Company Quick10K Filing
Quick10K
Tyler Technologies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$215.70 38 $8,270
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-07 Shareholder Vote
8-K 2019-05-01 Earnings
8-K 2019-02-20 Earnings
8-K 2018-07-26 Earnings
8-K 2018-05-02 Earnings
8-K 2018-03-09 Officers, Exhibits
8-K 2018-01-24 Officers
TRV Travelers Companies 37,150
TS Tenaris 15,760
CASH Meta Financial Group 1,030
USAT USA Technologies 352
RMNI Rimini Street 328
DAC Danaos 158
PVL Permianville Royalty Trust 104
TYHT Shineco 25
IBIO Ibio 16
ELJ Entergy Louisiana Holdings 0
TYL 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters To A Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tyl3312019exhibit311.htm
EX-31.2 tyl3312019exhibit312.htm
EX-32.1 tyl3312019exhibit321.htm

Tyler Technologies Earnings 2019-03-31

TYL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2019
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 PARKWAY
PLANO, TEXAS
75024
(Address of principal executive offices)
(Zip code)
(972) 713-3700
(Registrant’s telephone number, including area code)
Title of each class
Trading symbol
Name of each exchange
on which registered
COMMON STOCK, $0.01 PAR VALUE
TYL
NEW YORK STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x  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   x     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
 
x
  
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   x
The number of shares of common stock of registrant outstanding on May 6, 2019 was 38,341,555.
 




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,
 
 
2019
 
2018
Revenues:
 
 
 
 
Software licenses and royalties
 
$
21,793

 
$
22,776

Subscriptions
 
67,275

 
49,028

Software services
 
48,443

 
45,939

Maintenance
 
100,152

 
93,897

Appraisal services
 
5,214

 
5,394

Hardware and other
 
4,189

 
4,140

Total revenues
 
247,066

 
221,174

 
 
 
 
 
Cost of revenues:
 
 
 
 
Software licenses and royalties
 
818

 
778

Acquired software
 
6,682

 
5,382

Software services, maintenance and subscriptions
 
117,160

 
106,085

Appraisal services
 
3,452

 
3,781

Hardware and other
 
2,906

 
2,343

Total cost of revenues
 
131,018

 
118,369

 
 
 
 
 
Gross profit
 
116,048

 
102,805

 
 
 
 
 
Selling, general and administrative expenses
 
57,766

 
47,604

Research and development expense
 
18,941

 
13,048

Amortization of other intangibles
 
4,850

 
3,315

 
 
 
 
 
Operating income
 
34,491

 
38,838

 
 
 
 
 
Other income, net
 
586

 
599

Income before income taxes
 
35,077

 
39,437

Income tax provision
 
7,729

 
1,612

Net income
 
$
27,348

 
$
37,825

 
 
 
 
 
Earnings per common share:
 
 
 
 
Basic
 
$
0.71

 
$
1.00

Diluted
 
$
0.69

 
$
0.95

See accompanying notes.

2



TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)


 
 
March 31, 2019
(unaudited)
 
December 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
39,437

 
$
134,279

Accounts receivable (less allowance for doubtful accounts of $4,692 in 2019 and $4,647 in 2018)
 
298,980

 
298,912

Short-term investments
 
36,958

 
44,306

Prepaid expenses
 
23,839

 
33,258

Income tax receivable
 

 
4,697

Other current assets
 
3,060

 
3,406

Total current assets
 
402,274

 
518,858

 
 
 
 
 
Accounts receivable, long-term
 
22,821

 
16,020

Operating lease right-of-use assets
 
20,067

 

Property and equipment, net
 
164,617

 
155,177

Other assets:
 
 
 
 
Goodwill
 
834,572

 
753,718

Other intangibles, net
 
389,633

 
276,852

Non-current investments and other assets
 
75,318

 
70,338

 Total assets
 
$
1,909,302

 
$
1,790,963

 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
6,011

 
$
6,910

Accrued liabilities
 
63,824

 
66,480

Operating lease liabilities
 
5,777

 

Current income tax payable
 
7,868

 

Deferred revenue
 
319,900

 
350,512

Total current liabilities
 
403,380

 
423,902

 
 
 
 
 
Revolving line of credit
 
85,000

 

Deferred revenue, long-term
 
442

 
424

Deferred income taxes
 
42,779

 
41,791

Operating lease liabilities, long-term
 
18,956

 

 
 
 
 
 
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, 2019 and December 31, 2018
 
481

 
481

Additional paid-in capital
 
731,073

 
731,435

Accumulated other comprehensive loss, net of tax
 
(46
)
 
(46
)
Retained earnings
 
798,157

 
771,925

Treasury stock, at cost; 9,825,158 and 9,872,505 shares in 2019 and 2018, respectively
 
(170,920
)
 
(178,949
)
Total shareholders' equity
 
1,358,745

 
1,324,846

 Total liabilities and shareholders' equity
 
$
1,909,302

 
$
1,790,963

See accompanying notes.

3



TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
27,348

 
$
37,825

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
17,308

 
14,112

Share-based compensation expense
 
14,416

 
10,557

Deferred income tax benefit
 
(4,785
)
 
(2,658
)
Changes in operating assets and liabilities, exclusive of effects of
   acquired companies:
 
 
 
 
Accounts receivable
 
9,622

 
30,227

Income taxes
 
12,425

 
4,053

Prepaid expenses and other current assets
 
(3,064
)
 
1,333

Accounts payable
 
(1,501
)
 
(1,752
)
Accrued liabilities
 
(4,665
)
 
(17,952
)
Deferred revenue
 
(43,147
)
 
(31,114
)
Net cash provided by operating activities
 
23,957

 
44,631

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Additions to property and equipment
 
(12,320
)
 
(8,895
)
Purchase of marketable security investments
 
(3,590
)
 
(43,962
)
Proceeds from marketable security investments
 
20,276

 
11,077

Investment in software
 
(690
)
 

Cost of acquisitions, net of cash acquired
 
(199,130
)
 

Decrease in other
 
564

 
743

Net cash used by investing activities
 
(194,890
)
 
(41,037
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Increase in net borrowings on revolving line of credit
 
85,000

 

Purchase of treasury shares
 
(17,786
)
 

Proceeds from exercise of stock options
 
6,528

 
19,298

Contributions from employee stock purchase plan
 
2,349

 
1,798

Net cash provided by financing activities
 
76,091

 
21,096

 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
 
(94,842
)
 
24,690

Cash and cash equivalents at beginning of period
 
134,279

 
185,926

Cash and cash equivalents at end of period
 
$
39,437

 
$
210,616

See accompanying notes.

4




TYLER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Treasury Stock
 
Total
Shareholders'
Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balance at December 31, 2018
48,148

 
$
481

 
$
731,435

 
$
(46
)
 
$
771,925

 
(9,872
)
 
$
(178,949
)
 
$
1,324,846

Retained Earnings Adjustment-Adoption of Topic 842 Leases, net of taxes

 

 

 

 
(1,116
)
 

 

 
(1,116
)
Net income

 

 

 

 
27,348

 

 

 
27,348

Exercise of stock options and vesting of restricted stock units


 

 
(14,405
)
 

 

 
111

 
20,933

 
6,528

Employee taxes paid for withheld shares upon equity award settlement

 

 

 

 

 
(7
)
 
(1,337
)
 
(1,337
)
Stock compensation

 

 
14,416

 

 

 

 

 
14,416

Issuance of shares pursuant to employee stock purchase plan

 

 
(373
)
 

 

 
15

 
2,722

 
2,349

Treasury stock purchases

 

 

 

 

 
(72
)
 
(14,289
)
 
(14,289
)
Balance at March 31, 2019
48,148

 
$
481

 
$
731,073

 
$
(46
)
 
$
798,157

 
(9,825
)
 
$
(170,920
)
 
$
1,358,745

 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Treasury Stock
 
Total
Shareholders'
Equity
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balance at December 31, 2017
48,148

 
$
481

 
$
626,867

 
$
(46
)
 
$
624,463

 
(10,262
)
 
$
(60,029
)
 
$
1,191,736

Net income

 

 

 

 
37,825

 

 

 
37,825

Exercise of stock options and vesting of restricted stock units


 

 
13,858

 

 

 
350

 
5,440

 
19,298

Employee taxes paid for withheld shares upon equity award settlement

 

 

 

 

 

 

 

Stock compensation

 

 
10,557

 

 

 

 

 
10,557

Issuance of shares pursuant to employee stock purchase plan

 

 
1,627

 

 

 
12

 
171

 
1,798

Treasury stock purchases

 

 

 

 

 

 

 

Balance at March 31, 2018
48,148

 
$
481

 
$
652,909

 
$
(46
)
 
$
662,288

 
(9,900
)
 
$
(54,418
)
 
$
1,261,214

See accompanying notes.


5



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, 2019, and December 31, 2018, and operating result amounts are for the three months ended March 31, 2019, and 2018, 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, 2018. 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.
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). We had no items of other comprehensive income (loss) for the three months ended March 31, 2019 and 2018.
(2)    Accounting Standards and Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except for the accounting policies for leases recognition that were adjusted as a result of adopting ASU No. 2016-02, Leases ("Topic 842"), 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, 2018, filed with the SEC on February 20, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.
USE OF ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the standalone selling price ("SSP") of performance obligations, variable consideration, and other obligations such as returns and refunds; loss contingencies; the estimated useful life of deferred commissions; the carrying amount and estimated useful lives of intangible assets; the carrying amount of operating lease right-of-use assets and operating lease liabilities; determining share-based compensation expense; the valuation allowance for receivables; and determining the potential outcome of future tax consequences of events that have been recognized on our consolidated financial statements or tax returns. Actual results could differ from estimates.
REVENUE RECOGNITION
Nature of Products and Services
We earn revenue from software licenses, royalties, subscription-based services, software services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services. 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

6



Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
Most of our software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include software services, such as training or installation, are evaluated to determine whether the customer can benefit from the services either on their own or together with other resources readily available to the customer and whether the services are separately identifiable from other promises in the contract. The transaction price is allocated to the distinct performance obligations on a relative SSP basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Significant Judgments:
Our contracts with customers often include multiple performance obligations to a customer. When a software arrangement (license or subscription) includes both software licenses and software services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software services and recognized over time.
The transaction price is allocated to the separate performance obligations on a relative SSP basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine SSP using the expected cost-plus margin approach.
For arrangements that involve significant production, modification or customization of the software, or where software services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the customer over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred, or value added. The progress-to-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we can provide reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit margin in the range of estimates is used until the results can be estimated more precisely. These arrangements are often implemented over an extended time period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.
Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates additional revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably and its realization is probable.
Refer to Note 13 - Disaggregation of Revenue for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenue and cash flows of our various revenue categories.
Contract Balances:
Accounts receivable and allowance for doubtful accounts
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 revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record an unbilled receivable related to revenue recognized for on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.

7



At March 31, 2019 and December 31, 2018, total current and long-term accounts receivable, net of allowance for doubtful accounts, was $321.8 million and $314.9 million, respectively. We have recorded unbilled receivables of $113.1 million and $104.2 million at March 31, 2019, and December 31, 2018, respectively. Included in unbilled receivables are retention receivables of $13.4 million and $12.2 million at March 31, 2019, and December 31, 2018, 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 doubtful accounts, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for doubtful accounts may require revision, include, but are not limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products.
The following table summarizes the changes in the allowance for doubtful accounts(in thousands):
 
Three Months Ended March 31, 2019
Balance, beginning of period December 31, 2018
$
4,647

Provisions for losses - accounts receivable
1,148

Collection of accounts previously written off
(545
)
Deductions for accounts charged off or credits issued
(558
)
Balance, end of period
$
4,692


LEASES
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. We currently do not have any finance lease arrangements.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted as a single lease component.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Leases. We adopted Topic 842 using the transition method that allows us to initially apply the guidance at the adoption date of January 1, 2019, and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We used the package of practical expedients that allows us to not reassess: (1) lease classification for any expired or existing leases and (2) initial direct costs for any expired or existing leases. We did not elect to use the hindsight application for evaluating the life of the lease arrangement. The impacts of adoption are reflected in the financial information herein. For additional details, see Note 10 to our condensed consolidated financial statements.
The impact of Topic 842 on our consolidated balance sheet beginning January 1, 2019, included the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. We had no finance leases prior to the adoption of Topic 842 and currently do not have any.

8



Amounts recognized at January 1, 2019, for operating leases were as follows (in thousands):
 
 
January 1, 2019

ROU Operating assets
 
$
15,633

Short-term lease liability
 
(4,344
)
Long-term lease liability
 
(12,405
)
Retained earnings
 
$
(1,116
)

No impact was recorded to the statement of income for the adoption of Topic 842.
(3)    Acquisitions
On February 28, 2019, we acquired all of the capital stock of MP Holdings Parent, Inc. dba MicroPact ("MicroPact"), a leading provider of commercial off-the-shelf (COTS) solutions, including entellitrak®, a low-code application development platform for case management and business process management used extensively in the public sector. The total purchase price, net of cash acquired of $2.0 million, was approximately $204.2 million consisting of $197.5 million paid in cash, accrued contingent consideration of $7.0 million contingent upon the achievement of certain financial performance objectives, and $1.7 million accrued for certain holdbacks, subject to certain post-closing adjustments.
We have performed a preliminary valuation analysis of the fair market value of MicroPact’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
(In thousands)
 
 
Cash
 
$
1,983

Accounts receivable
 
11,852

Other current assets
 
8,979

Other noncurrent assets
 
10,417

Identifiable intangible assets
 
118,843

Goodwill
 
82,029

Accounts payable
 
(602
)
Accrued expenses
 
(2,432
)
Other noncurrent liabilities
 
(8,879
)
Deferred revenue
 
(9,898
)
Deferred tax liabilities, net
 
(6,144
)
Total consideration
 
$
206,148


In connection with this transaction, we acquired total tangible assets of $33.2 million and assumed liabilities of approximately $21.8 million. We recorded goodwill of $82.0 million, none of which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately $118.8 million. The $118.8 million of intangible assets are attributable to customer relationships, acquired software, trade name and favorable fair value of an operating lease and will be amortized over a weighted average period of approximately 10 years. We recorded deferred tax liabilities of $6.1 million related to estimated fair value allocations. The acquisition of MicroPact augments Tyler's product solutions, positions us in new practice areas such as health and human services, and presents opportunities to expand our business across new and complementary markets. Tyler intends to expand its total addressable market through MicroPact's strong presence in the federal market. Therefore, the goodwill of $82.0 million arising from this acquisition is primarily attributed to our ability to generate increased revenues, earnings and cash flow by expanding our addressable market and client base.

9



The following unaudited pro forma consolidated operating results information has been prepared as if the MicroPact acquisition had occurred at January 1, 2018, after giving effect to certain adjustments, including amortization of intangibles, interest, transaction costs and tax effects.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
 
 
 
Revenues
 
$
258,864

 
$
238,533

Net income
 
26,378

 
36,282

Basic earnings per share
 
0.69

 
0.95

Diluted earnings per share
 
$
0.67

 
$
0.91


Pro forma information above does not include acquisitions that are not considered material to our results of operations. The pro forma information does not purport to represent what our results of operations actually would have been had such transaction occurred on the date specified or to project our results of operations for any future period.
On February 1, 2019, we acquired all the assets of Civic, LLC ("MyCivic"), a company that provides software solutions to connect communities. The purchase price was $3.7 million of which $3.6 million was paid in cash and approximately $90,000 was accrued for a working capital holdback.
As of March 31, 2019, the purchase price allocations for MicroPact and MyCivic are not yet complete. The preliminary estimates of fair value assumed at the acquisition date for intangible assets, deferred revenue, accrued contingent consideration, accrued holdbacks and related deferred taxes are subject to change as valuations are finalized. The operating results of MicroPact and MyCivic are included in the operating results of the Enterprise Software segment since their respective dates of acquisition. Revenues from MicroPact included in Tyler's results of operations were approximately $5.5 million and the net loss was $0.4 million for the three months ended March 31, 2019. Revenues and operating results from MyCivic included in 2019 results were not significant. As of March 31, 2019, we incurred fees of approximately $695,000 for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete these acquisitions. These fees were expensed in 2019 and are included in selling, general and administrative expenses.
Our balance sheet as of March 31, 2019, reflects the allocation of the purchase price to the assets acquired based on their fair value at the date of each acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

(4)     Shareholders’ Equity

The following table details activity in our common stock (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
Shares
 
Amount
 
Shares
 
Amount
Purchases of treasury shares
 
(72
)
 
$
(14,289
)
 

 
$

Stock option exercises
 
94

 
6,564

 
350

 
19,298

Employee stock plan purchases
 
15

 
2,349

 
12

 
1,798

Restricted stock units vested, net of withheld shares upon award settlement
 
10

 
$
(1,373
)
 

 
$


As of March 31, 2019, we had authorization from our board of directors to repurchase up to 2.6 million additional shares of our common stock.


10



(5)    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 three to seven years. Deferred commissions were $23.6 million and $21.9 million as of March 31, 2019, and December 31, 2018, respectively. Amortization expense was $3.8 million for the three months ended March 31, 2019, and $3.5 million for the three months ended March 31, 2018. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.
(6)    Other Assets

Cash and cash equivalents consist of cash on deposit with several domestic banks and money market funds.
As of March 31, 2019, we have $81.0 million in investment grade corporate and municipal bonds with maturity dates ranging through 2022. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or other observable market data. These investments are included in short-term investments and non-current investments and other assets.
(7)    Revolving Line of Credit

On November 16, 2015, we entered into a $300 million credit agreement with various lender parties and Wells Fargo Bank, National Association, as Administrative Agent (the “Credit Facility”). The Credit Facility provides for a revolving credit line up to $300 million, including a $10 million sublimit for letters of credit. The Credit Facility matures on November 16, 2020. Borrowings under the Credit Facility may be used for general corporate purposes, including working capital requirements, acquisitions and share repurchases.

Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180 day LIBOR rate plus a margin of 1.25% to 2.00%. As of March 31, 2019, the interest rates were 5.75% under the Wells Fargo Bank's prime rate. The Credit Facility is secured by substantially all of our assets. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of March 31, 2019, we were in compliance with those covenants.

As of March 31, 2019, we had outstanding borrowings of $85.0 million at interest rates of approximately 3.80%, under a 30-day LIBOR contract. As of March 31, 2019, available borrowing capacity under the Credit Facility was $215.0 million.

(8)    Income Tax Provision
We had an effective income tax rate of 22.0% for the three months ended March 31, 2019, compared to 4.1% for the three months ended March 31, 2018. The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 21% due to excess tax benefits related to stock option exercises, state income taxes, non-deductible business expenses, and the tax benefit of research tax credits. The excess tax benefit related to stock option exercises realized was $1.7 million for the three months ended March 31, 2019, compared to $9.1 million for the three months ended March 31, 2018. Excluding the excess tax benefits, the effective rate was 26.8% for the three months ended March 31, 2019, compared to 27.2% for the three months ended March 31, 2018.
The increase in the effective tax rate for the three months ended March 31, 2019, as compared to the same period in 2018 was principally due to the decrease in excess tax benefit related to stock option exercises.
We made tax payments of $88,000 and $218,000 in the three months ended March 31, 2019, and 2018, respectively.


11



(9)    Earnings Per Share

The following table details the reconciliation of basic earnings per share to diluted earnings per share (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Numerator for basic and diluted earnings per share:
 
 
 
 
Net income
 
$
27,348

 
$
37,825

Denominator:
 
 

 
 

Weighted-average basic common shares outstanding
 
38,308

 
38,002

Assumed conversion of dilutive securities:
 
 
 
 
Stock awards
 
1,277

 
1,834

Denominator for diluted earnings per share
   - Adjusted weighted-average shares
 
39,585

 
39,836

Earnings per common share:
 
 

 
 

Basic
 
$
0.71

 
$
1.00

Diluted
 
$
0.69

 
$
0.95



For the three months ended March 31, 2019 and March 31, 2018, stock awards representing the right to purchase common stock of approximately 1,253,000 shares and 1,111,000 shares, respectively, were not included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect. 

(10)    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 and they expire from one year to seven years. Some of these leases include options to extend for up to 10 years.We had no finance leases and no related party lease agreements as of March 31, 2019. Operating lease cost was approximately $2.1 million for the three months ended March 31, 2019 and $1.6 million for the three months ended March 31, 2018.

The components of operating lease expense were as follows (in thousands):
Lease Costs
 
Financial Statement Classification
 
Three Months Ended March 31,
 
 
 
 
2019
 
 
 
 
 
Operating lease cost
 
Selling, general and administrative expenses
 
$
1,370

Short-term lease cost
 
Selling, general and administrative expenses
 
570

Variable lease cost
 
Selling, general and administrative expenses
 
163

Net lease cost
 
 
 
$
2,103



12




As of March 31, 2019, ROU lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows (in thousands):
 
 
March 31, 2019
 
 
2019
 
 
 
Assets:
 
 
Operating lease right-of-use assets
 
$
20,067

Liabilities:
 
 
Operating leases, short-term
 
5,777

Operating leases, long-term
 
18,956

Total lease liabilities
 
$
24,733



Supplemental information related to leases was as follows (in thousands):
Other Information
 
Three Months Ended March 31,
 
 
2019
 
 
 
Cash Flows:
 
 
Cash paid amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
1,530

 
 
 
Lease Term and Discount Rate:
 
 
Weighted average remaining lease term (years)
 
5

Weighted average discount rate
 
4.00
%

As of March 31, 2019, maturities of lease liabilities were as follows (in thousands):
Year ending December 31,
 
Amount
 
 
 
2019 (Remaining 2019)
 
$
5,316

2020
 
6,579

2021
 
5,293

2022
 
3,375

2023
 
2,716

Thereafter
 
3,989

Total lease payments
 
27,268

Less: Interest
 
(2,535
)
Present value of operating lease liabilities
 
$
24,733




13



As of December 31, 2018, the future minimum lease commitments related to lease agreements under Topic 840, the predecessor of Topic 842, were as follows (in thousands):
Year ending December 31,
 
Amount
2019
 
$
5,994

2020
 
5,146

2021
 
3,976

2022
 
1,925

2023
 
1,164

Thereafter
 
2,132

Total
 
$
20,337



We own office buildings in Bangor, Falmouth and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; and Moraine, Ohio. We lease space in some of these buildings to third-party tenants. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between 2019 and 2025, some of which have options to extend the lease for up to five 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 for the three months ended March 31, 2019 totaled $284,000 and for the three months ended March 31, 2018 totaled $357,000. Rental income is included in Other revenue on the condensed consolidated statement of income. Future minimum operating rental income based on contractual agreements are as follows (in thousands):

Year ending December 31,
 
Amount
 
 
 
2019 (Remaining 2019)
 
$
998

2020
 
1,341

2021
 
1,372

2022
 
1,402

2023
 
1,432

Thereafter
 
2,395

Total
 
$
8,940



As of March 31, 2019, we had no additional significant operating or finance leases that had not yet commenced.

(11)    Share-Based Compensation
The following table summarizes share-based compensation expense related to share-based awards recorded in the condensed consolidated statements of income, pursuant to ASC 718, Stock Compensation (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Cost of software services, maintenance and subscriptions
 
$
3,798

 
$
2,776

Selling, general and administrative expenses
 
10,618

 
7,781

Total share-based compensation expense
 
$
14,416

 
$
10,557




14



(12)    Segment and Related Information
We provide integrated information management solutions and services for the public sector, with a focus on local governments.
We provide our software systems and services and appraisal services through five business units, which focus on the following products:
financial management, education and planning, regulatory and maintenance software solutions;
financial management, municipal courts, planning, regulatory and maintenance, and land and vital records management software solutions;
courts and justice and public safety software solutions;
data and insights solutions; and
appraisal and tax software solutions and property appraisal services.
In accordance with ASC 280-10, Segment Reporting, the financial management, education and planning, regulatory and maintenance software solutions unit; financial management, municipal courts, planning, regulatory and maintenance, and land and vital records management software solutions unit; courts and justice and public safety software solutions unit; and the data and insights solutions unit meet the criteria for aggregation and are presented in one reportable segment, the Enterprise Software (“ES”) segment. The ES segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as financial management and courts and justice processes; public safety; planning, regulatory and maintenance; land and vital records management, and data analytics. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction.
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. Segment operating income for corporate primarily consists of compensation costs for the executive management team and certain accounting and administrative staff and share-based compensation expense for the entire company. Corporate segment operating income also includes revenues and expenses related to a company-wide user conference.
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Enterprise
Software
 
Appraisal and Tax
 
Corporate
 
Totals
Revenues
 
 
 
 
 
 
 
 
Software licenses and royalties
 
$
19,011

 
$
2,782

 
$

 
$
21,793

Subscriptions
 
64,642

 
2,633

 

 
67,275

Software services
 
41,967

 
6,476

 

 
48,443

Maintenance
 
94,012

 
6,140

 

 
100,152

Appraisal services
 

 
5,214

 

 
5,214

Hardware and other
 
4,190

 
2

 
(3
)
 
4,189

Intercompany
 
3,553

 

 
(3,553
)
 

Total revenues
 
$
227,375

 
$
23,247

 
$
(3,556
)
 
$
247,066

Segment operating income
 
$
57,034

 
$
5,535

 
$
(16,546
)
 
$
46,023



15



For the three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Enterprise
Software
 
Appraisal and Tax
 
Corporate
 
Totals
Revenues
 
 
 
 
 
 
 
 
Software licenses and royalties
 
$
20,689

 
$
2,087

 
$

 
$
22,776

Subscriptions
 
46,683

 
2,345

 

 
49,028

Software services
 
40,286

 
5,653

 

 
45,939

Maintenance
 
87,813

 
6,084

 

 
93,897

Appraisal services
 

 
5,394

 

 
5,394

Hardware and other
 
3,800

 

 
340

 
4,140

Intercompany
 
3,237

 

 
(3,237
)
 

Total revenues
 
$
202,508

 
$
21,563

 
$
(2,897
)
 
$
221,174

Segment operating income
 
$
56,615

 
$
4,647

 
$
(13,727
)
 
$
47,535


 
 
Three Months Ended March 31,
Reconciliation of reportable segment operating income to the Company's consolidated totals:
 
2019
 
2018
Total segment operating income
 
$
46,023

 
$
47,535

Amortization of acquired software
 
(6,682
)
 
(5,382
)
Amortization of other intangibles
 
(4,850
)
 
(3,315
)
Other income (expense), net
 
586

 
599

Income before income taxes
 
$
35,077

 
$
39,437



(13)    Disaggregation of Revenue
The tables below show disaggregation of revenue into categories that reflect how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows.
Timing of Revenue Recognition
Timing of revenue recognition by revenue category during the period is as follows (in thousands):
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
Products and services transferred at a point in time
 
Products and services transferred over time
 
Total
Revenues
 
 
 
 
 
 
Software licenses and royalties
 
$
16,910

 
$
4,883

 
$
21,793

Subscriptions
 

 
67,275

 
67,275

Software services
 

 
48,443

 
48,443

Maintenance
 

 
100,152

 
100,152

Appraisal services
 

 
5,214

 
5,214

Hardware and other
 
4,189

 

 
4,189

Total
 
$
21,099

 
$
225,967

 
$
247,066



16



For the three months ended March 31, 2018
 
 
 
 
 
 
 
 
Products and services transferred at a point in time
 
Products and services transferred over time
 
Total
Revenues
 
 
 
 
 
 
Software licenses and royalties
 
$
19,063

 
$
3,713

 
$
22,776

Subscriptions
 

 
49,028

 
49,028

Software services
 

 
45,939

 
45,939

Maintenance
 

 
93,897

 
93,897

Appraisal services
 

 
5,394

 
5,394

Hardware and other
 
4,140

 

 
4,140

Total
 
$
23,203

 
$
197,971

 
$
221,174


Recurring Revenue
The majority of our revenue is comprised of recurring revenues from maintenance and subscriptions. Virtually all of our on-premises software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenue. We generally provide maintenance and support for our on-premises clients under annual, or in some cases, multi-year contracts. The contract terms for subscription arrangements range from one to 10 years but are typically contracted for initial periods of three to five years, providing a significant source of recurring revenues on an annual basis. Non-recurring revenues are derived for all other revenue categories.
Recurring revenues and non-recurring revenues recognized during the period are as follows (in thousands):
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Enterprise
Software
 
Appraisal and Tax
 
Corporate
 
Totals
 
 

 

 

 

Recurring revenues
 
$
158,654

 
$
8,773

 
$

 
$
167,427

Non-recurring revenues
 
65,168

 
14,474

 
(3
)
 
79,639

Intercompany
 
3,553

 

 
(3,553
)
 

Total revenues
 
$
227,375

 
$
23,247

 
$
(3,556
)
 
$
247,066


For the three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Enterprise
Software
 
Appraisal and Tax
 
Corporate
 
Totals
 
 
 
 
 
 
 
 
 
Recurring revenues
 
$
134,496

 
$
8,429

 
$