UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2022



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

Commission File Number 1-10485

~~TYLER TECHNOLOGIES, INC~~.TYLER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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



5101 TENNYSON PARKWAY	PLANO ~~TEXAS~~	Texas	75024 ~~(Address~~
(Address of principal executive offices)	(City)	(State)	(Zip code) ~~(972) 713-3700~~ ~~(Registrant’s telephone number, including area 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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data file required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ~~October 24, 2017~~July 28, 2022 was ~~37,568,139.~~

41,581,473.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three months ended September 30,					Nine months ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016			2017			2016				2022		2021		2022		2021
Revenues:												Revenues:
Software licenses and royalties	$	19,842	$	19,930		$	55,172		$	54,331		Software licenses and royalties	$	15,009	$	17,604	$	31,515	$	32,537
Subscriptions	44,840		36,869			125,889			104,926			Subscriptions	255,816		199,558		501,259		302,037
Software services	47,479		44,738			139,869			133,208			Software services	63,125		53,337		124,622		100,977
Maintenance	92,285		83,000			268,556			237,775			Maintenance	116,815		119,621		233,844		238,733
Appraisal services	6,290		6,541			19,268			20,083			Appraisal services	8,812		6,265		17,330		12,730
Hardware and other	3,410		3,419			14,057			12,439			Hardware and other	9,108		7,690		16,222		11,863
Total revenues	214,146		194,497			622,811			562,762			Total revenues	468,685		404,075		924,792		698,877

Cost of revenues:												Cost of revenues:
Software licenses and royalties	826		623			2,204			1,927			Software licenses and royalties	2,869		1,368		5,478		2,604
Acquired software	5,473		5,598			16,243			16,737
Software services, maintenance and subscriptions	98,036		88,623			287,748			260,610
Amortization of acquired software												Amortization of acquired software	14,039		11,823		27,260		19,787
Subscriptions, software services and maintenance												Subscriptions, software services and maintenance	244,192		199,771		481,088		334,091
Appraisal services	4,089		4,053			12,568			12,473			Appraisal services	5,976		4,429		11,912		9,046
Hardware and other	2,293		2,120			10,408			8,481			Hardware and other	8,161		4,623		13,188		7,081
Total cost of revenues	110,717		101,017			329,171			300,228			Total cost of revenues	275,237		222,014		538,926		372,609

Gross profit	103,429		93,480			293,640			262,534			Gross profit	193,448		182,061		385,866		326,268

Selling, general and administrative expenses	44,656		42,007			131,249			124,998			Selling, general and administrative expenses	99,701		108,922		197,596		187,696
Research and development expense	11,834		11,070			35,307			31,362			Research and development expense	23,386		23,428		47,327		45,241
Amortization of customer and trade name intangibles	3,492		3,458			10,413			10,273
Amortization of other intangibles												Amortization of other intangibles	13,604		11,420		28,318		16,832

Operating income	43,447		36,945			116,671			95,901			Operating income	56,757		38,291		112,625		76,499

Other income (expense), net	75		(526		)	(216		)	(1,713		)
Interest expense												Interest expense	(6,214)		(12,437)		(11,018)		(12,915)
Other income, net												Other income, net	216		238		581		804
Income before income taxes	43,522		36,419			116,455			94,188			Income before income taxes	50,759		26,092		102,188		64,388
Income tax provision	5,259		989			14,308			15,527			Income tax provision	10,813		562		22,258		1,882
Net income	$	38,263	$	35,430		$	102,147		$	78,661		Net income	$	39,946	$	25,530	$	79,930	$	62,506

Earnings per common share:												Earnings per common share:
Basic	$	1.02	$	0.97		$	2.74		$	2.16		Basic	$	0.96	$	0.63	$	1.93	$	1.53
Diluted	$	0.97	$	0.91		$	2.60		$	2.02		Diluted	$	0.94	$	0.61	$	1.88	$	1.48

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


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

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

September 30, 2017
(unaudited) December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 124,603
$ 36,151
Accounts receivable (less allowance for losses of $4,491 in 2017 and $3,396 in 2016) 206,444
200,334
Short-term investments 39,911
20,273
Prepaid expenses 23,219
21,039
Income tax receivable 3,362
2,895
Other current assets 2,182
2,268
Total current assets 399,721
282,960

Accounts receivable, long-term 3,867
2,480
Property and equipment, net 149,142
124,268
Other assets:
Goodwill 655,068
650,237
Other intangibles, net 245,520
267,259
Non-current investments and other assets 39,800
30,741
Total assets $ 1,493,118
$ 1,357,945

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,563
$ 7,295
Accrued liabilities 57,583
55,989
Deferred revenue 297,163
298,217
Total current liabilities 359,309
361,501

Revolving line of credit —
10,000
Deferred revenue, long-term 1,468
2,140
Deferred income taxes 54,563
68,779

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 September 30, 2017 and December 31, 2016
481
481
Additional paid-in capital 604,324
556,663
Accumulated other comprehensive loss, net of tax (46 ) (46 )
Retained earnings 538,023
435,876
Treasury stock, at cost; 10,596,386 and 11,381,733 shares in 2017 and 2016, respectively (65,004 ) (77,449 )
Total shareholders' equity 1,077,778
915,525
Total liabilities and shareholders' equity $ 1,493,118
$ 1,357,945


	June 30, 2022 (unaudited)		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	253,062	$	309,171
Accounts receivable (less allowance for losses and sales adjustments of $12,538 in 2022 and $12,086 in 2021)	597,560		521,059
Short-term investments	34,466		52,300
Prepaid expenses	61,938		55,513
Income tax receivable	2,552		18,137
Other current assets	7,709		8,151
Total current assets	957,287		964,331
Accounts receivable, long-term	12,665		13,937
Operating lease right-of-use assets	40,577		39,720
Property and equipment, net	177,907		181,193
Other assets:
Software development costs, net	43,505		28,489
Goodwill	2,449,638		2,359,674
Other intangibles, net	1,032,786		1,052,493
Non-current investments	26,464		46,353
Other non-current assets	46,217		45,971
	$	4,787,046	$	4,732,161
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	130,998	$	119,988
Accrued liabilities	133,910		158,424
Operating lease liabilities	10,363		10,560

Deferred revenue	528,588		510,529
Current portion of term loans	30,000		30,000
Total current liabilities	833,859		829,501
Revolving credit facility	—		—
Term loans	639,464		718,511
Convertible senior notes due 2026, net	593,624		592,765
Deferred revenue, long-term	—		38
Deferred income taxes	216,947		228,085
Operating lease liabilities, long-term	36,018		36,336
Other long-term liabilities	8,807		2,893
Total liabilities	2,328,719		2,408,129
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 June 30, 2022 and December 31, 2021	481		481
Additional paid-in capital	1,128,821		1,075,650
Accumulated other comprehensive loss, net of tax	(809)		(46)
Retained earnings	1,353,544		1,273,614
Treasury stock, at cost; 6,583,971 and 6,832,640 shares in 2022 and 2021, respectively	(23,710)		(25,667)
Total shareholders' equity	2,458,327		2,324,032
	$	4,787,046	$	4,732,161

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine months ended September 30,							Six Months Ended June 30,
	2017			2016				2022		2021
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	102,147		$	78,661		Net income	$	79,930	$	62,506
Adjustments to reconcile net income to cash provided by operations:
Adjustments to reconcile net income to cash provided by operating activities:							Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	40,096			37,521			Depreciation and amortization	75,866		60,976
Gains from sale of investments							Gains from sale of investments	(53)		—
Share-based compensation expense	27,368			21,348			Share-based compensation expense	51,079		50,899

Operating lease right-of-use assets expense							Operating lease right-of-use assets expense	5,104		4,034
Deferred income tax benefit	(14,216		)	(11,289		)	Deferred income tax benefit	(19,136)		(6,430)
Changes in operating assets and liabilities, exclusive of effects of acquired companies:							Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	(7,097		)	(14,641		)	Accounts receivable	(73,396)		(46,312)
Income taxes	(467		)	1,769
Income tax receivable							Income tax receivable	15,586		7,276
Prepaid expenses and other current assets	(2,706		)	1,169			Prepaid expenses and other current assets	(6,033)		(10,434)
Accounts payable	(2,733		)	(917		)	Accounts payable	9,130		(57,471)
Operating lease liabilities							Operating lease liabilities	(6,522)		(4,361)
Accrued liabilities	1,318			8,515			Accrued liabilities	(24,723)		(30,217)
Deferred revenue	(1,329		)	17,918			Deferred revenue	17,474		20,868
Other long-term liabilities							Other long-term liabilities	5,914		22
Net cash provided by operating activities	142,381			140,054			Net cash provided by operating activities	130,220		51,356

Cash flows from investing activities:							Cash flows from investing activities:
Additions to property and equipment	(37,734		)	(29,529		)	Additions to property and equipment	(12,757)		(14,223)
Purchase of marketable security investments	(49,905		)	(13,127		)	Purchase of marketable security investments	(4,592)		(68,054)
Proceeds from marketable security investments	21,175			9,256
Proceeds and maturities from marketable security investments							Proceeds and maturities from marketable security investments	40,595		91,395

Investment in software							Investment in software	(16,463)		(8,947)
Cost of acquisitions, net of cash acquired	(9,761		)	(9,394		)	Cost of acquisitions, net of cash acquired	(117,313)		(1,998,902)
Decrease (increase) in other	418			(52		)
Other							Other	152		39
Net cash used by investing activities	(75,807		)	(42,846		)	Net cash used by investing activities	(110,378)		(1,998,692)

Cash flows from financing activities:							Cash flows from financing activities:
Decrease in net borrowings on revolving line of credit	(10,000		)	(32,000		)
Net borrowings on revolving credit facility							Net borrowings on revolving credit facility	—		65,000
Payment on term loans							Payment on term loans	(80,000)		—
Proceeds from term loans							Proceeds from term loans	—		900,000
Proceeds from issuance of convertible senior notes							Proceeds from issuance of convertible senior notes	—		600,000
Payment of debt issuance costs							Payment of debt issuance costs	—		(27,127)
Purchase of treasury shares	(7,032		)	(94,499		)	Purchase of treasury shares	—		(12,975)
Proceeds from exercise of stock options	33,568			15,089

Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award							Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award	(4,107)		29,388
Contributions from employee stock purchase plan	5,342			4,429			Contributions from employee stock purchase plan	8,156		6,200
Net cash provided (used) by financing activities	21,878			(106,981		)
Net cash (used) provided by financing activities							Net cash (used) provided by financing activities	(75,951)		1,560,486

Net increase (decrease) in cash and cash equivalents	88,452			(9,773		)
Net decrease in cash and cash equivalents							Net decrease in cash and cash equivalents	(56,109)		(386,850)
Cash and cash equivalents at beginning of period	36,151			33,087			Cash and cash equivalents at beginning of period	309,171		603,623
Cash and cash equivalents at end of period	$	124,603		$	23,314		Cash and cash equivalents at end of period	$	253,062	$	216,773

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)


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


Balance at June 30, 2022	48,148	$	481	$	1,128,821	$	(809)	$	1,353,544	(6,584)	$	(23,710)	$	2,458,327


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at March 31, 2021	48,148	$	481	$	941,960	$	(46)	$	1,149,132	(7,424)	$	(30,534)	$	2,060,993
Net income	—	—		—		—		25,530		—	—		25,530

Exercise of stock options and vesting of restricted stock units	—	—		(9,544)		—		—		150	20,830		11,286
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—		—		(18)	(7,052)		(7,052)
Stock compensation	—	—		25,175		—		—		—	—		25,175
Issuance of shares pursuant to employee stock purchase plan	—	—		3,094		—		—		9	68		3,162
Treasury stock purchases	—	—		—		—		—		(32)	(12,975)		(12,975)
Purchase Consideration for Converted Stock	—	—		1,872		—		—		—	—		1,872
Balance at June 30, 2021	48,148	$	481	$	962,557	$	(46)	$	1,174,662	(7,315)	$	(29,663)	$	2,107,991

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)


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

Net income	—	—		—		—		79,930		—	—		79,930
Unrealized gain (loss) on investment securities, net of tax	—	—		—		(763)		—		—	—		(763)
Exercise of stock options and vesting of restricted stock units	—	—		(5,897)		—		—		279	22,120		16,223
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—		—		(50)	(20,330)		(20,330)
Stock compensation	—	—		51,079		—		—		—	—		51,079
Issuance of shares pursuant to employee stock purchase plan	—	—		7,989		—		—		20	167		8,156


Balance at June 30, 2022	48,148	$	481	$	1,128,821	$	(809)	$	1,353,544	(6,584)	$	(23,710)	$	2,458,327


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

Tyler Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Tables in thousands, except per share data)

(1) Basis of Presentation

We prepared the accompanying condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States, or GAAP, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods. Balance sheet amounts are as of ~~September~~June 30, ~~2017,~~2022, and December 31, ~~2016,~~2021, and operating result amounts are for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, and ~~2016,~~2021, respectively, and include all normal and recurring adjustments that we considered necessary for the fair summarized presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes included in our latest Form 10-K for the year ended December 31, ~~2016.~~2021. Revenues, expenses, assets, and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Certain amounts for the previous year have been reclassified to conform to the current year presentation.

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). WeDuring the three and six months ended June 30, 2022, we had approximately $66,000 and $763,000 of other comprehensive loss, net of taxes, from our available-for-sale investment holdings and no items of other comprehensive income (loss) ~~for~~during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021.

(2) Accounting Standards and ~~2016.~~Significant Accounting Policies

~~Certain amounts~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

USE OF ESTIMATES

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

REVENUE RECOGNITION

Nature of Products and Services

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

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

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

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

Significant Judgments:

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

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

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

For e-filing transaction fees and transaction-based revenues from digital government services and online payments, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period. Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates, additional revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably, and its realization is probable.

Refer to Note 15 - “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 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 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.

At June 30, 2022, and December 31, 2021, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $610.2 million and $535.0 million, respectively. We have recorded unbilled receivables of $134.5 million and $140.3 million at June 30, 2022 and December 31, 2021, respectively. Included in unbilled receivables are retention receivables of $7.9 million and $7.7 million at June 30, 2022 and December 31, 2021, 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 ~~reclassified~~included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to ~~conform~~be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.

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

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

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 whether it is more likely than not that a reporting unit's fair value is less than its carrying value before applying the quantitative assessment described below. When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its carrying amount. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions (Level 3 inputs). The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We base our fair value estimates on assumptions we believe to be reasonable but are inherently uncertain. We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization.

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. Changes in market conditions or other factors outside of our control, such as a worsening of expected impact of COVID-19, could cause us to change key assumptions and our judgment about a reporting unit’s prospects. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge.

We performed our annual assessment during the fourth quarter of 2021, in which our impairment analysis did not result in an impairment charge. Since our assessment and through June 30, 2022, we have had no triggering events or change in circumstances indicating any potential impairment.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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

~~(2)~~(3) Acquisitions

On ~~August 2, 2017,~~February 8, 2022, we acquired ~~all of the capital stock of Digital Health Department,~~US eDirect Inc. ~~("DHD")~~(US eDirect), a ~~company that provides environmental health software, offering a software-as-a-service (SaaS) solution~~market-leading provider of technology solutions for ~~public health compliance~~campground and ~~inspections processes.~~outdoor recreation management. The total purchase price, net of ~~debt assumed,~~ cash acquired of $6.4 million, was ~~$3.9~~approximately $116.7 million, consisting of ~~which $3.7~~$117.6 million ~~was~~ paid in cash and ~~$0.2~~approximately $5.5 million ~~was accrued~~related to indemnity holdbacks, subject to certain post-closing adjustments.

We have performed a preliminary valuation analysis of the fair market value of US eDirect's assets and liabilities. The following table summarizes the preliminary allocation of the purchase price as of ~~September 30, 2017.~~the acquisition date:


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

~~On May 30, 2017,~~

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

The goodwill of approximately $91.7 million arising from this acquisition is primarily attributed to our ability to generate increased revenues, earnings, and cash flow by expanding our addressable market and client base.

The operating results of US eDirect are included with the operating results of the ~~capital stock~~Platform Technologies segment since its date of ~~Modria.com, Inc., a company that specializes~~acquisition. The impact of the US eDirect acquisition on our operating results, assets, and liabilities is not material. For the six months ended June 30, 2022, we incurred fees of approximately $1.0 million for financial advisory, legal, accounting, due diligence, valuation, and other various services necessary to complete acquisitions. These costs were expensed in ~~online dispute resolution for government~~2022 and ~~commercial entities. The total purchase price, net~~are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of ~~debt assumed, was $7.0 million, of which $6.1 million was paid in cash and $0.9 million was accrued as of September 30, 2017.~~

income.

As of ~~September~~June 30, ~~2017,~~2022, the purchase price ~~allocations~~allocation for ~~DHD and Modria.com are~~US eDirect is not ~~yet complete. The~~final; therefore, certain preliminary valuation estimates of fair value assumed at ~~each~~the acquisition date for ~~intangibles, liabilities, deferred revenue,~~intangible assets, receivables, and related deferred taxes are subject to change as valuations are finalized. ~~The impact~~Our balance sheet as of ~~both acquisitions~~June 30, 2022, reflects the allocation of the purchase price to the net assets acquired based on ~~our operating results is not material.~~

~~(3) Shareholders’ Equity~~

~~The following table details activity in our common stock:~~

Nine months ended September 30,
2017 2016
Shares Amount Shares Amount
Purchases of treasury shares (42 ) $ (6,171 ) (758 ) $ (94,499 )
Stock option exercises 787
33,568
564
15,089
Employee stock plan purchases 40
5,342
34
4,429

~~As of September 30, 2017, we had authorization from our board of directors to repurchase up to 2.0 million additional shares of Tyler common stock.~~

~~(4) Other Assets~~

As of September 30, 2017, we have $61.7 million in investment grade corporate and municipal bonds and asset backed securities with maturity dates ranging from 2017 through 2021. We intend to hold these securities to maturity and have classified them as such. We believe cost approximatestheir estimated fair value ~~because~~at the date of the ~~relatively short duration of these investments.~~acquisition. The fair ~~values~~value of ~~these securities are considered Level II as they~~the assets and liabilities acquired are based on valuations using Level 3 unobservable inputs ~~from quoted prices in markets~~ that are ~~not active~~supported by little or ~~other observable~~no market ~~data. These investments~~activity and that are ~~included in short-term investments and non-current investments and other assets.~~

We have a $15.0 million investment in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in convertible preferred stock is accounted under the cost method because the Company does not have the abilitysignificant 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. Annually, the Company’s cost method investments are assessed for impairment. The Company does not reassess the fair value of cost method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the ~~investments. This investment is included in non-current investments~~assets or liabilities.

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


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

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

~~(5) Revolving Line~~

(4) Debt

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


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

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

2021 Credit Agreement

In connection with the completion of ~~Credit~~

~~On November 16, 2015,~~the acquisition of NIC on April 21, 2021, we, as borrower, entered into a ~~$300.0 million~~new $1.4 billion Credit Agreement (the “2021 Credit Agreement”) with the various ~~lender parties~~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 ~~“Credit~~“Revolving Credit Facility”), (2) an amortizing five-year term loan in the aggregate amount of $600 million (the “Term Loan A-1”), and (3) a non-amortizing three-year term loan in the aggregate amount of $300 million (the “Term Loan A-2”) and, together (the “Term Loans”). The 2021 Credit Agreement matures on April 20, 2026, and the loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any LIBOR breakage costs. In addition to the required amortization payments on the Term Loan A-1 of 5% annually, certain mandatory quarterly prepayments of the Term Loans and the Revolving Credit Facility ~~provides for a revolving credit line up to $300.0 million, including a $10.0 million sublimit for letters~~will be required (i) upon the issuance or incurrence of ~~credit. The Credit Facility matures on November 16, 2020. Borrowings~~additional debt not otherwise permitted under the 2021 Credit ~~Facility may be used for general corporate purposes, including working capital requirements, acquisitions~~Agreement and ~~share repurchases.~~

(ii) upon the occurrence of certain asset sales and insurance and condemnation recoveries, subject to certain thresholds, baskets, and reinvestment provisions as provided in the 2021 Credit Agreement.

Borrowings under the Revolving Credit Facility and the Term Loan A-1 bear interest, at the Company’s option, at a per annum rate of either (1) ~~Wells Fargo Bank’s~~the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) (the “Base Rate”) plus a margin of ~~0.25%~~0.125% to ~~1.00%~~0.75% or (2) the ~~30, 60, 90~~one-, three-, six-, or, ~~180 day~~subject to approval by all lenders, twelve-month LIBOR rate plus a margin of ~~1.25%~~1.125% to ~~2.00%~~1.75%. AsThe Term Loan A-2 bears interest, at the Company’s option, at a per annum rate of ~~September 30, 2017,~~either (1) the Base Rate plus a margin of 0% to 0.5% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 0.875% to 1.5%. The margin in each case is based upon the Company’s total net leverage ratio, as determined pursuant to the 2021 Credit Agreement. The 2021 Credit Agreement has customary benchmark replacement language with respect to the replacement of LIBOR once LIBOR becomes unavailable. In addition to paying interest ~~rates were 4.50%~~on the outstanding principal of loans under the ~~Wells Fargo Bank's prime rate and 2.49% under a 30-day LIBOR contract. The~~Revolving Credit Facility, the Company is ~~secured by substantially all~~required to pay a commitment fee on the average daily unused portion of ~~our assets. The~~the Revolving Credit Facility, initially 0.25% per annum, ranging from 0.15% to 0.3% based upon the Company’s total net leverage ratio.

The 2021 Credit Agreement requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of ~~September~~June 30, ~~2017,~~2022, we were in compliance with those 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.

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 June 30, 2022, 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 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 ~~2017,~~trading days, will be paid in cash up to at least the principal amount of the Notes being converted.

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

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

Effective Interest

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Contractual interest expense - Revolving Credit Facility	$	(315)	$	(534)	$	(628)	$	(534)
Contractual interest expense - Term Loans	(4,375)		(2,660)		(7,369)		(2,660)
Contractual interest expense - Convertible Senior Notes	(375)		(375)		(750)		(458)
Amortization of debt discount and debt issuance costs	(1,149)		(959)		(2,271)		(1,054)
Interest expense and amortization of debt issuance costs - terminated 2019 Credit Agreement and Senior Unsecured Bridge loan facility	—		(7,909)		—		(8,209)
Total	$	(6,214)	$	(12,437)	$	(11,018)	$	(12,915)

As of June 30, 2022, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026. Under our 2021 Credit Agreement, we had $675 million in outstanding principal for the unsecured term loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and ~~two~~an available borrowing capacity of $500 million as of June 30, 2022. As of June 30, 2022, we had one outstanding ~~letters~~standalone letter of credit totaling ~~$2.2~~$2.0 million. ~~Available borrowing capacity~~The letter of credit, which guarantees our performance under a client contract, renews automatically annually unless canceled in writing, and expires in the third quarter of 2026. For the six months ended June 30, 2022, we repaid $80.0 million of the unsecured term loans under the 2021 Credit Agreement.

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

(5) Financial Instruments

The following table presents our financial instruments:


	June 30, 2022		December 31, 2021
Cash and cash equivalents	$	253,062	$	309,171
Held-to-maturity investments	—		98,653
Available-for-sale investments	60,930		—
Equity investments	10,000		10,000
Total	$	323,992	$	417,824

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

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

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

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


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

As of June 30, 2022, we have $34.5 million of available-for-sale debt securities with contractual maturities of one year or less and $26.5 million with contractual maturities great than one year.

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


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

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

(6) Other Comprehensive Income (Loss)

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


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




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


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




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

(7) Fair Value

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

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

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

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

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

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


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

Assets that are Measured at Fair Value on a Recurring Basis

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

As of June 30, 2022, we have $60.9 million in available-for-sale investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates through 2027. The fair values of these securities are considered Level 2 as they are based on inputs from quoted prices in markets that are not active or other observable market data.

Assets that are Measured at Fair Value on a Nonrecurring Basis

As of June 30, 2022, we have an 18% interest in BFTR, LLC. Periodically, our equity method investments are assessed for impairment. We do not reassess the fair value of equity method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. No events or changes in circumstances have occurred during the period that require reassessment. There has been no impairment of our cost method investment for the periods presented. This investment is included in other assets in the accompanying consolidated balance sheets.

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

Financial instruments measured at fair value only for disclosure purposes

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

The carrying amount of the Revolving Credit Facility ~~was $297.8 million.~~and Term Loans is the par value less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the terms of the Term Loans. Interest expense is included in the accompanying condensed consolidated statements of income.

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

~~(6)~~

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


	Fair Value at				Carrying Value at
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
2021 Credit Agreement
Revolving Credit Facility	$	—	$	—	$	—	$	—
Term Loan A-1	566,034		580,515		566,034		580,515
Term Loan A-2	103,430		167,997		103,430		167,996
Convertible Notes due 2026	567,006		736,662		593,624		592,765
	$	1,236,470	$	1,485,174	$	1,263,088	$	1,341,276

(8) Income Tax Provision

~~For the three and nine months ended September 30, 2017, we~~We had an effective income tax ~~rates~~rate of ~~12.1%~~21.3% and ~~12.3%, respectively, compared to 2.7% and 16.5%~~21.8% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022, respectively, compared to 2.2% and 2.9% for the three and six months ended June 30, 2021, respectively. The increase in the effective tax rates for the three and six months ended June 30, 2022, respectively, as compared to the same period in 2021, was principally driven by a decrease in the excess tax benefits related to stock incentive awards and an increase in reserves for state income tax benefits which are no longer more likely than not to be realized.

The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of ~~35% principally~~21% primarily due to excess tax benefits related to stock ~~option exercises.~~incentive awards and the tax benefit of research tax credits, offset by state income taxes, non-deductible business expenses, and reserves for unrecognized state income tax benefits. The excess tax benefits related to stock ~~option exercises~~incentive awards realized were ~~$9.0~~$1.7 million and ~~$27.6~~$4.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, as compared to ~~$13.3~~$6.4 million and ~~$20.8~~$15.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, respectively. The change in the effective income tax rates for the three and nine months ended September 30, 2017 as compared to the prior year periods is mainly due to the change in excess tax benefits related to stock option exercises realized. Excluding the excess tax benefits, the effective ~~rates were 32.8%~~tax rate was 24.6% and ~~36.0%~~26.4% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, compared to ~~39.3%~~26.7% and ~~38.5%~~26.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, respectively. Other differences from our federal statutory income tax rate included state income taxes, non-deductible business expenses, tax credits, and the tax benefit of the domestic production activities deduction.

We made tax payments of ~~$29.0~~$24.3 million and ~~$25.0 million~~$967,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, and ~~September~~2021, respectively.

(9) Shareholders’ Equity

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


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

As of June 30, ~~2016, respectively.~~2022, we have authorization from our board of directors to repurchase up to 2.4 million additional shares of our common stock.

(10) Share-Based Compensation

~~(7)~~The following table summarizes share-based compensation expense related to share-based awards recorded in the condensed consolidated statements of income, pursuant to ASC 718, Stock Compensation:


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

(11) Earnings Per Share

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


	Three months ended September 30,				Nine months ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016			2022		2021		2022		2021
Numerator for basic and diluted earnings per share:									Numerator for basic and diluted earnings per share:
Net income	$	38,263	$	35,430	$	102,147	$	78,661	Net income	$	39,946	$	25,530	$	79,930	$	62,506
Denominator:									Denominator:
Weighted-average basic common shares outstanding	37,391		36,433		37,238		36,438		Weighted-average basic common shares outstanding	41,500		40,765		41,499		40,761
Assumed conversion of dilutive securities:									Assumed conversion of dilutive securities:
Stock options	1,951		2,629		2,028		2,576
Stock awards									Stock awards	821		1,329		950		1,387
Convertible Senior Notes									Convertible Senior Notes	—		—		—		—
Denominator for diluted earnings per share - Adjusted weighted-average shares	39,342		39,062		39,266		39,014		Denominator for diluted earnings per share - Adjusted weighted-average shares	42,321		42,094		42,449		42,148
Earnings per common share:									Earnings per common share:
Basic	$	1.02	$	0.97	$	2.74	$	2.16	Basic	$	0.96	$	0.63	$	1.93	$	1.53
Diluted	$	0.97	$	0.91	$	2.60	$	2.02	Diluted	$	0.94	$	0.61	$	1.88	$	1.48

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, and 2021, stock ~~options~~awards, representing the right to purchase common stock of approximately ~~1,499,000~~486,000 shares and ~~1,303,000~~350,000 shares and 191,000 shares and 166,000 shares, respectively, were not included in the computation of diluted earnings per share because their inclusion would have had an ~~anti-dilutive~~antidilutive effect. ~~For~~

We have used the ~~three~~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 ~~nine months ended September 30, 2016, stock options representing~~ the ~~right~~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 ~~purchase~~the numerator, only in the periods in which such effect is dilutive. The approximately 1.2 million remaining resulting common ~~stock of approximately 741,000~~ shares ~~and 769,000 shares, respectively, were~~related to the Notes are not included in the ~~computation~~dilutive weighted-average common shares outstanding calculation for the three and six months ended June 30, 2022, and 2021, as their effect would be anti-dilutive given none of ~~diluted earnings per share because their inclusion would~~the conversion features have ~~had an anti-dilutive effect.~~

~~(8) Share-Based Compensation~~

~~The following table summarizes share-based compensation expense~~been triggered. See Note 4, "Debt"for discussion on the conversion features related to ~~share-based awards~~the Convertible Senior Notes.

(12) Leases

We lease office facilities for use in our operations, as well as transportation and other equipment. Most of our leases are non-cancelable operating lease agreements with original maturities between one to 10 years from the execution date. Some of these leases include options to extend for up to five years. We have no finance leases and no related party lease agreements as of June 30, 2022. Right-of-use lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheets.

The components of operating lease expense were as follows:


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

Supplemental information related to leases is as follows:


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

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

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

Rental Income from third parties

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

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


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

(13) Commitments and Contingencies

Litigation

Other than routine litigation incidental to ~~Accounting Standards Codification (“ASC”) 718, Stock Compensation:~~our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject.

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Cost of software services, maintenance and subscriptions $ 2,524
$ 1,779
$ 6,874
$ 4,668
Selling, general and administrative expenses 7,267
5,877
20,494
16,680
Total share-based compensation expense $ 9,791
$ 7,656
$ 27,368
$ 21,348

~~(9)~~(14) Segment and Related Information

We provide integrated information management solutions and services for the public ~~sector, with a focus on local governments.~~sector.

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

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

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

•courts and justice and public safety software solutions;

•data and insights solutions;

•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;~~ and ~~the courts~~property appraisal services;

•development platform solutions including case management and ~~justice~~business process management; and ~~public safety software solutions unit meet the criteria for aggregation~~

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

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

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

For the three months ended September 30, 2017
Enterprise
Software Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 18,223
$ 1,619
$ —
$ 19,842
Subscriptions 42,826
2,014
—
44,840
Software services 42,295
5,184
—
47,479
Maintenance 86,576
5,709
—
92,285
Appraisal services —
6,290
—
6,290
Hardware and other 3,412
—
(2 ) 3,410
Intercompany 2,660
—
(2,660 ) —
Total revenues $ 195,992
$ 20,816
$ (2,662 ) $ 214,146
Segment operating income $ 60,511
$ 5,479
$ (13,578 ) $ 52,412

For the nine months ended September 30, 2017
Enterprise
Software Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 50,151
$ 5,021
$ —
$ 55,172
Subscriptions 120,191
5,698
—
125,889
Software services 125,658
14,211
—
139,869
Maintenance 253,048
15,508
—
268,556
Appraisal services —
19,268
—
19,268
Hardware and other 9,435
—
4,622
14,057
Intercompany 7,309
—
(7,309 ) —
Total revenues $ 565,792
$ 59,706
$ (2,687 ) $ 622,811
Segment operating income $ 166,692
$ 14,103
$ (37,468 ) $ 143,327

For the three months ended September 30, 2016

Enterprise
Software
Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 18,492
$ 1,438
$ —
$ 19,930
Subscriptions 35,169
1,700
—
36,869
Software services 40,608
4,130
—
44,738
Maintenance 78,292
4,708
—
83,000
Appraisal services —
6,541
—
6,541
Hardware and other 3,428
—
(9 ) 3,419
Intercompany 1,971
—
(1,971 ) —
Total revenues $ 177,960
$ 18,517
$ (1,980 ) $ 194,497
Segment operating income $ 52,372
$ 4,713
$ (11,084 ) $ 46,001

For the nine months ended September 30, 2016

Enterprise
Software
Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 50,585
$ 3,746
$ —
$ 54,331
Subscriptions 99,470
5,456
—
104,926
Software services 121,372
11,836
—
133,208
Maintenance 223,802
13,973
—
237,775
Appraisal services —
20,083
—
20,083
Hardware and other 9,406
16
3,017
12,439
Intercompany 4,743
—
(4,743 ) —
Total revenues $ 509,378
$ 55,110
$ (1,726 ) $ 562,762
Segment operating income $ 139,151
$ 13,534
$ (29,774 ) $ 122,911

Three months ended September 30, Nine months ended September 30,
Reconciliation of reportable segment operating income to the Company's consolidated totals: 2017 2016 2017 2016
Total segment operating income $ 52,412
$ 46,001
$ 143,327
$ 122,911
Amortization of acquired software (5,473 ) (5,598 ) (16,243 ) (16,737 )
Amortization of customer and trade name intangibles (3,492 ) (3,458 ) (10,413 ) (10,273 )
Other expense, net 75
(526 ) (216 ) (1,713 )
Income before income taxes $ 43,522
$ 36,419
$ 116,455
$ 94,188

~~(10) Commitments~~As of January 1, 2022, the appraisal and ~~Contingencies~~

~~Other than routine litigation incidental~~tax software solutions, land and vital records management software solutions, and property appraisal service business unit, which was previously reported in the Appraisal & Tax ("A&T") reportable segment, was moved to ~~our business, there are no material legal proceedings pending~~the ES reportable segment and the NIC digital government and payments solutions and development platform solutions moved to the PT reportable segment to reflect changes in the way in which ~~we are party or to which any~~management makes operating decisions, allocates resources, and manages the growth and profitability of ~~our properties are subject.~~

~~(11) New Accounting Pronouncements~~

~~Revenue from Contracts with Customers. On May 28, 2014,~~ the ~~Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU is~~Company. As the result of the changes in our reportable segments, the former A&T and NIC reportable segments are no longer considered separate segments. Prior year amounts for the ES and PT reportable segments have been adjusted to reflect the segment change.


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


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


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


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


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

(15) Disaggregation of Revenue

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

Timing of Revenue Recognition

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


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


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


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


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

Recurring Revenue

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

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


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


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


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


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

(16) Deferred Revenue and Performance Obligations

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


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

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


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

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized (“backlog”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of June 30, 2022, was $1.85 billion, of which we expect to recognize approximately 47% as revenue over the next 12 months and the ~~International Accounting Standards Board. The core principle behind ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods~~remainder thereafter.

(17) Deferred Commissions

Sales commissions earned by our sales force are considered incremental and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The ASU allows two methods of adoption: a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements. We currently anticipate adopting the standard using the full retrospective method to restate each prior reporting period presented. Our ability to adopt using the full retrospective method is dependent on system readiness, including software procured from third-party providers, and the completion of our analysis of information necessary to restate prior period financial statements. The new standard requires application no later than annual reporting periods beginning after December 15, 2017, including interim reporting periods therein; however, public entities are permitted to elect to early adopt the new standard. We will adopt the new standard in fiscal year 2018.

We anticipate this standard will have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license fees and incremental costrecoverable costs of obtaining a ~~contract. Specifically,~~contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of associated revenue over a period of benefit that we have determined to be generally three to seven years. Deferred commissions were $40.4 million and $38.1 million as of June 30, 2022, and December 31, 2021, respectively. Amortization expense was $3.7 million and $7.2 million for the three and six months ended June 30, 2022, respectively, and $3.2 million and $6.3 million for the three and six months ended June 30, 2021, respectively. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

(18) Subsequent Events

In July 2022, we repaid $100 million of the unsecured term loans under the new standard we expect software license fees under perpetual agreements will no longer be subject to 100% discount allocations from other elements in the contract. Discounts in arrangements will be allocated across all deliverables increasing license revenues and decreasing revenues allocated to other performance obligations. In addition, in most cases, net license fees (total license fees less any allocated discounts) will be recognized at the point in time that control of the software license transfers to the customer versus our current policy of recognizing revenue only to the extent billable per the contractual terms. Time-based license fees currently recognized over the license term will no longer be recognized over the period of the license and will instead be recognized at the point in time that control of the software license transfers to the customer. We expect revenue related to our software as a service (“SaaS”) offerings, post-contract customer support ("PCS") renewals and professional services to remain substantially unchanged. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms and may vary in some instances from recognition at the time of billing. Application of the new standard requires that incremental costs directly related to obtaining a contract (typically sales commissions plus any associated fringe benefits) must be recognized as an asset and expensed on a systematic basis that is consistent with the transfer to the customer of the goods and services to which the asset relates, unless that life is less than one year. Currently, we defer sales commissions and recognize expense over the relevant initial contractual term. With the adoption of the new standard, we expect amortization periods to extend past the initial term.2021 Credit Agreement.

~~Leases.~~ On February 25, 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

~~A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and~~

~~A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.~~

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early application is permitted for all business entities upon issuance. We are assessing the financial impact of adopting the new standard; however, we are currently unable to provide a reasonable estimate regarding the financial impact. We expect to adopt the new standard in fiscal year 2019.

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

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

Our products generally automate ~~six~~nine major functional areas: (1) financial management and education, (2) courts and justice, (3) public safety, (4) property appraisal and tax, (5) planning, regulatory and maintenance, ~~and~~ (6) land and vital records ~~management.~~management, (7) data and insights, (8) development platform technologies, and (9) NIC digital government and payments. We report our results in two reportable segments. The ~~Enterprise Software (“ES”)~~ES reportable segment provides ~~municipal and county governments and schools~~public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” ~~functions.~~functions such as: financial management and education, courts and justice, public safety, planning, regulatory and maintenance, data and insights, appraisal and tax software solutions, land and vital records management software solutions, and property appraisal services. The ~~Appraisal and Tax (“A&T”~~Platform Technologies ("PT") reportable segment provides ~~systems~~public sector entities with software solutions to perform transaction processing, streamline data processing, and ~~software that automate~~improve operations and workflows such as the NIC digital government and payments solutions and development platform solutions.

As of January 1, 2022, the appraisal and ~~assessment of real~~tax software solutions, land and ~~personal property as well as~~vital records management software solutions, and property appraisal ~~outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include:~~service business unit, which was previously reported in 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 taxpayersAppraisal & Tax ("A&T") reportable segment, was moved to the ES reportable segment and the ~~assessing jurisdiction.~~NIC digital government and payments solutions and development platform solutions moved to the PT reportable segment to reflect changes in the way in which management makes operating decisions, allocates resources, and manages the growth and profitability of the Company. As the result of the changes in our reportable segments, the former A&T and NIC reportable segments are no longer considered separate segments. Prior year amounts for the ES and PT reportable segments have been adjusted to reflect the segment change.

Our total employee count increased to ~~4,039~~7,143 at ~~September~~June 30, ~~2017,~~2022, including 93 employees from ~~3,775~~acquisitions completed in 2021 and 2022, from 6,593 at ~~September~~June 30, ~~2016.~~2021.

On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a market-leading provider of technology solutions for campground and outdoor recreation management. The total purchase price, net of cash acquired of $6.4 million, was approximately $116.7 million, consisting of $117.6 million paid in cash, and approximately $5.5 million related to indemnity holdbacks, subject to certain post-closing adjustments.

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of ~~accounting principles generally accepted in the United States (“GAAP”)~~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, ~~and~~ amortization and potential impairment of intangible assets and goodwill, and share-based compensation expense. As these are condensed financial statements, one should also read expanded information about our critical accounting policies and estimates provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,”~~Operations”, included in our Form 10-K for the year ended December 31, ~~2016. There~~2021. Except for the accounting policies for business combinations as a result of adopting Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASC 805)(“ASU 2021-08”), there 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, ~~2016.~~2021.

ANALYSIS OF RESULTS OF OPERATIONS


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

Revenues

Acquisitions

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

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

Percent of Total Revenues
Third Quarter Nine Months Ended
2017 2016 2017 2016
Revenues:
Software licenses and royalties 9.3 % 10.2 % 8.9 % 9.7 %
Subscriptions 20.9
19.0
20.2
18.6
Software services 22.2
23.0
22.5
23.7
Maintenance 43.1
42.7
43.1
42.3
Appraisal services 2.9
3.4
3.1
3.5
Hardware and other 1.6
1.7
2.2
2.2
Total revenues 100.0
100.0
100.0
100.0
Cost of revenues:

Software licenses, royalties and acquired software 2.9
3.2
3.0
3.3
Software services, maintenance and subscriptions 45.8
45.6
46.2
46.3
Appraisal services 1.9
2.1
2.0
2.2
Hardware and other 1.1
1.0
1.7
1.6
Selling, general and administrative expenses 20.9
21.6
21.1
22.2
Research and development expense 5.5
5.7
5.7
5.6
Amortization of customer and trade name intangibles 1.6
1.8
1.7
1.8
Operating income 20.3
19.0
18.7
17.0
Other (expense), net —
(0.3 ) —
(0.3 )
Income before income taxes 20.3
18.7
18.7
16.7
Income tax provision 2.5
0.5
2.3
2.8
Net income 17.8 % 18.2 % 16.4 % 13.9 %
The following table details revenue for NIC for the three and six months ended June 30, 2022, which is presented in our condensed consolidated statements of income from the date of acquisition and included in the operating results of the PT reportable segment.

~~Revenues~~


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

Software licenses and royalties

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

Third Quarter Change Nine Months Ended Change
($ in thousands) 2017 2016 $ % 2017 2016 $ %
ES $ 18,223
$ 18,492
$ (269 ) (1 )% $ 50,151
$ 50,585
$ (434 ) (1 )%
A&T 1,619
1,438
181
13
5,021
3,746
1,275
34
Total software licenses and royalties revenue $ 19,842
$ 19,930
$ (88 ) (0.4 )% $ 55,172
$ 54,331
$ 841
2 %


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

Software licenses and royalties revenue decreased ~~0.4%~~15% and ~~increased 2%~~3% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, compared to the prior year ~~period.~~periods. The ~~decline~~decrease in software licenses and royalties revenue for the three months ended ~~September~~June 30, ~~2017 was primarily due~~2022, is attributed to ~~an increase in the number of new software~~more clients choosing our ~~subscription-based option,~~SaaS offering rather than purchasing the software under a traditional perpetual software arrangement. ~~The increase in software licenses and royalties revenue~~Our total new client mix for the ~~nine~~six months ended ~~September~~June 30, ~~2017 is attributed~~2022, was approximately 22% perpetual software license arrangements and approximately 78% subscription-based arrangements, compared to ~~additions to our implementation staff, which increased our capacity to deliver backlog.~~

total new client mix for the six months ended June 30, 2021, of approximately 36% perpetual software license arrangements and approximately 64% subscription-based arrangements.

Although the mix of new contracts between ~~subscription-based~~SaaS-based and perpetual license arrangements ~~varies~~may vary from quarter to quarter and year to year, we expect our ~~longer-term~~ software license growth rate to continue to ~~be negatively impacted by~~decline as a growing number of ~~customers choosing~~clients choose our ~~subscription-based~~SaaS-based options, rather than purchasing the software under a traditional perpetual software license ~~arrangement. Subscription-based~~arrangement and the Company begins transitioning to cloud-based only offerings. SaaS-based arrangements generally do not 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. Our new client mix for the nine months ended September 30, 2017 was approximately 51% selecting perpetual software license arrangements and approximately 49% selecting subscription-based arrangements compared to a client mix for the nine months ended September 30, 2016 of approximately 68% selecting perpetual software license arrangements and approximately 32% selecting subscription-based arrangements. 94 and 291 new clients entered into subscription-based software arrangements for the three and nine months ended September 30, 2017, respectively, compared to 50 and 189 new clients for the three and nine months ended September 30, 2016, respectively. Since September 30, 2016, we added 352 new SaaS clients and 75 existing on-premises clients converted to our SaaS model.

Subscriptions

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


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

Third Quarter Change Nine Months Ended Change
($ in thousands) 2017 2016 $ % 2017 2016 $ %
ES $ 42,826
$ 35,169
$ 7,657
22 % $ 120,191
$ 99,470
$ 20,721
21 %
A&T 2,014
1,700
314
18
5,698
5,456
242
4
Total subscriptions revenue $ 44,840
$ 36,869
$ 7,971
22 % $ 125,889
$ 104,926
$ 20,963
20 %

Subscriptions revenue primarily consists of revenue derived from ~~our~~online payments and SaaS ~~arrangements, which utilize the Tyler private cloud. As part~~arrangements. Other sources of ~~our~~ subscription-based services ~~we also provide~~are derived from digital government services and e-filing arrangements 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 ~~22%~~28% and ~~20%~~66% for the three and ~~nine~~six months ending ~~September~~June 30, ~~2017,~~2022, respectively, compared to the prior ~~year.~~period, primarily due to the inclusion of NIC’s revenues from the date of acquisition. Excluding the impact of revenue from 2021 and 2022 acquisitions of $36.4 million and $162.2 million for the three and six months ended June 30, 2022, respectively, subscriptions revenue increased 10.0% and 12.3% for the three and six months ended June 30, 2022, respectively. New SaaS clients as well as existing clients who converted to our SaaS model provided the majority of the subscriptions revenue increase. In the three and ~~nine~~six months ending ~~September~~June 30, ~~2017,~~2022, respectively, we added 94167 and ~~291~~316 new SaaS clients and 1596 and 69184 existing on-premises clients converted to our SaaS model. Since ~~September~~June 30, ~~2016,~~2021, we have added ~~352~~595 new SaaS clients ~~and 75~~while 322 existing on-premises clients converted to our SaaS ~~model.~~offerings. Also ~~e-filing services~~excluding the impact of revenue from 2021 and 2022 acquisitions, transaction-based fees contributed ~~approximately $2.4~~$4.6 million and ~~$5.6~~$7.3 million to the increase in subscriptions revenue ~~increase~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, due to the ~~addition of new e-filing clients, as well as~~ increased volumes ~~as the result~~ of ~~several existing clients mandating e-filing.~~

online payments from e-filing and utility billings.

Software services

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


																		Three Months Ended				Change				Six Months Ended				Change
	Third Quarter				Change				Nine Months Ended				Change					2022		2021		$		%		2022		2021		$		%
($ in thousands)	2017		2016		$		%		2017		2016		$		%
ES	$	42,295	$	40,608	$	1,687	4	%	$	125,658	$	121,372	$	4,286	4	%	ES	$	41,841	$	42,478	$	(637)	(1)	%	$	84,490	$	84,895	$	(405)	—	%
A&T	5,184		4,130		1,054		26		14,211		11,836		2,375		20
PT																	PT	21,284		10,859		10,425		96		40,132		16,082		24,050		150
Total software services revenue	$	47,479	$	44,738	$	2,741	6	%	$	139,869	$	133,208	$	6,661	5	%	Total software services revenue	$	63,125	$	53,337	$	9,788	18	%	$	124,622	$	100,977	$	23,645	23	%

Software services revenue primarily consists of professional services ~~billed~~delivered in connection with implementing our software, converting client data, training client personnel, custom development activities, and consulting. New clients who ~~purchase~~acquire our ~~proprietary~~ software ~~licenses, as well as those entering into a new SaaS arrangement,~~ generally also contract with us to provide the related software services. Existing clients also periodically purchase additional training, consulting, and minor programming services. ~~For~~Software services revenue increased 18% and 23% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, ~~software services revenue grew 6% and 5%~~ compared to the prior year period. ~~This growth~~Excluding the impact of revenue from 2021 and 2022 acquisitions of $3.7 million and $17.0 million for the three and six months ended June 30, 2022, respectively, software services increased 11.3% and 6.6% for the three and six months ended June 30, 2022, respectively. That increase for three months ended June 30, 2022 in software services revenue is primarily ~~due~~attributed to ~~additions to~~higher revenues generated by the COVID pandemic-related rent relief services, partially offset by more clients selecting our ~~implementation and support staff~~cloud solutions instead of our on-premises license arrangements which increased our capacity to deliver backlog and partially due to completing recognition of a majority of the acquisition-related deferred service revenue that was fair valued at rates below Tyler's average service rate in prior periods.typically require more professional services.

Maintenance

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


																		Three Months Ended				Change				Six Months Ended				Change
	Third Quarter				Change				Nine Months Ended				Change					2022		2021		$		%		2022		2021		$		%
($ in thousands)	2017		2016		$		%		2017		2016		$		%
ES	$	86,576	$	78,292	$	8,284	11	%	$	253,048	$	223,802	$	29,246	13	%	ES	$	110,760	$	109,815	$	945	1	%	$	221,455	$	219,284	$	2,171	1	%
A&T	5,709		4,708		1,001		21		15,508		13,973		1,535		11
PT																	PT	6,055		9,806		(3,751)		(38)		12,389		19,449		(7,060)		(36)
Total maintenance revenue	$	92,285	$	83,000	$	9,285	11	%	$	268,556	$	237,775	$	30,781	13	%	Total maintenance revenue	$	116,815	$	119,621	$	(2,806)	(2)	%	$	233,844	$	238,733	$	(4,889)	(2)	%

We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue ~~grew 11% and 13%~~decreased 2% for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022, compared to the prior ~~year. Maintenance~~year period. For the three months ended June 30, 2022, maintenance revenue ~~increased~~decreased mainly due to attrition related to a legacy case management solution and clients converting from on-premises license arrangements to SaaS, partially offset by annual maintenance rate increases and ~~growth in our installed customer base from~~maintenance associated with new software license sales. In addition, the increase is partially due to completing recognition of a majority of the acquisition-related deferred maintenance revenue that was fair valued at rates below Tyler's average maintenance rate in prior periods.

Appraisal services

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


																				Three Months Ended				Change				Six Months Ended				Change
	Third Quarter				Change					Nine Months Ended				Change						2022		2021		$		%		2022		2021		$		%
($ in thousands)	2017		2016		$			%		2017		2016		$			%
ES	$	—	$	—	$	—		—	%	$	—	$	—	$	—		—	%	ES	$	8,812	$	6,265	$	2,547	41	%	$	17,330	$	12,730	$	4,600	36	%
A&T	6,290		6,541		(251		)	(4	)	19,268		20,083		(815		)	(4	)
PT																			PT	—		—		—		—		—		—		—		—
Total appraisal services revenue	$	6,290	$	6,541	$	(251	)	(4	)%	$	19,268	$	20,083	$	(815	)	(4	)%	Total appraisal services revenue	$	8,812	$	6,265	$	2,547	41	%	$	17,330	$	12,730	$	4,600	36	%

Appraisal services revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, increased by 41% and 36%, respectively, ~~decreased by 4% . The decline is mainly~~compared to the prior year primarily due to the ~~successful completion~~ramp-up of appraisal services for several ~~large~~new revaluation ~~projects~~contracts which started in ~~mid-2017.~~recent quarters. The appraisal services business is somewhat cyclical and driven in part by statutory revaluation cycles in various states.

Cost of Revenues and Gross Margins

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


																				Three Months Ended				Change				Six Months Ended				Change
	Third Quarter				Change					Nine Months Ended				Change						2022		2021		$		%		2022		2021		$		%
($ in thousands)	2017		2016		$			%		2017		2016		$			%
Software licenses and royalties	$	826	$	623	$	203		33	%	$	2,204	$	1,927	$	277		14	%	Software licenses and royalties	$	2,869	$	1,368	$	1,501	110	%	$	5,478	$	2,604	$	2,874	110	%
Acquired software	5,473		5,598		(125		)	(2	)	16,243		16,737		(494		)	(3	)	Acquired software	14,039		11,823		2,216		19		27,260		19,787		7,473		38
Software services, maintenance and subscriptions	98,036		88,623		9,413			11		287,748		260,610		27,138			10
Subscriptions, software services, and maintenance																			Subscriptions, software services, and maintenance	244,192		199,771		44,421		22		481,088		334,091		146,997		44
Appraisal services	4,089		4,053		36			1		12,568		12,473		95			1		Appraisal services	5,976		4,429		1,547		35		11,912		9,046		2,866		32
Hardware and other	2,293		2,120		173			8		10,408		8,481		1,927			23		Hardware and other	8,161		4,623		3,538		77		13,188		7,081		6,107		86
Total cost of revenues	$	110,717	$	101,017	$	9,700		10	%	$	329,171	$	300,228	$	28,943		10	%	Total cost of revenues	$	275,237	$	222,014	$	53,223	24	%	$	538,926	$	372,609	$	166,317	45	%

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


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

Third Quarter Nine Months Ended
2017 2016 Change 2017 2016 Change
Software licenses, royalties and acquired software 68.3 % 68.8 % (0.5 )% 66.6 % 65.6 % 1.0 %
Software services, maintenance and subscriptions 46.9
46.2
0.7
46.1
45.2
0.9
Appraisal services 35.0
38.0
(3.0 ) 34.8
37.9
(3.1 )
Hardware and other 32.8
38.0
(5.2 ) 26.0
31.8
(5.8 )
Overall gross margin 48.3 % 48.1 % 0.2 % 47.1 % 46.7 % 0.4 %

Software licenses, royalties and acquired software. Amortization expense for acquired software comprises the majority of costs of software licenses, royalties, and acquired software. We do not have any direct costs associated with royalties. InThe gross margin for software licenses, royalties and acquired software is negative 12.7% and negative 3.9% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, ~~our~~and 25.1% and 31.2% for three and six months ended June 30, 2021, respectively. Excluding the impact of amortization expense of acquired software, the margin is 80.9% and 82.6% for the three and six months ended June 30, 2022, respectively, and 92.2% and 92.0% for three and six months ended June 30, 2021, respectively. The decline in software licenses, royalties and acquired software gross margin ~~decreased slightly by 0.5% and increased 1.0%~~ compared to ~~the~~ prior year ~~period. The slight decline for the three months ended September 30, 2017~~periods is due to ~~higher third-party~~lower revenue from software ~~costs compared to prior period. The increase for the nine months ended September 30, 2017 is due to higher incremental margins on software license revenues, in part due to slightly lower~~licenses and increased amortization expense ~~for~~related to acquired software ~~resulting~~ from recent acquisitions.

~~Software~~

Subscriptions, software services ~~maintenance~~ and ~~subscriptions.~~ maintenance. Cost of subscriptions, software services ~~maintenance~~ and ~~subscriptions~~maintenance primarily consists of personnel costs related to installation of our software, conversion of client data, training client personnel and support activities, and various other services such as custom client development and ~~on-going~~ongoing operation of SaaS and e-filing arrangements. The subscriptions, software services, ~~maintenance~~ and ~~subscription~~maintenance gross margin in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, decreased 2.4% and 3.9%, respectively, ~~was 0.7% and 0.9% higher than~~from the comparable prior year ~~period. Our~~period, primarily due to the inclusion of NIC’s revenues, which historically have lower margins than Tyler. Excluding the impact from 2021 and 2022 acquisitions, the gross margins were 44.6% and 46.2% for the three and six months ended June 30, 2022, respectively. The decrease of 1.8% and 1.7% for the three and six months ended June 30, 2022, respectively, from the comparable prior periods is due to several factors, including lower maintenance revenue resulting from attrition related to a legacy case management solution; a post-COVID return of low-margin revenues such as billable travel; higher personnel costs related to inflation, as well as an increase in professional services employees to enable delivery of our growing backlog and anticipated growth who are not yet billable; and higher hosting costs related to our accelerated shift to the cloud. Excluding employees added through acquisitions, our implementation and support staff has grown by ~~208~~239 employees since ~~September~~June 30, 2016. Many of these additions occurred in early to mid-2016 and are contributing to revenue in 2017. Costs related to maintenance and various other services such as SaaS and e-filing typically grow at a slower rate than related revenue due to leverage in the utilization of support and maintenance staff and economies of scale. Reduced recognition of acquisition-related deferred revenue associated with software services and maintenance obligations completed in prior periods also resulted in higher gross margins.2021.

Appraisal services. Appraisal services revenue ~~comprised~~was approximately ~~2.9%~~1.9% of total ~~revenue.~~revenue for the three and six months ended June 30, 2022, respectively. The appraisal services gross margin for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, increased 2.9% and 2.4%, respectively, ~~decreased 3.0% and 3.1%~~ compared to the same period in ~~2016,~~2021. The increase in margin is primarily due to ~~additional resources brought in~~cost savings attributed to ~~meet the deadline for completion of fieldwork for a large revaluation project. A high proportion of the costs of~~lower travel expenses associated with appraisal projects. The appraisal services ~~revenue are variable, as we often hire temporary employees to assist~~business is somewhat cyclical and driven in ~~appraisal projects.~~part by statutory revaluation cycles in various states.

Overall Gross Margin. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022, our overall gross margin ~~increased 0.2%~~decreased 3.8% and ~~0.4%~~5.0%, respectively, compared to the prior year ~~period. Our~~period, primarily due to the inclusion of NIC’s revenues, which historically have lower margins than Tyler. Excluding the impact from 2021 and 2022 acquisitions, overall gross margins were 42.3% and 44.2% for the three and six months ended June 30, 2022, respectively. For the three months ended June 30, 2022, the decrease in overall gross margin ~~increase for~~compared to the ~~nine month~~prior year period ~~was mainly~~is due to ~~a product mix that included more higher-margin recurring revenues from subscriptions and maintenance and improved margin on revenues~~lower revenue from software licenses ~~offset by~~and maintenance, higher personnel costs related to inflation, and "bubble costs" related to the ~~lower-margin revenues~~transition from ~~appraisal services as described above.~~

our proprietary data centers to Amazon Web Services ("AWS").

Selling, General and Administrative Expenses

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

The following table sets forth a comparison of our SG&A expenses for the periods presented as of ~~September~~June 30:

Third Quarter Change Nine Months Ended
Change
($ in thousands) 2017 2016 $ % 2017
2016
$
%
Selling, general and administrative expenses $ 44,656
$ 42,007
$ 2,649
6 % $ 131,249
$ 124,998
$ 6,251
5 %


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

SG&A as a percentage of revenues was ~~20.9%~~21.3% and ~~21.1%~~21.4% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, compared to ~~21.6%~~27.0% and ~~22.2%~~26.9% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, respectively. Excluding the impact of SG&A expense ~~increased approximately 6%~~from 2021 and 5%2022 acquisitions of $6.1 million and $23.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively. This increase is mainly due to compensation costs related to higher stock compensation expense~~2022, respectively, SG&A decreased 14.1% and ~~increased staff levels. For~~7.4% for the three and ~~nine~~six months ~~ended September~~ending June 30, ~~2017, respectively, stock compensation expense rose $1.4 million and $3.8 million,~~2022, respectively, compared to the ~~same period~~prior year period. The decrease in ~~2016, mainly~~SG&A as a percentage of revenues is primarily attributed to lower transaction expense related to acquisitions completed in 2022 compared to those completed in 2021 and the decline in stock compensation expense due to ~~increases~~the lower fair value of each share-based award issued in connection with our stock ~~price over the last few years.~~compensation plan. The decline in SG&A is partially offset by increased staff levels and other administrative expenses compared to prior periods.

Research and Development Expense

The following table sets forth a comparison of our research and development expense for the periods presented as of ~~September~~June 30:


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

Third Quarter Change Nine Months Ended Change
($ in thousands) 2017 2016 $ % 2017 2016 $ %
Research and development expense $ 11,834
$ 11,070
$ 764
7 % $ 35,307
$ 31,362
$ 3,945
13 %

Research and development ("R&D") expense consists mainly of costs associated with development of new products and technologies from which we do not currently generate significant revenue, as well as costs related to the ongoing development efforts for Microsoft Dynamics AX. Our contractual research and development commitment to develop public sector functionality for Microsoft Dynamics AX was amended in March 2016, which significantly reduced our development commitment through March 2018. However, we will continue to provide sustained engineering and technical support for the public-sector functionality within Dynamics AX. License and maintenance royalties for all applicable domestic and international sales of Dynamics AX to public sector entities will continue under the terms of the contract.

~~Research and development~~revenue. R&D expense in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, remained flat and increased 5%, respectively, compared to the prior period. Excluding the impact of R&D expense from 2021 and 2022 acquisitions of $224,000 and $1.1 million for the three and six months ended June 30, 2022, respectively, R&D expense decreased 1.1% and increased 7%2.2% for the three and ~~13%~~six months ending June 30, 2022, respectively, compared to prior ~~period~~year period. The decline in R&D expense for the three months ended June 30. 2022, is mainly attributed to a shift of some development resources to certain projects which meet the criteria for capitalization. The increase in R&D expense for the six months ended June 30, 2022, is mainly due to ~~research and development efforts related to~~a number of new Tyler product development initiatives ~~primarily in~~across our ~~public safety solutions,~~product suites somewhat offset by ~~reduced development efforts for Microsoft Dynamics AX. As~~ a ~~result~~shift of ~~the Microsoft Dynamics AX amendment, we are redeploying certain~~some development resources to ~~enhance functionality on several existing solutions and these costs are being recorded in cost of revenues – software services, maintenance and subscriptions.~~certain projects which meet the criteria for capitalization.

Amortization of ~~Customer~~Other Intangibles

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


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

Acquisition intangibles are ~~composed~~comprised of the excess of the purchase price over the fair value of net tangible assets acquired that isare allocated to acquired software and customer and trade name intangibles. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer and trade name intangibles is recorded as operating expense. For the three and six months ended June 30, 2022, amortization expense increased compared to the prior period due to acquisitions completed in 2021 and 2022.

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

Third Quarter Change Nine Months Ended Change
($ in thousands) 2017 2016 $ % 2017 2016 $ %
Amortization of customer and trade name intangibles $ 3,492
$ 3,458
$ 34
1 % $ 10,413
$ 10,273
$ 140
1 %

~~Other Income (Expense), Net~~Interest Expense

The following table sets forth a comparison of our ~~other~~interest expense ~~net~~ for the periods presented as of ~~September~~June 30:


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

Third Quarter Change Nine Months Ended Change
($ in thousands) 2017 2016 $ % 2017 2016 $ %
Other income (expense), net $ 75
$ (526 ) $ 601
(114 )% $ (216 ) $ (1,713 ) $ 1,497
(87 )%

~~Other income (expense), net~~Interest expense is primarily comprised of interest expense and non-usage and other fees associated with our ~~revolving credit agreement,~~borrowings. The change in interest expense in the three and six months ended June 30, 2022, compared to the prior period is attributable to the prior year period including $6.4 million of expense related to the senior unsecured bridge loan facility commitment fee paid in 2021 and lower levels of borrowings in the current year related to the 2021 Credit Agreement, offset by an increase in interest rates compared to prior year periods.

Other Income, Net

The following table sets forth a comparison of our other income, net, for the periods presented as ~~well as~~of June 30:


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

Other income, net, is primarily comprised of interest income from invested cash. ~~Other~~The change in other income, ~~(expense),~~ net, ~~decreased~~ in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, compared to the prior period ~~due~~is attributed to ~~significantly~~ lower ~~debt levels in the current period, as we repaid all borrowings under the revolving line of credit in January 2017, and correspondingly higher~~ levels of ~~cash investments.~~invested cash.

Income Tax Provision

The following table sets forth a comparison of our income tax provision for the periods presented as of ~~September~~June 30:


	Three Months Ended						Change			Six Months Ended						Change
	2022			2021			$		%	2022			2021			$		%
Income tax provision	$	10,813		$	562		$	10,251	1,824%	$	22,258		$	1,882		$	20,376	1,083

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

Third Quarter Change Nine Months Ended Change
($ in thousands) 2017 2016 $ % 2017 2016 $ %
Income tax provision $ 5,259
$ 989
$ 4,270
432 % $ 14,308
$ 15,527
$ (1,219 ) (8 )%

Effective income tax rate 12.1 % 2.7 % 12.3 % 16.5 %

The increase in effective tax rate for the three and six months ended June 30, 2022, as compared to the same period in 2021, was principally driven by a decrease in excess tax benefits related to stock incentive awards. The effective income tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively,~~2021, were different from the statutory United States federal income tax rate of ~~35% principally~~21% primarily due to excess tax benefits related to stock ~~option exercises.~~incentive awards and the tax benefit of research tax credits, offset by state income taxes, non-deductible business expenses, and reserves for unrecognized state income tax benefits. The excess tax benefits related to stock ~~option exercises~~incentive awards realized were ~~$9.0~~$1.7 million and ~~$27.6~~$4.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, compared to ~~$13.3~~$6.4 million and ~~$20.8~~$15.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, respectively. The change in the effective income tax rates for the three and nine months ended September 30, 2017 as compared to the prior year periods is mainly due to the change in excess tax benefits related to stock option exercises realized. Excluding the excess tax benefits, the effective ~~rates were 32.8%~~tax rate was 24.6% and ~~36.0%~~26.4% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, respectively, compared to ~~39.3%~~26.7% and ~~38.5%~~26.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, respectively. Other differences from the federal statutory income tax rate included state income taxes, non-deductible business expenses, tax credits, and the tax benefit of the domestic production activities deduction.

FINANCIAL CONDITION AND LIQUIDITY

As of ~~September~~June 30, ~~2017,~~2022, we had cash and cash equivalents of ~~$124.6~~$253.1 million compared to ~~$36.2~~$309.2 million at December 31, ~~2016.~~2021. We also had ~~$61.7~~$60.9 million invested in investment grade corporate and municipal bonds ~~and asset-backed securities~~ as of ~~September~~June 30, ~~2017.~~2022. These investments ~~mature from 2017~~have varying maturity dates through ~~2021~~2027 and ~~we intend to hold these investments until maturity.~~are held as available-for-sale. As of ~~September~~June 30, ~~2017,~~2022, we ~~had two outstanding letters of credit totaling $2.2 million. We do not believe the letters of credit will be required to be drawn upon. These letters of credit expire through mid-2018. We~~ believe our cash from operating activities, revolving ~~line of~~ credit facility, cash on hand, and access to the capital markets provides us with sufficient flexibility to meet our long-term financial needs.

The following table sets forth a summary of cash flows for the ~~nine~~six months ended ~~September~~June 30:

($ in thousands) 2017 2016
Cash flows provided (used) by:
Operating activities $ 142,381
$ 140,054
Investing activities (75,807 ) (42,846 )
Financing activities 21,878
(106,981 )
Net increase (decrease) in cash and cash equivalents $ 88,452
$ (9,773 )


	2022		2021
Cash flows provided (used) by:
Operating activities	$	130,220	$	51,356
Investing activities	(110,378)		(1,998,692)
Financing activities	(75,951)		1,560,486
Net decrease in cash and cash equivalents	$	(56,109)	$	(386,850)

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

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, operating activities provided cash of ~~$142.4~~$130.2 million. Operating activities that provided cash were primarily comprised of net income of ~~$102.1~~$79.9 million, non-cash depreciation and amortization charges of ~~$40.1~~$75.9 million, ~~and~~ non-cash share-based compensation expense of ~~$27.4~~$51.1 million and a non-cash decrease in operating lease right-of-use assets of $5.1 million. Working capital, excluding cash, increased approximately ~~$27.2~~$81.7 million mainly due to higher accounts receivable ~~related~~because of an increase in unbilled receivables attributed to ~~annual~~revenues recognized prior to billings and our maintenance ~~and subscription billings as well as milestone billings for several contracts,~~billing cycle peaking in June, the timing of ~~income tax~~bonuses payments, the ~~changes in deferred revenue balances~~timing of payments of payroll related taxes, and ~~the~~ deferred taxes associated with stock option activity during the period. These increases were offset ~~slightly~~ by an increase in deferred revenue during the period, the timing of payments ~~for wages.~~

to and receipts from our government partners and end-user consumers, and the timing of income tax payments. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance renewal billings. Our renewal dates occur throughout the year, but our largest renewal billing cycles occur in the second and fourth quarters. In addition, subscription renewals are billed throughout the year.

Our days sales outstanding (“DSO”) was 87115 days at ~~September~~June 30, ~~2017,~~2022, compared to 93108 days at December 31, ~~2016,~~2021, and 87131 days at ~~September~~June 30, ~~2016. Our~~2021. The increase in DSO compared to December 31, 2021, is primarily attributed to our maintenance billing cycle, which typically peaks at its highest level in June and second highest level in December of each year, ~~and is~~ followed by collections in the subsequent quarter. DSO is calculated based on quarter-end accounts receivable divided by the quotient of annualized quarterly revenues divided by 360 days. The decrease in DSO compared to June 30, 2021, is attributed to improved collection efforts.

Investing activities used cash of ~~$75.8~~$110.4 million in the ~~nine~~six months ending ~~September~~June 30, 2017. Approximately $37.7 million was invested in property and equipment. We purchased an office building in Latham, New York, for approximately $2.9 million and paid $12.9 million for construction to expand a building in Yarmouth, Maine. 2022. On ~~August 2, 2017,~~February 8, 2022, we acquired ~~all of the capital stock of Digital Health Department,~~US eDirect Inc. (US eDirect), a ~~company that provides environmental health software, offering a software-as-a-service (SaaS) solution~~market-leading provider of technology solutions for ~~public health compliance~~campground and ~~inspections processes.~~outdoor recreation management. The total purchase price, net of ~~debt assumed,~~ cash acquired of $6.4 million, was ~~$3.9~~approximately $116.7 million, consisting of ~~which $3.7~~$117.6 million ~~was~~ paid in cash, and ~~$0.2~~approximately $5.5 million was accrued as of September 30, 2017. On May 30, 2017, we also acquired all of the capital stock of Modria.com, Inc., a company that specializes in online dispute resolution for government and commercial entities. The total purchase price, net of debt assumed, was $7.0related to indemnity holdbacks, subject to certain post-closing adjustments. In addition, approximately $16.5 million of ~~which $6.1 million was paid~~software development costs were capitalized. The remaining additions were for computer equipment and furniture and fixtures in ~~cash and $0.9 million was accrued as~~support of ~~September 30, 2017. The impact of these acquisitions on~~internal growth, particularly with respect to data centers supporting growth in our ~~operating results is not material.~~cloud-based offerings.

~~Investing~~Financing activities used cash of ~~$42.8~~$76.0 million in the nine months ending September 30, 2016. Approximately $29.5 million was invested in property and equipment. We purchased an office building in Falmouth, Maine, that was previously leased from an entity owned by an executives’ father and brother, for approximately $9.7 million and paid $4.6 million for construction to expand a building in Yarmouth, Maine. In the nine months ending September 30, 2016, we made a small acquisition for approximately $7.4 million and paid $2.0 million related to the working capital holdback in connection with the NWS acquisition.

~~Financing activities provided cash of $21.9 million in the nine~~six months ended ~~September~~June 30, ~~2017,~~2022, primarily attributable to repayment of $80.0 million of the unsecured term loans and ~~were comprised of purchases of treasury shares, proceeds~~offset by payments received from stock option exercises and employee stock purchase plan ~~activity. During~~activity, net of withheld shares for taxes upon equity award.

In February 2019, our board of directors authorized the ~~nine months ended September 30, 2017, we purchased 42,000~~repurchase of an additional 1.5 million shares of our common ~~stock for an aggregate purchase price of $6.2 million at an average price paid per share of $147.30.~~

Financing activities used cash of $107.0 million in the nine months ended September 30, 2016. Cash used by financing activities was comprised of purchases of treasury shares, net borrowings from our revolving line of credit and proceeds from stock option exercises and employee stock purchase plan activity. During the nine months ended September 30, 2016, we purchased 758,000 shares of our common stock for an aggregate purchase price of $94.5 million at an average price paid per share of $124.75.

~~We had authorization from our board of directors to repurchase up to 2.0 million additional shares of Tyler common stock as of September 30, 2017.~~stock. The repurchase program, which was approved by our board of directors, was originally announced in October 2002 and was amended at various times from 2003 through ~~2016.~~2019. As of June 30, 2022, we have authorization from our board of directors to repurchase up to 2.4 million additional shares of our common stock. Our share repurchase program allows us to repurchase shares at our discretion. Market conditions influence the timing of the buybacks and the number of shares repurchased, as well as the volume of employee stock option exercises. Share repurchases are generally funded using our existing cash balances and borrowings under our credit facility and may occur through open market purchases and transactions structured through investment banking institutions, privately negotiated transactions and/or other mechanisms. There is no expiration date specified for the authorization, and we intend to repurchase stock under the plan from time to time.

We made tax payments of ~~$29.0~~$24.3 million and $967,000 in the six months ended June 30, 2022, and 2021, respectively.

As of June 30, 2022, we had $600 million in outstanding principal for the ~~nine~~Convertible Senior Notes due 2026. Under our 2021 Credit Agreement, we had $675 million in outstanding principal for the unsecured term loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of $500 million as of June 30, 2022. As of June 30, 2022, we had one outstanding standalone letter of credit totaling $2.0 million. The letter of credit, which guarantees our performance under a client contract, renews automatically annually unless canceled in writing, and expires in the third quarter of 2026. For the six months ended ~~September~~June 30, ~~2017, compared~~2022, we repaid $80.0 million of the unsecured term loans under 2021 Credit Agreement.

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

In the six months ended June 30, 2022, and 2021, respectively, we made interest payments of ~~$25.0~~$5.7 million inand $9.4 million, associated with the ~~nine months ended September 30, 2016.~~

~~We anticipate that 2017 capital spending will be approximately $54.0 million. Capital spending includes approximately $19.4~~2021 Credit Agreement and the Convertible Senior Notes, including payment of a $6.4 million for the Yarmouth office expansion and approximately $5.0 million for the purchase and renovation of an office building in Latham, New York. We expect the remaining capital spending will consist primarily of computer equipment and software for infrastructure replacements and expansion. We currently do not expect to capitalize significant amountscommitment fee related to ~~software development~~the senior unsecured bridge loan facility paid in ~~2017, but~~2021.

See Note 4, "Debt", to the ~~actual amount~~Condensed Consolidated Financial Statements for discussions of the 2021 Credit Agreement and timing of those costs, and whether they are capitalized or expensed, may result in additional capitalized software development. Capital spending is expected to be funded from existing cash balances, cash flows from operations and borrowings under our revolving line of credit.Convertible Senior Notes.

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

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

We lease office facilities, as well as transportation and other equipment used in our operations under non-cancelable operating lease agreements expiring at various dates through 2027.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

As of ~~September~~June 30, ~~2017,~~2022, we had no$675.0 million of outstanding borrowings under ~~the~~our 2021 Credit ~~Facility. Loans~~Agreement and available borrowing capacity under the 2021 Credit Agreement was $500.0 million.

Borrowings under the Revolving Credit Facility and the Term Loan A-1 bear interest, at ~~Tyler’s~~the Company’s option, at a per annum rate of either (1) the ~~Wells Fargo Bank~~Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) (the “Base Rate”) plus a margin of ~~0.25%~~0.125% to ~~1.00%~~0.75% or (2) the ~~30, 60, 90~~one-, three-, six-, or, ~~180-day~~subject to approval by all lenders, twelve-month LIBOR rate plus a margin of ~~1.25%~~1.125% to ~~2.00%~~1.75%. The Term Loan A-2 bears interest, at the Company’s option, at a per annum rate of either (1) the Base Rate plus a margin of 0% to 0.5% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 0.875% to 1.5%.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, our~~2022, the effective ~~average~~ interest rate for our borrowings was ~~2.17%~~2.38%. ~~As of September 30, 2017, our interest rate was 4.50%~~Based on the aggregate outstanding principal balance under the ~~Wells Fargo Bank prime rate and 2.49% under~~2021 Credit Agreement as of June 30, 2022, of $675.0 million, each quarter point change in interest rates would result in a ~~30-day LIBOR contract. The Credit Facility is secured by substantially all of our assets.~~$1.7 million change in annual interest expense.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017.~~2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended ~~September~~June 30, ~~2017,~~2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, one should carefully consider the discussion of various risks and uncertainties contained in Part I, “Item 1A. Risk Factors” in our ~~2016~~2021 Annual Report on Form 10-K. We believe those risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. Please note, however, that those are not the only risk factors facing us. Additional risks that we do not consider material, or of which we are not currently aware, may also have an adverse impact on us. Our business, financial condition and results of operations could be seriously harmed if any of these risks or uncertainties actually occurs or materializes. In that event, the market price for our common stock could decline, and our shareholders may lose all or part of their investment. During the three months ended ~~September~~June 30, ~~2017,~~2022, there were no material changes in the information regarding risk factors contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

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

None

ITEM 3. Defaults Upon Senior Securities

None

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

None

ITEM 5. Other Information

None

ITEM 6. Exhibits



Exhibit 31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certifications Pursuant Certifications Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS		Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags, including Cover Page XBRL tags, are embedded within the Inline XBRL Document.
Exhibit ~~101~~101.SCH		~~Instance Document~~Inline XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit ~~101~~101.LAB		~~Schema Document~~Inline XBRL Extension Labels Linkbase Document.
Exhibit 101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
Exhibit ~~101~~101.PRE		~~Calculation~~Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
Exhibit 104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit ~~101~~101).		~~Labels Linkbase Document~~

~~Exhibit 101~~	~~Definition Linkbase Document~~

~~Exhibit 101~~	~~Presentation Linkbase Document~~

SIGNATURES

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



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

Date: ~~October 25, 2017~~

July 29, 2022



	September 30, 2017 (unaudited)			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	124,603		$	36,151
Accounts receivable (less allowance for losses of $4,491 in 2017 and $3,396 in 2016)	206,444			200,334
Short-term investments	39,911			20,273
Prepaid expenses	23,219			21,039
Income tax receivable	3,362			2,895
Other current assets	2,182			2,268
Total current assets	399,721			282,960

Accounts receivable, long-term	3,867			2,480
Property and equipment, net	149,142			124,268
Other assets:
Goodwill	655,068			650,237
Other intangibles, net	245,520			267,259
Non-current investments and other assets	39,800			30,741
Total assets	$	1,493,118		$	1,357,945

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,563		$	7,295
Accrued liabilities	57,583			55,989
Deferred revenue	297,163			298,217
Total current liabilities	359,309			361,501

Revolving line of credit	—			10,000
Deferred revenue, long-term	1,468			2,140
Deferred income taxes	54,563			68,779

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 September 30, 2017 and December 31, 2016	481			481
Additional paid-in capital	604,324			556,663
Accumulated other comprehensive loss, net of tax	(46		)	(46		)
Retained earnings	538,023			435,876
Treasury stock, at cost; 10,596,386 and 11,381,733 shares in 2017 and 2016, respectively	(65,004		)	(77,449		)
Total shareholders' equity	1,077,778			915,525
Total liabilities and shareholders' equity	$	1,493,118		$	1,357,945



For the three months ended September 30, 2017
	Enterprise Software		Appraisal and Tax		Corporate			Totals
Revenues
Software licenses and royalties	$	18,223	$	1,619	$	—		$	19,842
Subscriptions	42,826		2,014		—			44,840
Software services	42,295		5,184		—			47,479
Maintenance	86,576		5,709		—			92,285
Appraisal services	—		6,290		—			6,290
Hardware and other	3,412		—		(2		)	3,410
Intercompany	2,660		—		(2,660		)	—
Total revenues	$	195,992	$	20,816	$	(2,662	)	$	214,146
Segment operating income	$	60,511	$	5,479	$	(13,578	)	$	52,412