **Recurring Revenues:** | | | | Subscriptions | $280,465 | $245,443 | | Maintenance | $115,130 | $117,029 | | **Total Recurring Revenues** | **$395,595** | **$362,472** | | **Non-Recurring Revenues:** | | | | Professional services | $60,929 | $70,015 | | Software licenses and royalties | $10,130 | $16,506 | | Hardware and other | $5,199 | $7,115 | | **Total Non-Recurring Revenues** | **$76,258** | **$93,636** | | **Total Revenues** | **$471,853** | **$456,108** | - The majority of revenue is comprised of subscriptions and maintenance, which are considered recurring revenues, with contract terms typically ranging from three to five years for subscriptions and annually for maintenance[41](index=41&type=chunk) [Deferred Revenue and Performance Obligations](index=12&type=section&id=Deferred%20Revenue%20and%20Performance%20Obligations) Deferred Revenue by Segment (in thousands) | Segment | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------- | :-------------------------------- | :--------------------------------- | | Enterprise Software | $462,043 | $533,902 | | Platform Technologies | $29,776 | $33,691 | | Corporate | $7,176 | $2,982 | | **Totals** | **$498,995** | **$570,575** | - Total deferred revenue decreased by **$71.6 million** from December 31, 2022, to March 31, 2023, primarily due to the recognition of deferred revenue[44](index=44&type=chunk) - Backlog as of March 31, 2023, was **$1.85 billion**, with approximately **46%** expected to be recognized as revenue over the next 12 months[45](index=45&type=chunk) [Deferred Commissions](index=13&type=section&id=Deferred%20Commissions) Deferred Commissions (in thousands) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Deferred commissions | $44,300 | $43,800 | | Amortization expense (3 months ended March 31) | $4,300 | $3,500 | - Sales commissions are deferred and amortized over a period of benefit, generally **three to seven years**, with amortization expense included in sales and marketing[46](index=46&type=chunk) [Acquisitions](index=13&type=section&id=Acquisitions) - On October 31, 2022, Tyler Technologies acquired Rapid Financial Solutions, LLC for approximately **$67.4 million**, net of cash acquired[47](index=47&type=chunk) - The acquisition resulted in approximately **$40.0 million** in goodwill and **$27.6 million** in other identifiable intangible assets, primarily customer relationships, acquired software, and trade name[48](index=48&type=chunk) - The operating results of Rapid are included within the Platform Technologies segment since the acquisition date[49](index=49&type=chunk) [Debt](index=14&type=section&id=Debt) Debt Instruments (in thousands) | Debt Instrument | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Term Loan A-1 | $250,000 | $290,000 | | Term Loan A-2 | $25,000 | $105,000 | | Convertible Senior Notes due 2026 | $600,000 | $600,000 | | **Total borrowings** | **$875,000** | **$995,000** | | Less: unamortized debt discount and debt issuance costs | $(6,483) | $(7,611) | | **Total borrowings, net** | **$868,517** | **$987,389** | - The 2021 Credit Agreement was amended on January 28, 2023, to replace the LIBOR reference rate with the Secured Overnight Financing Rate (SOFR)[53](index=53&type=chunk) Interest Expense Components (in thousands) | Interest Expense Component | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Contractual interest expense - Revolving Credit Facility | $(313) | $(313) | | Contractual interest expense - Term Loans | $(5,641) | $(2,994) | | Contractual interest expense - Convertible Senior Notes | $(375) | $(375) | | Amortization of debt discount and debt issuance costs | $(1,355) | $(1,122) | | **Total Interest Expense** | **$(7,684)** | **$(4,804)** | - For the three months ended March 31, 2023, **$120.0 million** of Term Loans under the 2021 Credit Agreement were repaid[65](index=65&type=chunk) [Financial Instruments](index=16&type=section&id=Financial%20Instruments) Financial Instrument Balances (in thousands) | Financial Instrument | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Cash and cash equivalents | $130,845 | $173,857 | | Available-for-sale investments | $43,354 | $55,538 | | Equity investments | $10,000 | $10,000 | | **Total** | **$184,199** | **$239,395** | Available-for-Sale Investments (in thousands) | Available-for-Sale Investments | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Amortized cost | $44,360 | $56,670 | | Unrealized gains | $2 | $16 | | Unrealized losses | $(1,008) | $(1,148) | | Estimated fair value | $43,354 | $55,538 | - Available-for-sale investments primarily consist of investment grade corporate bonds, municipal bonds, and asset-backed securities with maturity dates through **2027**[67](index=67&type=chunk) [Other Comprehensive Income (Loss)](index=17&type=section&id=Other%20Comprehensive%20Income%20%28Loss%29) Accumulated Other Comprehensive Loss (in thousands) | Component | Balance as of December 31, 2022 (in thousands) | Other comprehensive income (loss) before reclassifications (3 months ended March 31, 2023) | Balance as of March 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :----------------------------------------------------------------------------------------- | :--------------------------------------- | | Unrealized Loss On Available-for-Sale Securities | $(844) | $94 | $(750) | | **Accumulated Other Comprehensive Loss** | **$(844)** | **$94** | **$(750)** | - The company experienced an other comprehensive gain of **$94,000** in Q1 2023, a positive shift from a **$697,000 loss** in Q1 2022, primarily from available-for-sale investment holdings[22](index=22&type=chunk)[71](index=71&type=chunk) [Fair Value](index=18&type=section&id=Fair%20Value) Fair Value of Financial Instruments (in thousands) | Financial Instrument | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :-------------------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | | Available-for-sale investments | $43,354 | $0 | $0 | $43,354 | | Equity investments | $0 | $0 | $10,000 | $10,000 | | Term Loan A-1 | $0 | $248,679 | $0 | $248,679 | | Term Loan A-2 | $0 | $24,924 | $0 | $24,924 | | Convertible Senior Notes due 2026 | $0 | $576,714 | $0 | $576,714 | - The fair value of available-for-sale investments is considered **Level 1**, based on unadjusted quoted prices in active markets[75](index=75&type=chunk) - The fair value of Convertible Senior Notes due 2026 is determined based on quoted market prices for similar liabilities, classified as a **Level 2** input[80](index=80&type=chunk) [Income Tax Provision](index=19&type=section&id=Income%20Tax%20Provision) Income Tax Provision (in thousands) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Income tax provision | $7,667 | $11,444 | | Effective income tax rate | 19.9% | 22.3% | - The decrease in the effective tax rate was primarily driven by an increase in research tax credit benefits, offset by a decrease in excess tax benefits related to stock incentive awards and liabilities for uncertain tax positions[82](index=82&type=chunk)[139](index=139&type=chunk) - The Tax Cuts and Jobs Act of 2017 (TCJA) requires capitalization and amortization of R&D expenses, temporarily increasing U.S. federal and state cash tax payments in fiscal year **2023** and future years[84](index=84&type=chunk)[152](index=152&type=chunk) [Share-Based Compensation](index=19&type=section&id=Share-Based%20Compensation) Share-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Subscriptions, maintenance, and professional services | $6,342 | $6,772 | | Sales and marketing expense | $2,393 | $2,140 | | General and administrative expense | $19,161 | $16,367 | | **Total share-based compensation expense** | **$27,896** | **$25,279** | [Earnings Per Share](index=20&type=section&id=Earnings%20Per%20Share) Earnings Per Share Data | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (in thousands) | $30,875 | $39,984 | | Weighted-average basic common shares outstanding (in thousands) | 41,832 | 41,364 | | Weighted-average diluted common shares outstanding (in thousands) | 42,506 | 42,443 | | Basic EPS | $0.74 | $0.97 | | Diluted EPS | $0.73 | $0.94 | - Stock awards of approximately **501,000 shares** (2023) and **215,000 shares** (2022) were excluded from diluted EPS calculation due to their antidilutive effect[86](index=86&type=chunk) - The **1.2 million** common shares related to Convertible Senior Notes were not included in diluted EPS as their effect would be antidilutive, given no conversion features were triggered[87](index=87&type=chunk) [Leases](index=20&type=section&id=Leases) Lease Cost Components (in thousands) | Lease Cost Component | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Operating lease cost | $4,391 | $3,422 | | Short-term lease cost | $523 | $506 | | Variable lease cost | $320 | $370 | | **Net lease cost** | **$5,234** | **$4,298** | - The weighted average remaining lease term for operating leases increased to **7.1 years** (from **5.4 years** in 2022), with a weighted average discount rate of **1.59%** (down from **1.72%** in 2022)[90](index=90&type=chunk) Future Minimum Operating Rental Income (in thousands) | Year Ending December 31, | Future Minimum Operating Rental Income (in thousands) | | :-------------------------------- | :---------------------------------------------------- | | 2023 (Remaining) | $1,412 | | 2024 | $1,906 | | 2025 | $1,363 | | 2026 | $408 | | 2027 | $131 | | Thereafter | $0 | | **Total** | **$5,220** | [Commitments and Contingencies](index=21&type=section&id=Commitments%20and%20Contingencies) - The company is involved in a lawsuit to enforce contractual rights and remedies for approximately **$15 million** in fees owed from a state client due to a termination for convenience[93](index=93&type=chunk)[94](index=94&type=chunk) - As of March 31, 2023, remaining aggregate minimum purchase commitments for third-party technology and other services totaled approximately **$254 million** through **2028**[95](index=95&type=chunk) [Subsequent Events](index=22&type=section&id=Subsequent%20Events) - No material events or transactions occurred subsequent to March 31, 2023[96](index=96&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, liquidity, and operations for Q1 2023, highlighting revenue growth, expense increases, and cash flow dynamics [Cautionary Note Concerning Forward-Looking Statements](index=23&type=section&id=Cautionary%20Note%20Concerning%20Forward-Looking%20Statements) - The document contains forward-looking statements subject to risks and uncertainties, including economic conditions, client budgets, cyber-attacks, integration of acquisitions, and competition[98](index=98&type=chunk) [General Business Overview](index=23&type=section&id=General%20Business%20Overview) - Tyler Technologies provides integrated information management solutions and services for the public sector, primarily through subscription-based services (SaaS, transaction-based fees, e-filing) and professional services[99](index=99&type=chunk) - The company reports results in two segments: Enterprise Software (ES) for 'back-office' functions and Platform Technologies (PT) for transaction processing and workflow solutions[100](index=100&type=chunk) [Recent Acquisitions](index=24&type=section&id=Recent%20Acquisitions) - Rapid Financial Solutions, LLC (Oct 2022) and US eDirect Inc. (Feb 2022) were acquired and integrated into the Platform Technologies segment, contributing to digital solutions[103](index=103&type=chunk) [Operating Results Summary](index=24&type=section&id=Operating%20Results%20Summary) - Total revenues increased by **3.5%** (**2.1%** excluding recent acquisitions) for the three months ended March 31, 2023, compared to the prior period[104](index=104&type=chunk) - Subscriptions revenue grew **14.3%** (**11.7%** excluding recent acquisitions), driven by **145 new SaaS clients** and **73 existing clients** converting to the SaaS model[105](index=105&type=chunk) - Backlog as of March 31, 2023, was **$1.85 billion**, a **5.1% increase** from the prior year[106](index=106&type=chunk) - Total employee count increased to **7,229** at March 31, 2023, including **50 employees** from recent acquisitions[106](index=106&type=chunk) [Critical Accounting Policies and Estimates](index=24&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No material changes to critical accounting policies and estimates from the information provided in the Form 10-K for the year ended December 31, 2022[107](index=107&type=chunk) [Analysis of Results of Operations](index=25&type=section&id=Analysis%20of%20Results%20of%20Operations) [Revenues](index=25&type=section&id=Revenues) Revenues (in thousands) | Revenue Category | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------- | | Subscriptions | $280,465 | $245,443 | $35,022 | 14% | | Maintenance | $115,130 | $117,029 | $(1,899) | (2)% | | Professional services | $60,929 | $70,015 | $(9,086) | (13)% | | Software licenses and royalties | $10,130 | $16,506 | $(6,376) | (39)% | | Hardware and other | $5,199 | $7,115 | $(1,916) | (27)% | | **Total Revenues** | **$471,853** | **$456,108** | **$15,745** | **3%** | - Subscriptions revenue increased by **14%** (**12%** excluding acquisitions), driven by **145 new SaaS clients** and **73 existing clients** converting to the SaaS model[113](index=113&type=chunk) - Professional services revenue decreased by **13%**, primarily due to a **$11.9 million** decline in COVID pandemic-related rent relief services, partially offset by increased billable travel revenue[119](index=119&type=chunk) - Software licenses and royalties revenue decreased by **39%**, attributed to a shift in new software contracts towards subscription-based agreements[120](index=120&type=chunk)[121](index=121&type=chunk) [Cost of Revenues and Overall Gross Margin](index=27&type=section&id=Cost%20of%20Revenues%20and%20Overall%20Gross%20Margin) Cost of Revenues and Overall Gross Margin (in thousands) | Cost of Revenues Component | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------- | | Subscriptions, maintenance, and professional services | $252,415 | $242,832 | $9,583 | 4% | | Software licenses and royalties | $2,313 | $1,445 | $868 | 60% | | Amortization of software development | $2,588 | $1,164 | $1,424 | 122% | | Amortization of acquired software | $8,920 | $13,221 | $(4,301) | (33)% | | Hardware and other | $5,780 | $5,028 | $752 | 15% | | **Total Cost of Revenues** | **$272,016** | **$263,690** | **$8,326** | **3%** | | **Overall Gross Margin** | **42.4%** | **42.2%** | **0.2%** | | - Cost of subscriptions, maintenance, and professional services increased by **4%** due to higher personnel costs (including onboarding new employees) and duplicate hosting costs during the transition to the public cloud[125](index=125&type=chunk) - Amortization of software development increased by **122%** due to new capitalized software development projects going into service[128](index=128&type=chunk) - Overall gross margin increased by **0.2%** (**0.4%** excluding acquisitions), driven by growth in subscriptions and a decline in low-margin COVID-related revenues, partially offset by higher personnel and hosting costs[129](index=129&type=chunk) [Operating Expenses](index=29&type=section&id=Operating%20Expenses) Operating Expenses (in thousands) | Operating Expense | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------- | | Sales and marketing expense | $37,103 | $35,206 | $1,897 | 5% | | General and administrative expense | $72,360 | $62,689 | $9,671 | 15% | | Research and development expense | $26,987 | $23,941 | $3,046 | 13% | | Amortization of other intangibles | $18,407 | $14,714 | $3,693 | 25% | - General and administrative expense increased by **15%**, primarily due to higher amortization of internal-use software development, increased travel, and higher personnel costs including share-based compensation[132](index=132&type=chunk) - Research and development expense increased by **13%**, driven by new product development initiatives and increased investments in recently acquired businesses[134](index=134&type=chunk) - Amortization of other intangibles increased by **25%** due to intangibles from recent acquisitions and accelerated amortization of certain trade name intangibles from branding changes[135](index=135&type=chunk) [Other Income/Expense and Taxes](index=30&type=section&id=Other%20Income%2FExpense%20and%20Taxes) Other Income/Expense and Taxes (in thousands) | Item | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------- | :--------- | | Interest expense | $(7,684) | $(4,804) | $(2,880) | 60% | | Other income, net | $1,246 | $364 | $882 | 242% | | Income tax provision | $7,667 | $11,444 | $(3,777) | (33)% | | Effective income tax rate | 19.9% | 22.3% | | | - Interest expense increased by **60%** due to higher interest rates and increased amortization expense from accelerated repayment of term loans[136](index=136&type=chunk) - Other income, net, increased by **242%** due to higher interest income from invested cash as a result of increased interest rates[137](index=137&type=chunk) - The income tax provision decreased by **33%**, with the effective tax rate falling to **19.9%** from **22.3%**, primarily due to increased research tax credit benefits[138](index=138&type=chunk)[139](index=139&type=chunk) [Financial Condition and Liquidity](index=31&type=section&id=Financial%20Condition%20and%20Liquidity) Financial Condition and Liquidity (in thousands) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Cash and cash equivalents | $130,845 | $173,857 | | Investment grade corporate bonds, municipal bonds and asset-backed securities | $43,400 | N/A | | Outstanding borrowings under 2021 Credit Agreement | $275,000 | N/A | | Available borrowing capacity under 2021 Revolving Credit Facility | $500,000 | N/A | Cash Flow Activities (in thousands) | Cash Flow Activity | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | 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)** | - Days sales outstanding (DSO) in accounts receivable improved to **95 days** at March 31, 2023, from **115 days** at December 31, 2022, due to improved collection efforts[144](index=144&type=chunk) - Financing activities used **$117.1 million**, primarily due to the repayment of **$120.0 million** of term debt[146](index=146&type=chunk)[149](index=149&type=chunk) - Anticipated **2023** capital spending is between **$63 million** and **$65 million**, including **$37 million** for real estate and **$37 million** for software development[153](index=153&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk from variable-rate debt, with a quarter-point change impacting annual interest expense - The effective interest rate for borrowings under the 2021 Credit Agreement was **6.98%** for the three months ended March 31, 2023[159](index=159&type=chunk) - A quarter-point change in interest rates would result in a **$687,500** change in annual interest expense, based on **$275.0 million** outstanding principal under the 2021 Credit Agreement as of March 31, 2023[159](index=159&type=chunk) [ITEM 4. Controls and Procedures](index=33&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[160](index=160&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2023[161](index=161&type=chunk) [Part II. OTHER INFORMATION](index=34&type=section&id=Part%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, and a list of exhibits [ITEM 1. Legal Proceedings](index=34&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is involved in a lawsuit seeking approximately $15 million in fees from a state client due to a contract termination - A lawsuit was filed on August 23, 2022, to enforce rights and remedies under a contractual arrangement with a state client, seeking approximately **$15 million** in fees for a termination for convenience[163](index=163&type=chunk)[164](index=164&type=chunk) [ITEM 1A. Risk Factors](index=34&type=section&id=ITEM%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K occurred during Q1 2023 - No material changes in the information regarding risk factors contained in the Annual Report on Form 10-K for the year ended December 31, 2022[165](index=165&type=chunk) [ITEM 6. Exhibits](index=35&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, credit agreement amendments, and XBRL documents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2022 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) 5101 Ten ...

Financial Data and Key Metrics Changes - Total revenues for Q4 2022 were $452.2 million, an increase of 4.3% year-over-year, with organic growth of approximately 6% excluding COVID-related revenues [12][19] - Recurring revenues accounted for nearly 83% of quarterly revenues, with subscription revenues increasing by 11.9% and organic growth of 14.3% [5][14] - Non-GAAP annual recurring revenue (ARR) was approximately $1.50 billion, up 7.5%, while SaaS software ARR was $440.6 million, up 18.5% [15][19] - Operating margins were pressured due to the shift to cloud and increased R&D expenses, with an estimated impact of bubble costs on 2023 non-GAAP operating margin of approximately 130 basis points [15][25] Business Line Data and Key Metrics Changes - Subscription revenue growth was driven by a shift to SaaS, with 86% of new software contract value being SaaS compared to 77% in Q4 2021 [7][14] - The Digital Solutions division signed significant contracts, including a new contract with the Kansas Department of Revenue and several SaaS agreements with various states [8][9] - Professional services revenue rose 2.8%, with an organic growth of 8.5%, while licensed revenue declined over 60% due to the shift to SaaS [13][14] Market Data and Key Metrics Changes - The backlog at the end of Q4 2022 reached a new high of $1.89 billion, up 5.2% [15] - Bookings for the quarter were approximately $464 million, flat compared to the previous year, with organic bookings up 2% [16] - The company signed 571 new payments deals in 2022, contributing over $13 million in annual recurring revenue, with a significant portion sold to existing clients [10][19] Company Strategy and Development Direction - The company is focused on a cloud-first strategy, aiming to exit proprietary data centers by 2024 and 2025, with expectations of significant declines in licensed revenues replaced by recurring SaaS revenue [22][25] - Strategic acquisitions were made to enhance digital solutions and payments business, with three transactions completed in 2022 [24] - The company anticipates annual organic revenue growth in the 8% to 10% range over the next five to seven years, with consistent long-term margin expansion beginning in 2024 [27][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term prospects, citing healthy budgets among clients and robust market conditions [37][64] - The company expects 2023 to be a margin trough year due to the transition to SaaS and associated costs, with a return to margin expansion anticipated in 2024 [25][36] - The impact of Section 174 tax changes is expected to significantly affect cash tax payments in 2023, potentially increasing cash taxes by around $100 million [21][61] Other Important Information - The company repaid $90 million of term debt in Q4 2022, with a total of $755 million paid down since the NIC acquisition [17] - The company received recognition for its environmental, social, and governance practices, being named to the Dow Jones Sustainability Index North America for the second consecutive year [30] Q&A Session Summary Question: Margin troughing in '23 and future expectations - Management indicated it is early to provide detailed projections for 2024 margins but expects an inflection point in 2023 as recurring revenues offset declines in licenses [31][32] Question: Impact of federal and state budgets on revenue - Management noted that client budgets are generally healthy, with access to federal funds contributing to a robust market environment [37][38] Question: Pace of conversions to SaaS - The company reported an increase in conversions, with 336 flips in 2022 compared to 239 in 2021, and expects this trend to continue [41] Question: Operating margin performance in Q4 - The decline in operating margins was attributed to a significant drop in licensed revenues and higher R&D expenses due to unexpected capitalization changes [42][43] Question: Subscription ARR growth expectations - Management expects subscription bookings and ARR to accelerate in 2023, driven by a strong pipeline and increased transaction activity [58] Question: Procurement cycles and market conditions - Current procurement cycles are normal, with no significant delays noted, and the market remains healthy with strong client budgets [64]

| --- | --- | |-------|------------------------------------| | | | | | | | | | | | Q4 and Fiscal 2022 Earnings Review | | | | Statement Regarding Use of Non-GAAP Measures Tyler Technologies has provided in this presentation financial measures that have not been prepared in accordance with generally accepted accounting principles (GAAP) and are therefore considered non-GAAP financial measures. This information includes non-GAAP revenues, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income ...

Financial Data and Key Metrics Changes - Total revenues for Q3 2022 were $473.2 million, up 2.9% year-over-year, with organic revenue growth of 9% excluding COVID-related revenues [22][6] - Recurring revenues comprised 78.5% of total revenues, with subscription revenue growing 14.5% organically [7][6] - Non-GAAP ARR was approximately $1.49 billion, flat year-over-year but up 11.2% excluding COVID-related revenues [29] - Cash flows from operations were $129.4 million, down 37%, and free cash flow was $115.6 million, down 40% [34] Business Line Data and Key Metrics Changes - Subscription contract value reached a new high of approximately 91% of total new software contract value signed in Q3, compared to 74% in Q3 last year [27] - License revenue declined 10.6% due to the rapid shift to SaaS contracts [24] - Professional services revenues rose 15.7%, but are expected to face pressure as the implementation team ramps up [24] Market Data and Key Metrics Changes - NIC's COVID-related revenues for the quarter were $11.7 million, down from $43.3 million in the same quarter last year [23] - Transaction-based revenues were $148.9 million, down 13%, but grew 11.1% excluding COVID-related revenues [28] Company Strategy and Development Direction - The company is advancing its cloud-first strategy, with a significant shift towards SaaS contracts [6][42] - The acquisition of Rapid Financial Solutions is expected to enhance payment capabilities and expand market presence [16][18] - The company anticipates a continued decline in license revenue, projecting a decline in the 40% range for 2023 [48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the public sector market's stability and ongoing demand for upgrading mission-critical systems [42] - The company expects to see further margin contraction in 2023 before rebounding in 2024 due to the accelerated shift to SaaS [46] - Despite macroeconomic uncertainties, the company remains focused on long-term growth strategies and capitalizing on recurring revenue models [49] Other Important Information - The backlog at the end of the quarter reached a new high of $1.88 billion, up 6.3% [30] - The company repaid $190 million of term debt during the quarter, with total outstanding debt at $1.085 billion [35] Q&A Session Summary Question: Characterization of ARPA project pipeline - Management noted that ARPA funds are being tracked, and while they see opportunities, there is no immediate urgency for clients to spend those funds [57][60] Question: Shift to software and license fee decline - Management indicated that the shift to SaaS is happening faster than anticipated, with licenses expected to decline more than previously expected [68][66] Question: Cross-sell opportunities with NIC - Management highlighted that analytics and payment solutions are performing well in cross-sell opportunities with NIC [75] Question: Impact of COVID-related revenues on margins - Management stated that the decline in high-margin license revenues will pressure margins, but the impact from COVID-related revenues is expected to be minimal [78][80] Question: Staffing and wage inflation - Management acknowledged ongoing labor challenges and wage pressures but noted some moderation in turnover rates [128][129] Question: Competitive landscape in public safety - Management expressed confidence in their competitive position, citing investments and market share gains against competitors [109]

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides detailed financial statements, notes, management's analysis of operations and liquidity, and disclosures on market risks and internal controls [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The financial statements present Tyler Technologies' performance for the three and nine months ended September 30, 2022, showing increased revenues and net income driven by subscription growth [Condensed Consolidated Statements of Income](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For Q3 2022, total revenues grew 2.9% to $473.2 million and net income increased 20.5% to $53.2 million, primarily driven by subscription revenue growth over the nine-month period Financial Metric (In thousands) | Financial Metric (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | YoY Change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $473,191 | $459,873 | 2.9% | $1,397,983 | $1,158,750 | 20.6% | | Subscriptions Revenue | $254,346 | $252,942 | 0.6% | $755,604 | $554,979 | 36.2% | | **Operating Income** | $60,913 | $56,184 | 8.4% | $173,538 | $132,683 | 30.8% | | **Net Income** | $53,233 | $44,170 | 20.5% | $133,163 | $106,676 | 24.8% | | **Diluted EPS** | $1.26 | $1.04 | 21.2% | $3.14 | $2.53 | 24.1% | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2022, total assets slightly decreased to $4.68 billion, while total liabilities significantly decreased to $2.13 billion, leading to an increase in shareholders' equity to $2.55 billion Balance Sheet Item (In thousands) | Balance Sheet Item (In thousands) | Sep 30, 2022 (unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $185,927 | $309,171 | | Total Current Assets | $860,150 | $964,331 | | Goodwill | $2,449,405 | $2,359,674 | | **Total Assets** | **$4,675,373** | **$4,732,161** | | Total Current Liabilities | $812,248 | $829,501 | | Term loans | $452,138 | $718,511 | | **Total Liabilities** | **$2,128,075** | **$2,408,129** | | **Total Shareholders' Equity** | **$2,547,298** | **$2,324,032** | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2022, operating cash flow was $259.6 million, with significant cash usage for acquisitions and term loan repayments, resulting in a $123.2 million net decrease in cash Cash Flow Activity (In thousands) | Cash Flow Activity (In thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $259,598 | $256,743 | | Net cash used by investing activities | ($125,754) | ($2,084,788) | | Net cash (used) provided by financing activities | ($257,088) | $1,458,550 | | **Net decrease in cash and cash equivalents** | **($123,244)** | **($369,495)** | - The primary use of cash in investing activities was **$117.7 million** for acquisitions, net of cash acquired[16](index=16&type=chunk) - Financing activities were dominated by a **$270.0 million** repayment on term loans[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, including the US eDirect acquisition, debt structure, segment realignment into Enterprise Software and Platform Technologies, and a $1.88 billion backlog [Note 3: Acquisitions](index=10&type=section&id=Note%203%3A%20Acquisitions) The company acquired US eDirect Inc. for approximately $116.6 million, resulting in $91.5 million in goodwill and $34.1 million in other intangible assets, integrated into the Platform Technologies segment - Acquired US eDirect Inc. on February 8, 2022, for a total purchase price of approximately **$116.6 million**, net of cash acquired[36](index=36&type=chunk) - The acquisition resulted in approximately **$91.5 million** of goodwill and **$34.1 million** of other identifiable intangible assets[38](index=38&type=chunk) [Note 4: Debt](index=12&type=section&id=Note%204%3A%20Debt) Total borrowings decreased to $1.085 billion from $1.355 billion due to $270.0 million in term loan repayments, with $500 million available under the revolving credit facility Debt Instrument (In thousands) | Debt Instrument (In thousands) | Sep 30, 2022 (Principal) | Dec 31, 2021 (Principal) | | :--- | :--- | :--- | | Term Loan A-1 | $380,000 | $585,000 | | Term Loan A-2 | $105,000 | $170,000 | | Convertible Senior Notes | $600,000 | $600,000 | | **Total borrowings** | **$1,085,000** | **$1,355,000** | - The company repaid **$270.0 million** of the Term Loans under the 2021 Credit Agreement during the nine months ended September 30, 2022[58](index=58&type=chunk) - As of September 30, 2022, the company had an available borrowing capacity of **$500 million** under its Revolving Credit Facility[58](index=58&type=chunk) [Note 14: Segment and Related Information](index=21&type=section&id=Note%2014%3A%20Segment%20and%20Related%20Information) Effective January 1, 2022, the company realigned into Enterprise Software and Platform Technologies segments, with Q3 2022 revenues of $327.9 million and $148.7 million respectively - As of January 1, 2022, the company realigned its structure into two reportable segments: Enterprise Software (ES) and Platform Technologies (PT)[94](index=94&type=chunk) Segment Performance (In thousands) | Segment Performance (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Enterprise Software (ES)** | | | | Total Revenues | $327,879 | $295,535 | | Segment Operating Income | $110,693 | $102,602 | | **Platform Technologies (PT)** | | | | Total Revenues | $148,704 | $169,392 | | Segment Operating Income | $33,466 | $40,182 | [Note 15: Disaggregation of Revenue](index=24&type=section&id=Note%2015%3A%20Disaggregation%20of%20Revenue) In Q3 2022, 94% of revenue ($444.7 million) was recognized over time, with recurring revenues, primarily maintenance and subscriptions, totaling $371.7 million or 78.6% of total revenues - Recurring revenues, comprised of maintenance and subscriptions, totaled **$371.7 million** for the three months ended September 30, 2022, representing **78.6%** of total revenues[99](index=99&type=chunk)[100](index=100&type=chunk) - Transaction-based fees, included in recurring revenues, were **$148.9 million** for Q3 2022, down from **$171.2 million** in Q3 2021[99](index=99&type=chunk) [Note 16: Deferred Revenue and Performance Obligations](index=25&type=section&id=Note%2016%3A%20Deferred%20Revenue%20and%20Performance%20Obligations) The company's backlog was $1.88 billion as of September 30, 2022, with approximately 46% expected to be recognized as revenue within the next 12 months - The company's backlog (remaining performance obligations) was **$1.88 billion** as of September 30, 2022[102](index=102&type=chunk) - Approximately **46%** of the backlog is expected to be recognized as revenue within the next 12 months[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported a 2.9% revenue increase for Q3 2022, driven by professional and appraisal services, improved gross margin, and strong liquidity despite a decline in COVID-related transaction revenues [Analysis of Results of Operations](index=29&type=section&id=Analysis%20of%20Results%20of%20Operations) Q3 2022 revenue growth was 2.9%, impacted by a $37.2 million decline in COVID-related transaction revenues, while gross margin improved to 43.3% and operating income rose 8.4% - Total revenues for Q3 2022 increased **2.9%**, but excluding acquisitions, revenues grew **1.2%**[113](index=113&type=chunk) - The mix of new clients for the first nine months of 2022 was approximately **78%** subscription-based, up from **66%** in the prior year period, contributing to an **11%** decline in Q3 software license revenue[122](index=122&type=chunk) - Q3 subscriptions revenue growth was flat (**1%**) due to a **$37.2 million** decline in COVID-related transaction-based revenues, which offset growth from new SaaS clients[126](index=126&type=chunk) - Overall gross margin for Q3 2022 increased to **43.3%** from **42.7%** in Q3 2021, attributed to a decline in lower-margin COVID-related revenues[137](index=137&type=chunk) [Financial Condition and Liquidity](index=36&type=section&id=Financial%20Condition%20and%20Liquidity) The company maintains a strong financial position with $185.9 million in cash, $500 million available credit, and $259.6 million in operating cash flow for the first nine months of 2022 Liquidity Metric (In thousands) | Liquidity Metric (In thousands) | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $185,927 | $309,171 | | Available borrowing capacity | $500,000 | N/A | | Total Debt (Principal) | $1,085,000 | $1,355,000 | - Net cash provided by operating activities was **$259.6 million** for the nine months ended September 30, 2022[147](index=147&type=chunk) - Days Sales Outstanding (DSO) was **107 days** at September 30, 2022, compared to **108 days** at December 31, 2021[149](index=149&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on its $485.0 million variable-rate debt, where a 0.25% change would alter annual interest expense by approximately $1.2 million - The primary market risk is interest rate risk on the **$485.0 million** of variable-rate debt outstanding as of September 30, 2022[160](index=160&type=chunk) - A **0.25%** change in interest rates would change annual interest expense by approximately **$1.2 million**[162](index=162&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2022[163](index=163&type=chunk) - No material changes to internal control over financial reporting occurred during the third quarter of 2022[164](index=164&type=chunk) [Part II. OTHER INFORMATION](index=39&type=section&id=Part%20II.%20OTHER%20INFORMATION) This section details legal proceedings and updates on risk factors affecting the company's operations and financial outlook [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company filed a lawsuit on August 23, 2022, to recover approximately $15 million in contractually owed fees from a state client following a contract termination for convenience - The company is involved in a legal dispute with a state client following a contract termination for convenience[166](index=166&type=chunk) - The company filed a lawsuit on August 23, 2022, to recover approximately **$15 million** in contractually owed fees[166](index=166&type=chunk)[167](index=167&type=chunk) - The outcome of the dispute is currently unresolved and the amount of potential loss, if any, cannot be estimated[167](index=167&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported in the company's risk factors during the three months ended September 30, 2022, as previously disclosed in the annual report - No material changes were reported in the company's risk factors during the three months ended September 30, 2022[168](index=168&type=chunk)

Investor Presentation August 2022 | Forward-Looking Statements Tyler has included in this presentation "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," ...

Financial Data and Key Metrics Changes - Total revenues grew approximately 16% to $468.7 million, with organic growth of 6.2% on a GAAP basis and 5.8% on a non-GAAP basis [19][7][8] - Subscription revenues rose 28.2%, with strong organic growth of 14.1% [20][22] - Cash flows from operations reached $76.7 million, and free cash flow rose to $60 million from negative $33.5 million last year [24] - Non-GAAP ARR was approximately $1.49 billion, up 16.3% [22] - Backlog at the end of the quarter was a new high of $1.85 billion, up 13.9% [23] Business Line Data and Key Metrics Changes - Services revenues were flat on an organic basis, impacted by labor market challenges [8][20] - Software revenues rose 18.3%, while service revenues were essentially flat on an organic basis [20] - Transaction-based revenues, including NIC portal and payment processing, were $154.4 million, up 29.1% [22] - The company added 167 new subscription-based arrangements, representing approximately $115 million in total contract value [21] Market Data and Key Metrics Changes - The public sector market environment remains strong, with a 21% increase in bookings [6] - The company successfully extended enterprise contracts in multiple states, including West Virginia and Kentucky [11] - The active cross-sell pipeline doubled in value from Q1, indicating strong market demand [12] Company Strategy and Development Direction - The company is focused on leveraging its competitive position and ongoing investments in strategic initiatives to capitalize on the strong public sector market [31] - The integration of acquisitions, including NIC, VendEngine, and US eDirect, is expected to enhance cross-sell and upsell opportunities [32] - The company is prioritizing cash flow to reduce debt while retaining flexibility for strategic acquisitions [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in generating solid financial results despite rising inflation and interest rates [34] - The public sector market is viewed as more stable compared to the private sector, with recurring revenues comprising approximately 80% of total revenues [35] - The company is on track with major strategic initiatives, including cloud migration and product optimization [37] Other Important Information - The company expects total revenues for the full year to be between $1.835 billion and $1.870 billion, implying organic growth of approximately 9% [28] - Interest expense guidance was adjusted to approximately $30 million, reflecting increased costs due to rising interest rates [28][30] Q&A Session Summary Question: Sales cycle for larger deals and connection to state and local budgets - Management indicated that sales cycles are normal, with a healthy market environment and strong state and local budgets [41][44] Question: Progress on hiring for professional services - Management acknowledged challenges in hiring but plans to continue growing the implementation team [52][53] Question: Success in converting maintenance customers to SaaS - The primary success in conversions is seen in the ERP product suite, with expectations for continued momentum [66][67] Question: Impact of rising interest rates on margins - Management noted that margin impacts are expected as new hires ramp up to become billable [99][100] Question: Current state of public safety market - The public safety market is returning to normal, with competitive advantages noted in mobility and product integration [110][112]