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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 March 31, 2024
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 April 22, 2024 was 42,455,267.




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 March 31,
 20242023
Revenues:  
Subscriptions$313,243 $280,465 
Maintenance117,218 115,130 
Professional services64,806 60,929 
Software licenses and royalties8,734 10,130 
Hardware and other8,358 5,199 
Total revenues512,359 471,853 
Cost of revenues:  
Subscriptions, maintenance, and professional services268,870 252,415 
Software licenses and royalties1,565 2,313 
Amortization of software development4,363 2,588 
Amortization of acquired software9,239 8,920 
Hardware and other4,656 5,780 
Total cost of revenues288,693 272,016 
Gross profit223,666 199,837 
Sales and marketing expense36,427 37,103 
General and administrative expense72,710 72,360 
Research and development expense29,433 26,987 
Amortization of other intangibles18,118 18,407 
Operating income66,978 44,980 
Interest expense(2,184)(7,684)
Other income, net1,845 1,246 
Income before income taxes66,639 38,542 
Income tax provision
12,469 7,667 
Net income$54,170 $30,875 
Earnings per common share:  
Basic$1.28 $0.74 
Diluted$1.26 $0.73 
See accompanying notes.
2


TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 Three Months Ended March 31,
 20242023
Net income$54,170 $30,875 
Other comprehensive income, net of tax:
Securities available-for-sale and transferred securities:
Change in net unrealized holding gain (loss) on available for sale securities during the period
53 94 
Other comprehensive income, net of tax53 94 
Comprehensive income$54,223 $30,969 
See accompanying notes.
3


TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
March 31, 2024 (unaudited)December 31, 2023
ASSETS  
Current assets:  
Cash and cash equivalents$188,237 $165,493 
Accounts receivable (less allowance for losses and sales adjustments of $20,198 in 2024 and $22,829 in 2023)
542,441 619,704 
Short-term investments8,707 10,385 
Prepaid expenses76,486 54,700 
Other current assets8,550 10,303 
Total current assets824,421 860,585 
Accounts receivable, long-term7,340 8,988 
Operating lease right-of-use assets37,874 39,039 
Property and equipment, net167,121 169,720 
Other assets:  
Software development costs, net69,795 67,124 
Goodwill2,532,125 2,532,109 
Other intangibles, net901,434 928,870 
Non-current investments5,492 7,046 
Other non-current assets63,153 63,182 
$4,608,755 $4,676,663 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$145,168 $146,339 
Accrued liabilities106,446 158,558 
Operating lease liabilities11,147 11,060 
Current income tax payable38,293 2,466 
Deferred revenue571,871 632,914 
Current portion of term loans 49,801 
Total current liabilities872,925 1,001,138 
Convertible senior notes due 2026, net 596,638 596,206 
Deferred revenue, long-term 291 
Deferred income taxes54,274 78,590 
Operating lease liabilities, long-term37,631 39,822 
Other long-term liabilities24,152 22,621 
Total liabilities1,585,620 1,738,668 
Commitments and contingencies  
Shareholders' equity:  
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 March 31, 2024 and December 31, 2023
481 481 
Additional paid-in capital1,385,095 1,354,787 
Accumulated other comprehensive loss, net of tax(273)(326)
Retained earnings1,657,943 1,603,773 
Treasury stock, at cost; 5,707,093 and 5,858,476 shares in 2024 and 2023, respectively
(20,111)(20,720)
Total shareholders' equity3,023,135 2,937,995 
$4,608,755 $4,676,663 
See accompanying notes.
4


TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended March 31,
 20242023
Cash flows from operating activities:  
Net income$54,170 $30,875 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization40,097 38,112 
Share-based compensation expense26,866 27,896 
Amortization of operating lease right-of-use assets2,522 3,804 
Deferred income tax benefit(24,334)(18,556)
Other(35)499 
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable69,376 77,563 
Income tax payable35,827 25,670 
Prepaid expenses and other current assets(20,240)(18,381)
Accounts payable(1,140)17,547 
Operating lease liabilities(3,461)(2,246)
Accrued liabilities(48,006)(36,951)
Deferred revenue(61,334)(71,579)
Other long-term liabilities1,531 456 
Net cash provided by operating activities71,839 74,709 
Cash flows from investing activities:  
Additions to property and equipment(7,282)(2,020)
Purchase of marketable security investments (10,617)
Proceeds and maturities from marketable security investments3,271 22,975 
Investment in software development(7,386)(9,079)
Cost of acquisitions, net of cash acquired(1,302)(1,875)
Other18 16 
Net cash used by investing activities(12,681)(600)
Cash flows from financing activities:  
Payment on term loans(50,000)(120,000)
Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award settlement10,033 (158)
Contributions from employee stock purchase plan3,553 3,037 
Net cash used by financing activities(36,414)(117,121)
Net increase (decrease) in cash and cash equivalents22,744 (43,012)
Cash and cash equivalents at beginning of period165,493 173,857 
Cash and cash equivalents at end of period$188,237 $130,845 
See accompanying notes.





5


Three Months Ended March 31,
 20242023
Supplemental cash flow information:
Cash paid for interest$1,741 $6,784 
Cash received for income taxes, net
(680)(548)
Non-cash investing and financing activities:
Non-cash additions to property and equipment$277 $201 
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
 SharesAmountSharesAmount
Balance at December 31, 202348,148 $481 $1,354,787 $(326)$1,603,773 (5,858)$(20,720)$2,937,995 
Net income— — — — 54,170 — — 54,170 
Other comprehensive income, net of tax— — — 53 — — — 53 
Exercise of stock options and vesting of restricted stock units— — (1,738)— — 195 22,978 21,240 
Employee taxes paid for withheld shares upon equity award settlement— — — — — (26)(11,207)(11,207)
Stock compensation— — 26,866 — — — — 26,866 
Issuance of shares pursuant to employee stock purchase plan— — 3,513 — — 10 40 3,553 
Reimbursement of shares from escrow— — 1,667 — — (28)(11,202)(9,535)
Balance at March 31, 202448,148 $481 $1,385,095 $(273)$1,657,943 (5,707)$(20,111)$3,023,135 

Common StockAdditional
Paid-in
Capital
Accumulated Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury StockTotal
Shareholders'
Equity
 SharesAmountSharesAmount
Balance at December 31, 202248,148 $481 $1,209,725 $(844)$1,437,854 (6,365)$(22,827)$2,624,389 
Net income— — — — 30,875 — — 30,875 
Other comprehensive income, net of tax
— — — 94 — — — 94 
Exercise of stock options and vesting of restricted stock units— — (668)— — 136 8,802 8,134 
Employee taxes paid for withheld shares upon equity award settlement— — — — — (26)(8,292)(8,292)
Stock compensation— — 27,896 — — — — 27,896 
Issuance of shares pursuant to employee stock purchase plan— — 2,992 — — 11 45 3,037 
Balance at March 31, 202348,148 $481 $1,239,945 $(750)$1,468,729 (6,244)$(22,272)$2,686,133 
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 March 31, 2024, and December 31, 2023, and operating result amounts are for the three months ended March 31, 2024, and 2023, 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, 2023. 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 previous years have been reclassified to conform to the current year presentation.
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 months ended March 31, 2024 and 2023, we had approximately $53,000 and $94,000 of other comprehensive income, net of taxes, from our available-for-sale investment holdings during the three months ended March 31, 2023.
(2)    Accounting Standards and Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 21, 2024, 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
We earn the majority of our revenues from subscription-based services and post-contract customer support (“PCS” or “maintenance”). Other sources of revenue are professional services, software licenses and royalties, and hardware and 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
Subscription-based services consist primarily of revenues derived from software as a service ("SaaS") arrangements and transactions from digital government services; payment processing; and electronic filing (‘‘e-filing”). We recognize SaaS arrangements ratably over the terms of the arrangements, which range from one to 10 years, but are typically for periods of three to five years. For professional services associated with certain SaaS arrangements, we have concluded that the services are not distinct, and we recognize the revenue ratably over the remaining contractual period once we have provided the customer access to the software. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.
8


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. 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 as invoiced based on the amount billable to the customer. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period.
Transaction-based fees primarily relate to digital government services and online payment services, which are sometimes offered with the assistance of third-party vendors. In general, when we are the principal in a transaction, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount billed to the customer) and record the net amount as revenue.
Other software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include professional services, such as training or installation, are evaluated to determine whether those services are highly interdependent or interrelated to the product’s functionality. The transaction price is allocated to the distinct performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. For arrangements that involve significant production, modification, or customization of the software, or where professional services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the customer over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred, or value added. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.
Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Refer to Note 4, “Disaggregation of Revenue” for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenues 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.
As of March 31, 2024, and December 31, 2023, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $549.8 million and $628.7 million, respectively. We have recorded unbilled receivables of $121.1 million and $119.2 million at March 31, 2024, and December 31, 2023, respectively. Included in unbilled receivables are retention receivables of $10.7 million and $9.8 million at March 31, 2024, and December 31, 2023, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.
We maintain allowances for losses and sales adjustments, which losses are recorded against revenue at the time the loss is incurred. Since most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payments. Consequently, we have not recorded a reserve for credit losses. 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 allowances for losses and sales adjustments are $20.2 million and $22.8 million at March 31, 2024, and December 31, 2023, respectively.
9


GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
We assess goodwill for impairment annually, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. We begin with the qualitative assessment of the likelihood of impairment of each reporting unit. If the conclusion of this assessment is that it is more likely than not that a reporting unit's fair value is more than its carrying value, we are not required to perform a quantitative impairment test. When testing goodwill for impairment quantitatively, we first compare the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds the fair value of that reporting unit, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions (Level 3 inputs). The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.
Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty, such as weighted average cost of capital and revenue growth rates which are forward looking and affected by expectations about future market or economic conditions. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge.
For the three months ended March 31, 2024, no triggering event or changes to circumstances indicated that a potential impairment had occurred.
RECENTLY PRONOUNCED ACCOUNTING STANDARDS
In November 2023, the FASB issued Accounting Standards Update (ASU) 2023-07 - Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. ASU 2023-07 enhances the disclosures required for reportable segments in annual and interim consolidated financial statements. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 – Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We do not expect that this guidance will have a material impact upon our financial position and results of operations.
(3)    Segment and Related Information
We report our results in two reportable segments. Business units that have met the aggregation criteria have been combined into our 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: public administration solutions; courts and public safety solutions; education solutions, and property and recording solutions. The Platform Technologies ("PT") reportable segment provides public sector entities with software solutions to platform and transformative solutions including digital solutions, payment processing, streamlined data processing, and improve operations and workflows.
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.
10


For the three months ended March 31, 2024Enterprise
Software
Platform TechnologiesCorporateTotals
Revenues    
Subscriptions:
SaaS$128,142 $20,642 $ $148,784 
Transaction-based fees51,884 112,575  164,459 
Maintenance111,182 6,036  117,218 
Professional services54,893 9,913  64,806 
Software licenses and royalties8,571 163  8,734 
Hardware and other8,358   8,358 
Intercompany6,171  (6,171)— 
Total revenues$369,201 $149,329 $(6,171)$512,359 
Segment operating income (loss)$130,699 $28,255 $(64,619)$94,335 
For the three months ended March 31, 2023Enterprise
Software
Platform TechnologiesCorporateTotals
Revenues
Subscriptions:
SaaS$106,362 $15,553 $ $121,915 
Transaction-based fees42,052 116,498  158,550 
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 
Three Months Ended March 31,
Reconciliation of reportable segment operating income to the Company's consolidated totals:20242023
Total segment operating income$94,335 $72,307 
Amortization of acquired software(9,239)(8,920)
Amortization of other intangibles(18,118)(18,407)
Interest expense(2,184)(7,684)
Other income, net1,845 1,246 
Income before income taxes$66,639 $38,542 
11


(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, 2024Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Subscriptions:
SaaS$ $148,784 $148,784 
Transaction-based fees 164,459 164,459 
Maintenance 117,218 117,218 
Professional services 64,806 64,806 
Software licenses and royalties8,100 634 8,734 
Hardware and other8,358  8,358 
Total$16,458 $495,901 $512,359 
For the three months ended March 31, 2023Products and services transferred at a point in timeProducts and services transferred over timeTotal
Revenues
Subscriptions:
SaaS$ $121,915 $121,915 
Transaction-based fees 158,550 158,550 
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 
Recurring Revenues
The majority of our revenues are 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 and payment processing. These revenues are considered recurring because revenues from these sources are expected to recur in similar annual amounts for the term of our relationship with the client. Transaction-based fees are generally the result of multi-year contracts with our clients that result in fees generated by payment transactions and digital government services and are collected on a recurring basis during the contract term. 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. 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, 2024Enterprise
Software
Platform TechnologiesCorporateTotals
Recurring revenues$291,208 $139,253 $ $430,461 
Non-recurring revenues71,822 10,076  81,898 
Intercompany6,171  (6,171)— 
Total revenues$369,201 $149,329 $(6,171)$512,359 
12


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 
(5)    Deferred Revenue and Performance Obligations
Total deferred revenue, including long-term, by segment is as follows:
March 31, 2024December 31, 2023
Enterprise Software$531,212 $589,295 
Platform Technologies32,690 39,597 
Corporate7,969 4,313 
Totals$571,871 $633,205 
Changes in total deferred revenue, including long-term, were as follows:
Three months ended March 31, 2024
Balance as of December 31, 2023$633,205 
Deferral of revenue274,562 
Recognition of deferred revenue(335,896)
Balance as of March 31, 2024$571,871 
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, 2024, was $2.02 billion, of which we expect to recognize approximately 45% 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 $49.0 million and $49.2 million as of March 31, 2024, and December 31, 2023, respectively. Amortization expense was $4.8 million and $4.3 million for the three months ended March 31, 2024, and 2023, 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
2024
We did not complete any new acquisitions during the three months ended March 31, 2024.
During the three months ended March 31, 2024, we settled litigation that was assumed with the 2022 purchase of Rapid Financial Solutions, LLC. Our purchase agreement included an escrow that fully indemnified and reimbursed Tyler under the terms of the purchase agreement by the return of 27,702 shares of our common stock, with the approximate value of $9.5 million ,that was issued to an escrow account at the time of the purchase.
13


(8)    Debt
The following table summarizes our total outstanding borrowings related to the amended 2021 Credit Agreement and Convertible Senior Notes:
RateMaturity DateMarch 31, 2024December 31, 2023
2021 Credit Agreement
Revolving credit facility
S + 1.125%
April 2026$ $ 
Term Loan A-1
S + 1.125%
April 2026 50,000 
Convertible Senior Notes due 20260.25%March 2026600,000 600,000 
Total borrowings600,000 650,000 
Less: unamortized debt discount and debt issuance costs(3,362)(3,993)
Total borrowings, net596,638 646,007 
Less: current portion of debt (49,801)
Carrying value$596,638 $596,206 
Amended 2021 Credit Agreement
In connection with the completion of the acquisition of NIC, Inc. on April 21, 2021, we, as borrower, entered into a $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”). 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. The amended 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 breakage costs. The Company is required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility, currently 0.15% per annum, ranging from 0.15% to 0.3% based upon the Company’s total net leverage ratio. The amended 2021 Credit Agreement requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens.
For the three months ended March 31, 2024, we repaid $50.0 million of the Term Loans and have fully repaid amounts due under the amended 2021 Credit Agreement. Also as of March 31, 2024, we were in compliance with our covenants.
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.
14


Before September 15, 2025, holders of the Convertible Senior Notes have the right to convert their Convertible Senior Notes only upon the occurrence of certain events. Under the terms of the Indenture, the Convertible Senior Notes are convertible into common stock of Tyler Technologies, Inc. (referred to as “our common stock” herein) at the following times or circumstances:
during any calendar quarter commencing after the calendar quarter ended June 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of Convertible Senior Notes, as determined following a request by their holder in accordance with the procedures in the Indenture, 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 March 31, 2024, none of the conditions allowing holders of the Convertible Senior Notes to convert have been met.
From and including September 15, 2025, holders of the Convertible Senior Notes may convert their Convertible Senior Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle any conversions of the Convertible Senior Notes either entirely in cash or in a combination of cash and shares of our common stock, at our election. However, upon conversion of any Convertible Senior Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted.
The initial conversion rate is 2.0266 shares of common stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $493.44 per share of common stock. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Convertible Senior Notes are redeemable, in whole or in part, at our option at any time, and from time to time, on or after March 15, 2024, and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price of the Notes on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. In addition, calling any Note for redemption constitutes a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.
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Effective Interest Rate
The weighted average interest rates for the borrowings under Convertible Senior Notes due 2026 were 0.25%, as of March 31, 2024. For the three months ended March 31, 2024, the effective interest rate was 8.66% for our term loan borrowings under the amended 2021 Credit Agreement and 0.54% for the Convertible Senior Notes, respectively. The following sets forth the interest expense recognized related to the borrowings under the amended 2021 Credit Agreement and Convertible Senior Notes and is included in interest expense in the accompanying condensed consolidated statements of income:
Three Months Ended March 31,
20242023
Contractual interest expense - Revolving Credit Facility$(230)$(313)
Contractual interest expense - Term Loans(761)(5,641)
Contractual interest expense - Convertible Senior Notes(375)(375)
Amortization of debt discount and debt issuance costs (818)(1,355)
Total $(2,184)$(7,684)
As of March 31, 2024, we had one outstanding standalone letter of credit totaling $750,000. 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.
(9)    Financial Instruments
The following table presents our financial instruments:
March 31, 2024December 31, 2023
Cash and cash equivalents$188,237 $165,493 
Available-for-sale investments14,199 17,431 
Equity investments10,000 10,000 
Total$212,436 $192,924 
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 investment portfolio is classified as 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. 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 March 31, 2024, we have an accrued interest receivable balance of approximately $59,000 which is included in accounts receivable, net. 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 reductions to interest income in the period of the loss. During the three months ended March 31, 2024, we have recorded no 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:
March 31, 2024December 31, 2023
Amortized cost$14,563 $17,866 
Unrealized gains  
Unrealized losses(364)(435)
Estimated fair value$14,199 $17,431 
As of March 31, 2024, we have $8.7 million of available-for-sale debt securities with contractual maturities of one year or less and $5.5 million with contractual maturities greater than one year. As of March 31, 2024, no available-for-sale debt securities has been in a loss position for one year or less and 16 securities with a fair value of $13.8 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 March 31,
20242023
Proceeds from sales and maturities$3,271 $22,975 
Realized losses on sales, net of tax  
Our equity investments consist of an 18% interest in BFTR, LLC, a wholly owned subsidiary of Bison Capital Partners V L.P. BFTR, LLC is a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in common stock is carried at cost less any impairment write-downs because we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values.
(10)    Other Comprehensive Income (Loss)
The following table presents the changes in the balances of accumulated other comprehensive loss, net of tax by component:
Unrealized Loss On Available-for-Sale SecuritiesOtherAccumulated Other Comprehensive Loss
Balance as of December 31, 2023$(326)$ $(326)
Other comprehensive income
53  53 
Reclassification adjustment of unrealized gains (losses) on securities transferred from held-to-maturity   
Reclassification adjustment for net loss on sale of available-for-sale securities, included in net income   
Other comprehensive income
53  53 
Balance as of March 31, 2024$(273)$ $(273)
Unrealized Loss On Available-for-Sale SecuritiesOtherAccumulated Other Comprehensive Loss
Balance as of December 31, 2022$(844)$ $(844)
Other comprehensive income
94  94 
Reclassification adjustment of unrealized gains (losses) on securities transferred from held-to-maturity   
Reclassification adjustment for net loss on sale of available-for-sale securities, included in net income   
Other comprehensive income
94  94 
Balance as of March 31, 2023$(750)$ $(750)
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(11)    Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. Guidance on fair value measurements and disclosures establishes a valuation hierarchy for disclosure of inputs used in measuring fair value defined as follows:
Level 1—Inputs are unadjusted quoted prices that are available in active markets for identical assets or liabilities.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in non-active markets, inputs other than quoted prices that are observable, and inputs that are not directly observable, but are corroborated by observable market data.
Level 3—Inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment.
The classification of a financial asset or liability within the hierarchy is determined based on the least reliable level of input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We also consider the counterparty and our own non-performance risk in our assessment of fair value.
The following table presents fair values of our financial and debt instruments categorized by their fair value hierarchy as of March 31, 2024:
Level 1Level 2Level 3Total
Cash and cash equivalents$188,237 $ $ $188,237 
Available-for-sale investments 14,199  14,199 
Equity investments  10,000 10,000 
Convertible Senior Notes due 2026 604,920  604,920 
The following table presents fair values of our financial and debt instruments categorized by their fair value hierarchy as of December 31, 2023:
Level 1Level 2Level 3Total
Cash and cash equivalents$165,493 $ $ $165,493 
Available-for-sale investments 17,431  17,431 
Equity investments  10,000 10,000 
2021 Credit Agreement
Term Loan A-1 49,801  49,801 
Convertible Senior Notes due 2026 609,168  609,168 
Assets that are measured at fair value on a recurring basis
Accounts receivables, accounts payables, short-term obligations and certain other assets carrying value approximate fair value because of the short maturity of these instruments.
As of March 31, 2024, we have $14.2 million in investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates through 2027. The fair values of these securities are considered Level 2 as they are based on inputs from quoted prices in markets that are not active or other observable market data.
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Assets that are measured at fair value on a nonrecurring basis
As of March 31, 2024, 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 investment is assessed for impairment. We do not reassess the fair value of the investments if there are no identified events or changes in circumstances that indicate fair value of the investment or indicate impairment. No events or changes in circumstances have occurred during the period that require reassessment. There has been no impairment of this investment for the periods presented. This investment is included in other non-current assets in the accompanying condensed consolidated balance sheets.
As described in Note 2 "Summary of Significant Accounting Policies", we assess goodwill for impairment annually on October 1. In addition, we review goodwill, property and equipment, and other intangibles for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. During the fourth quarter of 2023, we completed our annual assessment of goodwill which did not result in an impairment charge. Further, we identified no indicators of impairment to goodwill, property and equipment, and other intangibles and therefore, no impairment was recorded as of and for the three months ended March 31, 2024.
Financial instruments measured at fair value only for disclosure purposes
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 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 8, “Debt,” for further discussion.
The carrying amount of the Convertible Senior Notes is the par value less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the term of the Convertible Senior Notes. Interest expense is included in the accompanying condensed consolidated statements of income.
The following table presents the fair value and carrying value, net, of the amended 2021 Credit Agreement and our Convertible Notes due 2026:
 Fair Value atCarrying Value at
March 31, 2024December 31, 2023March 31, 2024December 31, 2023
2021 Credit Agreement
Revolving Credit Facility$ $ $ $ 
Term Loan A-1 49,801  49,801 
Convertible Senior Notes due 2026604,920 609,168 596,638 596,206 
 $604,920 $658,969 $596,638 $646,007 
(12)    Income Tax Provision
We had an effective income tax rate of 18.7% for the three months ended March 31, 2024, compared to 19.9% for the three months ended March 31, 2023. The decrease in the effective tax rate for the three months ended March 31, 2024, as compared to the prior period, is due to the increase in research tax credits and excess tax benefits related to stock incentive awards in the current year, offset by liabilities for uncertain tax positions, an increase in state income taxes, and an increase in non-deductible business expenses.
The effective income tax rates for the periods presented are different from the statutory United States federal income tax rate of 21% primarily due to research tax credits and excess tax benefits related to stock incentive awards, offset by state income taxes, liabilities for uncertain tax positions, and non-deductible business expenses.
We received income tax refunds, net of taxes paid of $680,000 and $548,000 in the three months ended March 31, 2024, and 2023, respectively.
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(13)    Share-Based Compensation Plan
The following table summarizes share-based compensation expense related to share-based awards recorded in the condensed consolidated statements of income:
Three Months Ended March 31,
20242023
Subscriptions, maintenance, and professional services$7,390 $6,342 
Sales and marketing expense2,983 2,393 
General and administrative expense16,493 19,161 
Total share-based compensation expense$26,866 $27,896 
(14)    Earnings Per Share
The following table details the reconciliation of basic earnings per share to diluted earnings per share:
Three Months Ended March 31,
20242023
Numerator for basic and diluted earnings per share:  
Net income$54,170 $30,875 
Denominator:  
Weighted-average basic common shares outstanding42,332 41,832 
Assumed conversion of dilutive securities:  
Stock awards768 674 
Convertible Senior Notes  
Denominator for diluted earnings per share
   - Adjusted weighted-average shares
43,100 42,506 
Earnings per common share:  
Basic$1.28 $0.74 
Diluted$1.26 $0.73 
For the three months ended March 31, 2024, and 2023, stock awards, representing the right to purchase common stock of approximately 162,000 and 501,000 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 months ended March 31, 2024, and 2023, as their effect would be antidilutive given none of the conversion features have been triggered. See Note 8, “Debt,” for discussion on the conversion features related to the Convertible Senior Notes.
(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 remaining terms of one to 11 years. Some of these leases include options to extend for up to six years. We have no finance leases and one related party lessor agreement (see Note 16, "Related party transactions") as of March 31, 2024. Right-of-use lease assets and lease liabilities for our operating leases are recorded in the condensed consolidated balance sheets. During the three months ended March 31, 2024, we had no lease restructuring costs, and 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 CostsThree Months Ended March 31,
20242023
Operating lease cost$2,165 $4,391 
Short-term lease cost551 523 
Variable lease cost238 320 
Net lease cost$2,954 $5,234 
Supplemental information related to leases is as follows:
Other InformationThree Months Ended March 31,
20242023
Cash flows:
Cash paid amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$3,185 $2,510 
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases$1,389 $1,406 
Lease term and discount rate:
Weighted average remaining lease term (years)6.67.1
Weighted average discount rate1.67 %1.59 %
Rental income from third parties
We own office buildings in Bangor, Falmouth, and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; Moraine, Ohio; and Kingston Springs, Tennessee. 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 2024 and 2028, 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 months ended March 31, 2024, totaled $761,000, and for the three months ended March 31, 2023, totaled $466,000. Rental income is included in hardware and other revenue on the consolidated statements of income. As of March 31, 2024, future minimum operating rental income based on contractual agreements is as follows:
Year ending December 31,Amount
2024 (Remaining)$2,418 
20252,450 
20261,171 
2027913 
2028734 
Thereafter 
Total $7,686 
(16) Related Party Transactions
In April 2023, we entered into an arm's length lessor agreement under which we lease 25,000 square feet of office space in our Lubbock, Texas facility to a company co-owned by a member of the board of directors. Such member no longer serves on the board of directors. The lease agreement, which commenced on April 1, 2023, has an initial term of five years with a pro-rata base rent of $25,000 per month until December 1, 2023, and a base rent of $60,000 per month thereafter. We recognized rental income of $181,000 under this lease for the three months ended March 31, 2024.
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(17)    Commitments and Contingencies
Litigation
During the first quarter of 2022, we received a notice of termination for convenience under a contractual arrangement with a state government client. Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.
The client was unresponsive to our outreach for several months. On August 23, 2022, we filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. At the client's invitation, we then engaged directly with the client on payment resolution. The engagement was not successful. On March 20, 2024, reinitiated our 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 can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.
Purchase Commitments
We have contractual obligations for third-party technology used in our solutions and for other services we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of March 31, 2024, the remaining aggregate minimum purchase commitment under these arrangements was approximately $699.1 million through 2031.
(18)    Subsequent Events
There have been no material events or transactions that occurred subsequent to March 31, 2024.
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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) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (2) disruption to our business and harm to our competitive position resulting from cyber-attacks and security vulnerabilities; (3) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (4) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (5) material portions of our business require the Internet infrastructure to be adequately maintained; (6) 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; (7) general economic, political and market conditions, including continued inflation and rising interest rates; (8) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (9) 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; (10) the ability to attract and retain qualified personnel and dealing with rising labor costs, the loss or retirement of key members of management or other key personnel; and (11) costs of compliance and any failure to comply with government and stock exchange regulations. These factors and other risks that affect our business are described in Item 1A, “Risk Factors”. We expressly disclaim any obligation to publicly update or revise our forward-looking statements.
GENERAL
We provide integrated information management solutions and services for the public sector. We develop and market a broad line of software products and services to address the IT needs of public sector entities. We provide subscription-based services such as software as a service (“SaaS”) and transaction-based fees primarily related to digital government services and online payment processing. 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. Additionally, we provide property appraisal outsourcing services for taxing jurisdictions.
We report our results in two reportable segments. Business units that have met the aggregation criteria have been combined into our 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: public administration solutions; courts and public safety solutions; education solutions, and property and recording solutions. The Platform Technologies ("PT") reportable segment provides public sector entities with software solutions to platform and transformative solutions including digital solutions, payment processing, streamlined data processing, and improve operations and workflows.
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.
See Note 3, "Segment and Related Information," in the notes to the financial statements for additional information.
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Recent Acquisitions
2024
We did not complete any new acquisitions during the three months ended March 31, 2024.
2023
On October 31, 2023, we acquired Resource Exploration, Inc. (“ResourceX”), a leading provider of budgeting software to the public sector. Also on October 31, 2023, we acquired ARInspect, Inc. (“ARInspect”), a leading provider of AI powered machine learning solutions for public sector field operations. On August 8, 2023, we acquired Computing System Innovations, LLC (“CSI”), a leading provider of artificial intelligence automation, redaction, and indexing solution for courts, recorders, attorneys, and others. The actual operating results of CSI and ResourceX, from their respective dates of acquisition, are included in the operating results of the ES segment. The operating results of ARInspect are included in the operating results of the PT segment since the date of acquisition.
Operating Results
For the three months ended March 31, 2024, total revenues increased 9%, compared to the prior period primarily due to the increase in subscription revenue. Revenues from recent acquisitions contributed $3.0 million or 1% to the total revenue increase for the three months ended March 31, 2024, compared to the prior period.
Subscriptions revenue grew 12% for the three months ended March 31, 2024, compared to the prior period, primarily due to an ongoing shift toward SaaS arrangements, along with growth in our transaction-based revenues such as e-filing and payment services. Subscription revenues from recent acquisitions contributed $1.0 million or 0.4% to the increase for the three months ended March 31, 2024.
Our backlog as of March 31, 2024, was $2.02 billion, a 9.5% increase compared to March 31, 2023.
Our total employee count increased to 7,305 at March 31, 2024, including 68 employees who joined us through acquisitions completed since March 31, 2023, from 7,229 at March 31, 2023.
Annualized Recurring Revenues
Subscriptions and maintenance are considered recurring revenue sources. Annualized recurring revenues (ARR) are calculated by annualizing the current quarter's recurring revenues from maintenance and subscriptions as reported in our statement of income. Management believes ARR is an indicator of the annual run rate of our recurring revenues, as well as a measure of the effectiveness of the strategies we deploy to drive revenue growth over time. ARR is a metric we believe is widely used by companies in the technology sector and by investors, which we believe offers insight to the stability of our maintenance and subscription revenues to be recognized within the year, which are considered recurring in nature, with some seasonality.
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. These revenues are considered recurring because revenues from these sources are expected to re-occur in similar annual amounts for the term of our relationship with the client. Transaction-based fees are generally the result of multi-year contracts with our clients that result in fees generated by payment transactions and digital government services and are collected on a recurring basis during the contract term. Transaction-based fees are historically highest in the second quarter, which coincides with peak outdoor recreation seasons and statutory filing deadlines in many jurisdictions, and lowest in the fourth quarter due to fewer business days and lower transaction volumes around holidays. Because ARR is an annualized revenue amount, the metric can fluctuate from quarter to quarter due to this seasonality.
ARR was $1.72 billion and $1.58 billion as of March 31, 2024, and 2023, respectively. ARR increased 9% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of GAAP for the interim period and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, 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, 2023. 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, 2023.
ANALYSIS OF RESULTS OF OPERATIONS
Percent of Total Revenues
Three Months Ended March 31,
20242023
Revenues:
Subscriptions61.2 %59.4 %
Maintenance22.9 24.4 
Professional services12.6 12.9 
Software licenses and royalties1.7 2.1 
Hardware and other1.6 1.2 
Total revenues100.0 100.0 
Cost of revenues:  
Subscriptions, maintenance, and professional services52.5 53.5 
Software licenses, royalties, and amortization of acquired software2.1 2.4 
Amortization of software development0.9 0.5 
Hardware and other0.9 1.2 
Sales and marketing expense7.1 7.9 
General and administrative expense14.2 15.3 
Research and development expense5.7 5.7 
Amortization of other intangibles
3.5 4.0 
Operating income13.1 9.5 
Interest expense(0.4)(1.6)
Other income, net0.4 0.3 
Income before income taxes13.1 8.2 
Income tax provision
2.4 1.7 
Net income10.7 %6.5 %
Revenues
Subscriptions
The following table sets forth a comparison of our subscriptions revenue for the three months ended March 31 ($ in thousands):
Three Months EndedChange
20242023$%
ES$180,026 $148,414 $31,612 21 %
PT133,217 132,051 1,166 
Total subscriptions revenue$313,243 $280,465 $32,778 12 %
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Subscriptions revenue consists of revenue derived from our 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.
Subscriptions revenue grew 12% for the three months ended March 31, 2024, compared to the prior period, primarily due to an ongoing shift toward SaaS arrangements, along with growth in our transaction-based revenues. Subscription revenues from recent acquisitions contributed $1.0 million or 0.4% to the increase for the three months ended March 31, 2024.
Total subscriptions revenue derived from SaaS arrangements fees was $148.8 million for the three months ended March 31, 2024, compared to $121.9 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, SaaS fees grew $26.9 million, or 22% compared to prior period. New SaaS clients as well as existing on-premises clients who converted to our SaaS model provided the majority of the subscriptions revenue increase. In the three months ended March 31, 2024, we added 200 new SaaS clients and 90 on-premises existing clients elected to convert to our SaaS model. Since March 31, 2023, we have added 687 new SaaS clients while 355 existing on-premises clients converted to our SaaS offerings. Our new software contract mix for the three months ended March 31, 2024, was approximately 8% perpetual software license arrangements and approximately 92% subscription-based arrangements compared to total new contract mix for the three months ended March 31, 2023, of approximately 17% perpetual software license arrangements and approximately 83% subscription-based arrangements.
Total subscriptions revenue derived from transaction-based fees was $164.5 million for the three months ended March 31, 2024, compared to $158.6 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, transaction-based fees grew $5.9 million, or 4% compared to prior period. Contributing to the growth in transaction-based fees for the three months ended March 31, 2024, are the new transaction customers and volume increases from online payments and e-filing services and the impact of transaction-based fees from recent acquisitions of $1.0 million, compared to prior period.
Maintenance
The following table sets forth a comparison of our maintenance revenue for the three months ended March 31 ($ in thousands):
Three Months EndedChange
20242023$%
ES$111,182 $110,081 $1,101 %
PT6,036 5,049 987 20 
Total maintenance revenue$117,218 $115,130 $2,088 %
We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue increased 2% for the three months ended March 31, 2024, compared to the prior period. For the three months ended March 31, 2024, maintenance revenue grew mainly due to annual maintenance rate increases and maintenance associated with new software license sales, partially offset by the impact of clients converting from on-premises license arrangements to SaaS.
Professional services
The following table sets forth a comparison of our professional services revenue for the three months ended March 31 ($ in thousands):
Three Months EndedChange
20242023$%
ES$54,893 $51,499 $3,394 %
PT9,913 9,430 483 
Total professional services revenue$64,806 $60,929 $3,877 %
Professional services revenue primarily consists of professional services billed in connection with implementing our software, converting client data, training client personnel, custom development activities, consulting and property appraisal outsourcing services. New clients who purchase our proprietary software licenses or subscriptions generally also contract with us to provide the related professional services. Existing clients also periodically purchase additional training, consulting and minor programming services.
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Professional services revenue increased 6% for the three months ended March 31, 2024, compared to the prior period that increase is primarily attributable to higher new contract volume with increased billable rates and the addition of professional services staff to grow our capacity to deliver backlog.
Software licenses and royalties
The following table sets forth a comparison of our software licenses and royalties revenue for the three months ended March 31 ($ in thousands):
Three Months EndedChange
20242023$%
ES$8,571 $8,068 $503 %
PT163 2,062 (1,899)(92)
Total software licenses and royalties revenue$8,734 $10,130 $(1,396)(14)%
Software licenses and royalties revenue decreased 14% for the three months ended March 31, 2024, compared to the prior period. The decrease is primarily attributed to the shift in the mix of new software contracts toward more subscription-based agreements compared to the prior period.
Although the mix of new contracts between subscription-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect the decline in software license revenues will accelerate as we continue to shift our model away from perpetual licenses to SaaS. Subscription-based arrangements result in lower software license revenue in the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract.
Cost of revenues and overall gross margin
The following table sets forth a comparison of the key components of our cost of revenues for the three months ended March 31 ($ in thousands):
Three Months EndedChange
20242023$%
Subscriptions, maintenance, and professional services$268,870 $252,415 $16,455 %
Software licenses and royalties1,565 2,313 (748)(32)
Amortization of software development4,363 2,588 1,775 69 
Amortization of acquired software9,239 8,920 319 
Hardware and other4,656 5,780 (1,124)(19)
Total cost of revenues$288,693 $272,016 $16,677 %
Subscriptions, maintenance, and professional services. Cost of subscriptions, maintenance and professional services primarily consist of personnel costs related to installation of our software, conversion of client data, training client personnel and support activities, including enhancing existing solutions, and various other services such as custom client development, on-going operation of SaaS, property appraisal outsourcing activities, digital government services, and other transaction-based services such as e-filing. Other costs included are interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.
The cost of subscriptions, maintenance, and professional services for the three months ended March 31, 2024, increased $16.5 million or 7%, compared to the prior period. The impact from recent acquisitions was $1.5 million for the three months ended March 31, 2024. The remaining subscriptions, maintenance and professional services expenses increased 6% for the three months ended March 31, 2024, due to duplicate hosting costs as we transition from our proprietary data centers to the public cloud and higher personnel costs. Excluding employees from recent acquisitions, our professional services staff grew by 96 employees since March 31, 2023, as we increased hiring to ensure that we are well-positioned to deliver our current backlog and anticipated new business.
Software licenses and royalties. Costs of software licenses and royalties primarily consist of direct third-party software costs. We do not have any direct costs associated with royalties.
The cost of software licenses and royalties for the three months ended March 31, 2024, decreased $0.7 million or 32%, compared to the prior period due to lower third-party software costs.
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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, 2024, amortization of software development costs increased $1.8 million or 69%, compared to the prior period and is attributable to 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, 2024, amortization of acquired software increased $0.3 million or 4%, compared to the prior period due to amortization of newly acquired software from recent acquisitions completed in fiscal year 2023, offset by assets becoming fully amortized in the fourth quarter 2023.
The following table sets forth a comparison of overall gross margin for the periods presented as of March 31: