SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

5101 TENNYSON PARKWAY

PLANO, TEXAS

75024

(Address of principal executive offices)

(Zip code)

(972) 713-3700

(Registrant’s telephone number, including area code)



Title of each class	Trading symbol	Name of each exchange on which registered
COMMON STOCK, $0.01 PAR VALUE	TYL	NEW YORK STOCK EXCHANGE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically ~~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 30, 2018~~May 6, 2019 was ~~38,823,257.~~38,341,555.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017			Three Months Ended March 31,
				As Adjusted					As Adjusted			2019		2018
Revenues:
Software licenses and royalties	$	22,444		$	22,762	$	67,620		$	63,826		$	21,793	$	22,776
Subscriptions	58,699			44,352		160,736			124,731			67,275		49,028
Software services	48,199			46,045		144,812			134,401			48,443		45,939
Maintenance	96,215			91,847		286,188			266,965			100,152		93,897
Appraisal services	5,544			6,290		16,470			19,268			5,214		5,394
Hardware and other	4,966			3,410		17,475			14,007			4,189		4,140
Total revenues	236,067			214,706		693,301			623,198			247,066		221,174

Cost of revenues:
Software licenses and royalties	957			826		2,939			2,204			818		778
Acquired software	5,897			5,473		17,003			16,243			6,682		5,382
Software services, maintenance and subscriptions	111,508			98,036		327,080			287,748			117,160		106,085
Appraisal services	3,505			4,089		10,854			12,568			3,452		3,781
Hardware and other	2,574			2,293		11,718			10,408			2,906		2,343
Total cost of revenues	124,441			110,717		369,594			329,171			131,018		118,369

Gross profit	111,626			103,989		323,707			294,027			116,048		102,805

Selling, general and administrative expenses	52,605			44,513		152,471			130,293			57,766		47,604
Research and development expense	17,050			11,834		45,929			35,307			18,941		13,048
Amortization of customer and trade name intangibles	4,386			3,360		11,742			10,016
Amortization of other intangibles												4,850		3,315

Operating income	37,585			44,282		113,565			118,411			34,491		38,838

Other income (expense), net	1,041			75		2,198			(216		)
Other income, net												586		599
Income before income taxes	38,626			44,357		115,763			118,195			35,077		39,437
Income tax (benefit) provision	(298		)	5,521		(147		)	14,820
Income tax provision												7,729		1,612
Net income	$	38,924		$	38,836	$	115,910		$	103,375		$	27,348	$	37,825

Earnings per common share:
Basic	$	1.00		$	1.04	$	3.01		$	2.78		$	0.71	$	1.00
Diluted	$	0.96		$	0.99	$	2.87		$	2.63		$	0.69	$	0.95

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)


	September 30, 2018 (unaudited)			December 31, 2017
				As Adjusted			March 31, 2019 (unaudited)			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	219,452		$	185,926		$	39,437		$	134,279
Accounts receivable [less allowance for doubtful accounts of $5,110 in 2018 and $5,427 in 2017]	281,523			246,188
Accounts receivable (less allowance for doubtful accounts of $4,692 in 2019 and $4,647 in 2018)							298,980			298,912
Short-term investments	52,349			43,159			36,958			44,306
Prepaid expenses	32,790			32,206			23,839			33,258
Income tax receivable	13,281			11,339			—			4,697
Other current assets	2,299			1,997			3,060			3,406
Total current assets	601,694			520,815			402,274			518,858

Accounts receivable, long-term	12,966			12,107			22,821			16,020
Operating lease right-of-use assets							20,067			—
Property and equipment, net	156,498			152,315			164,617			155,177
Other assets:
Goodwill	749,502			657,987			834,572			753,718
Other intangibles, net	282,806			229,617			389,633			276,852
Non-current investments and other assets	61,156			38,510			75,318			70,338
Total assets	$	1,864,622		$	1,611,351		$	1,909,302		$	1,790,963

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,597		$	8,174		$	6,011		$	6,910
Accrued liabilities	66,020			64,675			63,824			66,480
Operating lease liabilities							5,777			—
Current income tax payable							7,868			—
Deferred revenue	326,421			298,613			319,900			350,512
Total current liabilities	397,038			371,462			403,380			423,902

Revolving line of credit							85,000			—
Deferred revenue, long-term	493			1,274			442			424
Deferred income taxes	44,965			46,879			42,779			41,791
Operating lease liabilities, long-term							18,956			—

Commitments and contingencies							—			—

Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—			—			—			—
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of September 30, 2018 and December 31, 2017	481			481
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of March 31, 2019 and December 31, 2018							481			481
Additional paid-in capital	724,935			626,867			731,073			731,435
Accumulated other comprehensive loss, net of tax	(46		)	(46		)	(46		)	(46		)
Retained earnings	740,373			624,463			798,157			771,925
Treasury stock, at cost; 9,179,922 and 10,262,182 shares in 2018 and 2017, respectively	(43,617		)	(60,029		)
Treasury stock, at cost; 9,825,158 and 9,872,505 shares in 2019 and 2018, respectively							(170,920		)	(178,949		)
Total shareholders' equity	1,422,126			1,191,736			1,358,745			1,324,846
Total liabilities and shareholders' equity	$	1,864,622		$	1,611,351		$	1,909,302		$	1,790,963

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2018			2017			Three Months Ended March 31,
				As Adjusted			2019			2018
Cash flows from operating activities:
Net income	$	115,910		$	103,375		$	27,348		$	37,825
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	45,627			39,700			17,308			14,112
Share-based compensation expense	37,966			27,368			14,416			10,557
Deferred income tax benefit	(5,034		)	(13,705		)	(4,785		)	(2,658		)
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	(31,393		)	(6,672		)	9,622			30,227
Income taxes	(1,942		)	(467		)	12,425			4,053
Prepaid expenses and other current assets	983			(3,663		)	(3,064		)	1,333
Accounts payable	(4,729		)	(2,733		)	(1,501		)	(1,752		)
Accrued liabilities	1,523			1,316			(4,665		)	(17,952		)
Deferred revenue	20,442			(2,138		)	(43,147		)	(31,114		)
Net cash provided by operating activities	179,353			142,381			23,957			44,631

Cash flows from investing activities:
Additions to property and equipment	(23,460		)	(37,734		)	(12,320		)	(8,895		)
Purchase of marketable security investments	(92,638		)	(49,905		)	(3,590		)	(43,962		)
Proceeds from marketable security investments	60,208			21,175			20,276			11,077
Investment in software							(690		)	—
Cost of acquisitions, net of cash acquired	(167,308		)	(9,761		)	(199,130		)	—
Decrease in other	857			418			564			743
Net cash used by investing activities	(222,341		)	(75,807		)	(194,890		)	(41,037		)

Cash flows from financing activities:
Decrease in net borrowings on revolving line of credit	—			(10,000		)
Increase in net borrowings on revolving line of credit							85,000			—
Purchase of treasury shares	—			(7,032		)	(17,786		)	—
Proceeds from exercise of stock options	70,536			33,568			6,528			19,298
Contributions from employee stock purchase plan	5,978			5,342			2,349			1,798
Net cash provided by financing activities	76,514			21,878			76,091			21,096

Net increase in cash and cash equivalents	33,526			88,452
Net (decrease) increase in cash and cash equivalents							(94,842		)	24,690
Cash and cash equivalents at beginning of period	185,926			36,151			134,279			185,926
Cash and cash equivalents at end of period	$	219,452		$	124,603		$	39,437		$	210,616

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)



	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock					Total Shareholders' Equity
	Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Shares		Amount			Total Shareholders' Equity
Balance at December 31, 2018	48,148	$	481	$	731,435		$	(46	)	$	771,925		(9,872	)	$	(178,949	)	$	1,324,846
Retained Earnings Adjustment-Adoption of Topic 842 Leases, net of taxes	—	—		—			—			(1,116		)	—		—			(1,116		)
Net income	—	—		—			—			27,348			—		—			27,348
Exercise of stock options and vesting of restricted stock units	—	—		(14,405		)	—			—			111		20,933			6,528
Employee taxes paid for withheld shares upon equity award settlement	—	—		—			—			—			(7	)	(1,337		)	(1,337		)
Stock compensation	—	—		14,416			—			—			—		—			14,416
Issuance of shares pursuant to employee stock purchase plan	—	—		(373		)	—			—			15		2,722			2,349
Treasury stock purchases	—	—		—			—			—			(72	)	(14,289		)	(14,289		)
Balance at March 31, 2019	48,148	$	481	$	731,073		$	(46	)	$	798,157		(9,825	)	$	(170,920	)	$	1,358,745



	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Treasury Stock					Total Shareholders' Equity
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Shares		Amount			Total Shareholders' Equity
Balance at December 31, 2017	48,148	$	481	$	626,867	$	(46	)	$	624,463	(10,262	)	$	(60,029	)	$	1,191,736
Net income	—	—		—		—			37,825		—		—			37,825
Exercise of stock options and vesting of restricted stock units	—	—		13,858		—			—		350		5,440			19,298
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—			—		—		—			—
Stock compensation	—	—		10,557		—			—		—		—			10,557
Issuance of shares pursuant to employee stock purchase plan	—	—		1,627		—			—		12		171			1,798
Treasury stock purchases	—	—		—		—			—		—		—			—
Balance at March 31, 2018	48,148	$	481	$	652,909	$	(46	)	$	662,288	(9,900	)	$	(54,418	)	$	1,261,214

See accompanying notes.

Tyler Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Tables in thousands, except per share data)

(1) Basis of Presentation

We prepared the accompanying condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States, or GAAP, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods. Balance sheet amounts are as of ~~September 30, 2018,~~March 31, 2019, and December 31, ~~2017,~~2018, and operating result amounts are for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019, and 2018, ~~and 2017,~~ 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, ~~2017.~~2018. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). We had no items of other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~

~~Effective January 1, 2018, we adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09,~~ ~~Revenue from Contracts with Customers,~~ utilizing the full retrospective approach as discussed in Note 2 - Accounting Standards and Significant Accounting Policies. All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standard, as indicated by the "as adjusted" footnote.2018.

(2) Accounting Standards and Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the accounting policies for ~~revenue~~leases recognition ~~and deferred commissions~~ that were adjusted as a result of adopting ASU No. ~~2014-09,~~2016-02, Leases ("Topic 842"), there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed with the SEC on February ~~21, 2018,~~20, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.

USE OF ESTIMATES

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

REVENUE RECOGNITION

Nature of Products and Services

We provide integrated software systems and related services for the public sector, with a focus on local governments. We develop and market a broad line of software solutions and services to address the information technology (“IT”) needs of cities, counties, schools and other local government entities. In addition, we provide professional IT services, including software and hardware installation, data conversion, training, and for certain customers, product modifications, along with continuing maintenance and support for customers using our systems. We also provide subscription-based services such as software as a service (“SaaS”) arrangements, which utilize the Tyler private cloud, and electronic document filing solutions (“e-filing”). In addition, we provide property appraisal outsourcing services for taxing jurisdictions.

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~~the customer can benefit from the services either on their own or together with other resources readily available to the customer and whether the services are ~~essential to~~separately identifiable from other promises in the ~~product’s functionality.~~contract. The transaction price is allocated to the distinct performance obligations on a relative SSP basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.

~~Software Arrangements:~~

~~Software Licenses and Royalties~~

Many of our software arrangements involve “off-the-shelf” software. We recognize the revenue allocable to "off-the-shelf" software licenses and specified upgrades at a point in time when control of the software license transfers to the customer, unless the software is not considered distinct. We consider off-the-shelf software to be distinct when it can be added to an arrangement with minor changes in the underlying code, it can be used by the customer for the customer’s purpose upon installation and remaining services such as training are not considered essential to the product's functionality.

For arrangements that involve significant production, modification or customization of the software, or where software services are otherwise not considered distinct, we recognize revenue over time by measuring progress-to-completion. We measure progress-to-completion primarily using labor hours incurred as it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. These arrangements are often implemented over an extended 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.

Software license fees are billed in accordance with the contract terms. Typically, a majority of the fee is due when access to the software license is made available to the customer and the remainder of the fee due over a passage of time stipulated by the contract. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.

We recognize royalty revenue when the sale occurs under the terms of our third-party royalty arrangements. Currently, our third-party royalties are recognized on an estimated basis and are trued up when we receive notice of amounts we are entitled to receive. Typically, we receive notice of royalty revenues we are entitled to and billed on a quarterly basis in the quarter immediately following the royalty reporting period.

~~Software Services~~

As noted above, some of our software arrangements include services considered essential or require significant customization to meet the customer's desired functionality. For these software arrangements, both the software licenses and related software services revenue are not distinct and are recognized over time using the progress-to-completion method. We measure progress-to-completion primarily using labor hours incurred as it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Contract fees are typically billed on a milestone basis as defined within contract terms. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. When software services are distinct, the fee allocable to the service element is recognized over the time we perform the services and is billed on a time and material basis.

~~Post-Contract Customer Support~~

Our customers generally enter into PCS agreements when they purchase our software licenses. PCS includes telephone support, bug fixes, and rights to upgrades on a when-and-if available basis. PCS is considered distinct when purchased with our software licenses. Our PCS agreements are typically renewable annually. PCS is recognized over time on a straight-line basis over the period the PCS is provided. All significant costs and expenses associated with PCS are expensed as incurred.

~~Computer Hardware Equipment~~

~~Revenue allocable to computer hardware equipment is recognized at a point in time when control of the equipment is transferred to the customer.~~

~~Subscription-Based Services:~~

Subscription-based services consist of revenues derived from SaaS arrangements, which utilize the Tyler private cloud, and electronic filing transactions. Revenue from subscription-based services is generally recognized over time on a ratable basis over the contract term, beginning on the date that our service is made available to the customer. Our subscription contracts are generally three to five years or longer in length, billed annually in advance, and non-cancelable.

For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software. We allocate contract value to each performance obligation of the arrangement that qualifies for treatment as a distinct element based on estimated SSP. When it is determined that software is distinct and the customer has the ability to take control of the software, we recognize revenue allocable to the software license fee when access to the software license is made available to the customer. We recognize hosting services ratably over the term of the arrangement, which range from one to ten years but are typically for a period of three to five years. For software services associated with certain SaaS arrangements, we have concluded that the services are not distinct, and we recognize the revenue ratably over the remaining contractual period once we have provided the customer access to the software. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.

Electronic filing transaction fees primarily pertain to documents filed with the courts by attorneys and other third-parties via our e-filing services and retrieval of filed documents via our access services. For each document filed with a court, the filer generally pays a transaction fee and a court filing fee to us and we remit a portion of the transaction fee and the filing fee to the court. We record as revenue the transaction fee, while the portion of the transaction fee remitted to the courts is recorded as cost of sales as we are acting as a principal in the arrangement. Court filing fees collected on behalf of the courts and remitted to the courts are recorded on a net basis and thus do not affect the statement of comprehensive income. For e-filing transaction fees, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period.

Costs of performing services under subscription-based arrangements are expensed as incurred, except for certain direct and incremental contract origination and set-up costs associated with SaaS arrangements. Such direct and incremental costs are capitalized and amortized ratably over the useful life.

~~Appraisal Services:~~

For our property appraisal projects, we recognize revenue using the progress-to-completion method since many of these projects are implemented over one to three-year periods and consist of various unique activities. Appraisal services require a significant level of integration and interdependency with various individual service components; therefore, the service components are not considered distinct. Appraisal services are recognized over time by measuring progress-to-completion primarily using labor hours incurred as it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. These arrangements are often implemented over an extended 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. Contract fees are typically billed on a milestone basis as defined within contract terms. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.

Significant Judgments:

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

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

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

Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates additional revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably and its realization is probable.

Refer to Note 1213 - Disaggregation of Revenue for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenue and cash flows of our various revenue categories.

Contract Balances:

Accounts receivable and allowance for doubtful accounts

Timing of revenue recognition may differ from the timing of invoicing to customers. We record an unbilled receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record an unbilled receivable related to revenue recognized for on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.

At March 31, 2019 and December 31, 2018, total current and long-term accounts receivable, net of allowance for doubtful accounts, was $321.8 million and $314.9 million, respectively. We have recorded unbilled receivables of $113.1 million and $104.2 million at March 31, 2019, and December 31, 2018, respectively. Included in unbilled receivables are retention receivables of $13.4 million and $12.2 million at March 31, 2019, and December 31, 2018, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.

We maintain allowances for doubtful accounts, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for doubtful accounts may require revision, include, but are not limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products.

The following table summarizes the changes in the allowance for doubtful ~~accounts:~~accounts(in thousands):



	Three Months Ended March 31, 2019
Balance, beginning of period December 31, 2018	$	4,647
Provisions for losses - accounts receivable	1,148
Collection of accounts previously written off	(545		)
Deductions for accounts charged off or credits issued	(558		)
Balance, end of period	$	4,692

September 30, 2018
Balance, beginning of period December 31, 2017 $ 5,427
Provisions for losses - accounts receivable 1,714
Collection of accounts previously written off (212 )
Deductions for accounts charged off or credits issued (1,819 )
Balance, end of period $ 5,110
LEASES

~~The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance.~~ We determine ~~the allowance~~if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. We currently do not have any finance lease arrangements.

Operating lease ROU assets and operating lease liabilities are recognized based on ~~known troubled accounts, historical experience, and other currently available evidence.~~

~~In connection with our appraisal services contracts and certain software services contracts, we may perform work prior to when~~ the ~~software and services are billable and/or payable pursuant to~~present value of the ~~contract. Unbilled revenue is not billable at the balance sheet date but is recoverable~~future minimum lease payments over the ~~remaining life of the contract through billings made in accordance with contractual agreements. The termination clauses in~~lease term at commencement date. As most of our ~~contracts~~leases do not provide ~~for~~an implicit rate, we use our incremental borrowing rate based on the ~~payment for~~information available at commencement date of the lease in determining the present value of ~~products delivered~~future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or ~~services performed in~~terminate the event of early termination. We have historically recorded such unbilled receivables (costs and estimated profit in excess of billings) in connection with (1) property appraisal services contracts accountedlease when it is reasonably certain that we will exercise that option. Lease expense for using progress-to-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing normally occurs subsequently and may span another accounting period; (2) software services contracts accounted for using progress-to-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing for the software element of the arrangement may be based upon the specific phase of the implementation; (3) software revenue for which we haveminimum lease payments is recognized revenue at the point in time when the software is made available to the customer but the billing has not yet been submitted to the customer; (4) some of our contracts which provide for an amount to be withheld from a progress billing (generally between 5% and 20% retention) until final and satisfactory project completion is achieved; and (5) in a limited number of cases, extended payment terms, which may be granted to customers with whom we generally have a long-term relationship and favorable collection history.

~~The opening balance of current and long-term accounts receivable, net of allowance for doubtful accounts, was $226.8 million (as adjusted) as of January 1, 2017.~~

As of September 30, 2018, and December 31, 2017, total current and long-term accounts receivable, net of allowance for doubtful accounts, was $294.5 million and $258.3 million (as adjusted), respectively. We have recorded unbilled receivables of $86.9 million and $64.6 million (as adjusted) at September 30, 2018, and December 31, 2017, respectively. Included in unbilled receivables are retention receivables of $8.3 million and $7.2 million at September 30, 2018, and December 31, 2017, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.

Payment terms and conditions vary by contract type, although, terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises term licenses that are invoiced annually with revenue recognized upfront.

~~Deferred Revenue~~

The majority of deferred revenue consists of deferred maintenance revenue that has been billed based on contractual terms in the underlying arrangement, with the remaining balance consisting of payments received in advance of revenue being earned under software licensing, subscription-based services, software and appraisal services and hardware installation. Refer to Note 13 - Deferred Revenue and Performance Obligations for further information, including deferred revenue by segment and changes in deferred revenue during the period.

~~Deferred Commissions~~

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over ~~a period~~the lease term. Leases with an initial term of benefit that we have determined to be three to seven years. We utilized the 'portfolio approach' practical expedient in ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics because the effects12 months or less are not recorded on the ~~financial statements of this approach would not differ materially from applying~~balance sheet; we recognize lease expense for these leases on a straight-line basis over the ~~guidance to individual contracts. Using the 'portfolio approach', we determined the period of benefit by taking into consideration our customer contracts, our technology life-cycle~~lease term. We have lease agreements with lease and ~~other factors. Sales commissions for renewal contracts~~non-lease components, which are generally ~~not paid in connection with the renewal of~~accounted as a contract. In the small number of instances where a commission is paid on a renewal, it is not commensurate with the commission paid on the initial sale and is recognized over the term of renewal, which is generally one year. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Refer to Note 5 - Deferred Commissions for further information.single lease component.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

~~Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers. ASU No. 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605,~~ ~~Revenue Recognition ("Topic 605")~~, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or 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. Topic 606 also includes Subtopic 340-40 ~~Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, we refer to ASU No. 2014-09 and Subtopic 340-40 as the "new standard."~~

Leases.We adopted Topic 842 using the ~~requirements of~~transition method that allows us to initially apply the ~~new standard as~~guidance at the adoption date of January 1, ~~2018, utilizing~~2019, and recognized a cumulative-effect adjustment to the ~~full retrospective method~~opening balance of ~~transition. Adoption~~retained earnings in the period of adoption. We used the package of practical expedients that allows us to not reassess: (1) lease classification for any expired or existing leases and (2) initial direct costs for any expired or existing leases. We did not elect to use the hindsight application for evaluating the life of the ~~new standard resulted~~lease arrangement. The impacts of adoption are reflected in ~~changes~~the financial information herein. For additional details, see Note 10 to our accounting policies for revenue recognition, trade and other receivables, and deferred commissions as detailed below. We applied the new standard using a practical expedient where the consideration allocated to the remaining performance obligations or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before the date of the initial application is not disclosed.

condensed consolidated financial statements.

The impact of ~~adopting ASU No. 2014-09~~Topic 842 on our ~~total revenues~~consolidated balance sheet beginning January 1, 2019, included the recognition of ROU assets and lease liabilities for ~~2017 and 2016 was not material. The impact of adopting the new standard on our retained earnings and deferred commissions is material. The most significant impact of the new standard relates to~~operating leases, while our accounting for software license revenue. Specifically, under the new standard, software license fees under perpetual agreements are no longer subject to 100% discount allocations from other performance obligations in the contract. Discounts in arrangements are allocated across all performance obligations 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) are recognized at the point in time when control of the software license transfers to the customer versus our legacy policy of recognizing revenue upon delivery and only to the extent billable per the contractual terms. Under the new standard, time-based license fees are no longer recognized over the contractual period of the license and are instead recognized at the point in time when the control of the software license transfers to the customer. Revenues related to our PCS renewals, SaaS offerings and appraisal services remainfinance leases remained substantially unchanged. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the new standard is dependent on contract-specific terms and may vary in some instances from recognition at the time of billing.

Adoption of the new standard requires that incremental costs directly related to obtaining a contract (typically sales commissions) 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. Prior to adoption of the new standard, we deferred sales commissions and recognized expense over the relevant initial contractual term, which was generally one to two years. Under the new standard, we amortize these costs over a period of benefit that we have determined to be three to seven years.

We ~~adjusted our condensed consolidated financial statements from amounts previously reported due~~had no finance leases prior to the adoption of ~~the new standard. Select unaudited condensed consolidated statement of income line items, which reflect the adoption of the new standard, are as follows (in thousands, except per share data):~~Topic 842 and currently do not have any.

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted
Statement of Income:

Software licenses and royalties $ 19,842
$ 2,920
$ 22,762
$ 55,172
$ 8,654
$ 63,826
Subscriptions 44,840
(488 ) 44,352
125,889
(1,158 ) 124,731
Software services 47,479
(1,434 ) 46,045
139,869
(5,468 ) 134,401
Maintenance 92,285
(438 ) 91,847
268,556
(1,591 ) 266,965
Appraisal services 6,290
—
6,290
19,268
—
19,268
Hardware and other 3,410
—
3,410
14,057
(50 ) 14,007
Total revenues 214,146
560
214,706
622,811
387
623,198
Selling, general and administrative expenses 44,656
(143 ) 44,513
131,249
(956 ) 130,293
Amortization of customer and trade name intangibles 3,492
(132 ) 3,360
10,413
(397 ) 10,016
Operating income 43,447
835
44,282
116,671
1,740
118,411
Income tax provision 5,259
262
5,521
14,308
512
14,820
Net income $ 38,263
$ 573
$ 38,836
$ 102,147
$ 1,228
$ 103,375

Earnings per common share:
Basic $ 1.02
$ 1.04
$ 2.74
$ 2.78
Diluted $ 0.97
$ 0.99
$ 2.60
$ 2.63

~~Select condensed consolidated balance sheet line items, which reflect the adoption of the new standard, are~~Amounts recognized at January 1, 2019, for operating leases were as follows (in thousands):



	January 1, 2019
ROU Operating assets	$	15,633
Short-term lease liability	(4,344		)
Long-term lease liability	(12,405		)
Retained earnings	$	(1,116	)

December 31, 2017
As Reported Adjustments As Adjusted
Balance Sheet:

Accounts receivable $ 227,127
$ 19,061
$ 246,188
Prepaid expenses 27,252
4,954
32,206
Accounts receivable, long-term 7,536
4,571
12,107
Other intangibles, net 236,444
(6,827 ) 229,617
Total assets 1,589,592
21,759
1,611,351
Deferred revenue 309,461
(10,848 ) 298,613
Deferred income taxes 38,914
7,965
46,879
Retained earnings 599,821
24,642
624,463
Total liabilities and shareholders' equity $ 1,589,592
$ 21,759
$ 1,611,351

~~Our~~No impact was recorded to the statement of income for the adoption of ~~ASU No. 2014-09 had no impact on our net cash provided by or used in operating, investing or financing activities for any of the periods reported.~~Topic 842.

~~Recent tax legislation~~. On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for businesses and individuals. For businesses, the Tax Act reduces the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. The Tax Act also adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and a tax on global intangible low-taxed income (GILTI). The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate. Refer to Note 8 - Income Tax Provision for further information.

~~RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~

~~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 (except for 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.

Topic 842 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 will adopt the new standard in fiscal year 2019.

(3) Acquisitions

On August 31, 2018, we acquired all of the assets of CaseloadPRO, L.P. ("CaseloadPRO"), a company that provides a fully featured probation case management system. The purchase price was $9.2 million, of which $9.1 million was paid in cash and approximately $150,000 was accrued as of September 30, 2018. The impact of this acquisition on our operating results is not material.

On April 30, 2018, we acquired all of the equity interests of Sage Data Security, LLC ("Sage"), a cybersecurity company offering a suite of services that supports an entire cybersecurity lifecycle, including program development, education and training, technical testing, advisory services, and digital forensics. The total purchase price was $11.6 million paid in cash. The impact of this acquisition on our operating results is not material.

~~On April 30, 2018,~~February 28, 2019, we acquired all of the capital stock of ~~Socrata,~~MP Holdings Parent, Inc. dba MicroPact ("~~Socrata"~~MicroPact"), a ~~company that provides open data and data-as-a-service~~leading provider of commercial off-the-shelf (COTS) solutions, including ~~cloud-based data integration, visualization, analysis,~~entellitrak®, a low-code application development platform for case management and ~~reporting solutions for state and local government agencies.~~business process management used extensively in the public sector. The total purchase price, net of cash acquired of ~~$1.7~~$2.0 million, was ~~$147.6~~approximately $204.2 million consisting of $197.5 million paid in ~~cash.~~

cash, accrued contingent consideration of $7.0 million contingent upon the achievement of certain financial performance objectives, and $1.7 million accrued for certain holdbacks, subject to certain post-closing adjustments.

We have performed a preliminary valuation analysis of the fair market value of ~~Socrata’s~~MicroPact’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition ~~date.~~

date:



(In thousands)
Cash	$	1,983
Accounts receivable	11,852
Other current assets	8,979
Other noncurrent assets	10,417
Identifiable intangible assets	118,843
Goodwill	82,029
Accounts payable	(602		)
Accrued expenses	(2,432		)
Other noncurrent liabilities	(8,879		)
Deferred revenue	(9,898		)
Deferred tax liabilities, net	(6,144		)
Total consideration	$	206,148

Cash $ 1,724
Accounts receivable 3,616
Other current assets 2,057
Other noncurrent assets 68
Identifiable intangible assets 75,000
Goodwill 78,909
Accounts payable (1,254 )
Accrued expenses (1,717 )
Deferred revenue (5,915 )
Deferred tax liabilities, net (3,120 )
Total consideration $ 149,368

In connection with this transaction, we acquired total tangible assets of ~~$7.5~~$33.2 million and assumed liabilities of approximately ~~$8.9~~$21.8 million. We recorded goodwill of ~~$78.9~~$82.0 million, none of which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately ~~$75.0~~$118.8 million. The ~~$75.0~~$118.8 million of intangible assets are attributable to customer relationships, acquired software, ~~and~~ trade name and favorable fair value of an operating lease and will be amortized over a weighted average period of approximately 1410 years. We recorded deferred tax liabilities of ~~$3.1~~$6.1 million related to estimated fair value allocations. ~~Socrata’s~~The acquisition of MicroPact augments Tyler's product solutions, ~~are a direct complement~~positions us in new practice areas such as health and human services, and presents opportunities to expand our ~~current offerings and will provide a~~business across new and ~~important additional revenue stream.By offering Socrata within virtually every~~complementary markets. Tyler ~~product suite, our clients will have~~intends to expand its total addressable market through MicroPact's strong presence in the opportunity to make their existing data discoverable, usable and actionable, but more importantly, potentially include data from other agencies and jurisdictions to make analysis even more powerful and meaningful.federal market. Therefore, the goodwill of ~~$78.9~~$82.0 million arising from this acquisition is primarily attributed to our ability to ~~integrate Socrata's solutions with our existing portfolio and to~~ generate increased revenues, earnings and cash flow by ~~leveraging~~expanding our ~~sales resources~~addressable market and client base. We also incurred fees of approximately $578,000 for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete the acquisition. These fees were expensed in 2018 and are included in selling, general and administrative expenses.

The following unaudited pro forma consolidated operating results information ~~of the consolidated results of operations have~~has been prepared as if the ~~Socrata~~MicroPact acquisition had occurred at January 1, ~~2017,~~2018, after giving effect to certain adjustments, including amortization of intangibles, interest, transaction costs and tax effects.



	Three Months Ended March 31,
	2019		2018

Revenues	$	258,864	$	238,533
Net income	26,378		36,282
Basic earnings per share	0.69		0.95
Diluted earnings per share	$	0.67	$	0.91

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017

Revenues $ 236,067
$ 220,825
$ 701,742
$ 642,034
Net income 38,924
34,119
107,763
89,599
Basic earnings per share 1.00
0.91
2.80
2.41
Diluted earnings per share $ 0.96
$ 0.87
$ 2.67
$ 2.28

Pro forma information above does not include acquisitions that are not considered material to our results of operations. The pro forma information does not purport to represent what our results of operations actually would have been had such transaction ~~or event~~ occurred on the date specified or to project our results of operations for any future period.

On February 1, 2019, we acquired all the assets of Civic, LLC ("MyCivic"), a company that provides software solutions to connect communities. The purchase price was $3.7 million of which $3.6 million was paid in cash and approximately $90,000 was accrued for a working capital holdback.

As of ~~September 30, 2018,~~March 31, 2019, the purchase price allocations for ~~Socrata, Sage~~MicroPact and ~~CaseloadPRO~~MyCivic are not yet complete. The preliminary estimates of fair value assumed at the acquisition date for intangible assets, ~~receivables and~~ deferred revenue, accrued contingent consideration, accrued holdbacks and related deferred taxes are subject to change as valuations are finalized. The operating results of ~~Socrata, Sage~~MicroPact and ~~CaseloadPRO~~MyCivic are included ~~with~~in the operating results of the Enterprise Software segment since their ~~date~~respective dates of acquisition. Revenues from ~~Socrata~~MicroPact included in Tyler's results of operations were approximately ~~$5.4 million and $8.4~~$5.5 million and the net ~~losses were $3.9 million and $7.9~~loss was $0.4 million for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2019. Revenues and operating results from ~~Sage and CaseloadPRO~~MyCivic included in ~~2018~~2019 results were not significant. As of March 31, 2019, we incurred fees of approximately $695,000 for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete these acquisitions. These fees were expensed in 2019 and are included in selling, general and administrative expenses.

Our balance sheet as of ~~September 30, 2018,~~March 31, 2019, reflects the allocation of the purchase price to the assets acquired based on their fair value at the date of each acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

(4) Shareholders’ Equity

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



	Three Months Ended March 31,
	2019					2018
	Shares		Amount			Shares	Amount
Purchases of treasury shares	(72	)	$	(14,289	)	—	$	—
Stock option exercises	94		6,564			350	19,298
Employee stock plan purchases	15		2,349			12	1,798
Restricted stock units vested, net of withheld shares upon award settlement	10		$	(1,373	)	—	$	—

Nine Months Ended September 30,
2018 2017
Shares Amount Shares Amount
Purchases of treasury shares —
$ —
(42 ) $ (6,171 )
Stock option exercises 1,048
70,536
787
33,568
Employee stock plan purchases 35
$ 5,978
40
$ 5,342

As of ~~September 30, 2018,~~March 31, 2019, we had authorization from our board of directors to repurchase up to ~~2.0~~2.6 million additional shares of ~~Tyler~~our common stock.

(5) Deferred Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of associated revenue over a period of benefit that we have determined to be three to seven years. Deferred commissions were ~~$21.4~~$23.6 million and ~~$19.3~~$21.9 million ~~(as adjusted)~~ as of ~~September 30, 2018,~~March 31, 2019, and December 31, ~~2017,~~2018, respectively. Amortization expense was $3.8 million for the three months ended March 31, 2019, and ~~$10.9~~$3.5 million for the three ~~and nine~~ months ended ~~September 30, 2018, respectively, and $2.6 million and $7.9 million for the three and nine months ended September 30, 2017 (as adjusted), respectively.~~March 31, 2018. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

(6) Other Assets

Cash and cash equivalents consist of cash on deposit with several domestic banks and money market funds.

As of ~~September 30, 2018,~~March 31, 2019, we have ~~$95.8~~$81.0 million in investment grade corporate and municipal bonds with maturity dates ranging through ~~2022.~~2022. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or other observable market data. These investments are included in short-term investments and non-current investments and other assets.

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 we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values. Our investment is carried at cost less any impairment write-downs. Annually, our cost method investments are assessed for impairment. We do 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 and other assets.

(7) Revolving Line of Credit

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

Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180 day LIBOR rate plus a margin of 1.25% to 2.00%. As of ~~September 30, 2018,~~March 31, 2019, the interest rates were ~~5.25%~~5.75% under the Wells Fargo Bank's prime ~~rate and 3.49% under a 30-day LIBOR contract.~~rate. The Credit Facility is secured by substantially all of our assets. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of ~~September 30, 2018,~~March 31, 2019, we were in compliance with those covenants.

As of ~~September 30, 2018,~~March 31, 2019, we had no outstanding ~~borrowings. Available~~borrowings of $85.0 million at interest rates of approximately 3.80%, under a 30-day LIBOR contract. As of March 31, 2019, available borrowing capacity under the Credit Facility was ~~$300~~$215.0 million.

(8) Income Tax Provision

We had an effective income tax rate of ~~negative 0.8% and 0.1%~~22.0% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~12.4% and 12.5% (as adjusted)~~4.1% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2018. The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 21% ~~in 2018 and 35% in 2017 principally~~ due to excess tax benefits related to stock option ~~exercises.~~exercises, state income taxes, non-deductible business expenses, and the tax benefit of research tax credits. The excess tax benefit related to stock option exercises realized was ~~$9.3 million and $30.0~~$1.7 million for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~$9.0 million and $27.6~~$9.1 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2018. Excluding the excess tax benefits, the effective rate was ~~23.3% and 25.8%~~26.8% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~32.8% and 35.9% (as adjusted)~~27.2% for the three ~~and nine~~ months ended September 30, 2017, respectively. Other differences from the federal statutory income tax rate include state income taxes, non-deductible business expenses, the tax benefit of research tax credits, provisional amounts associated with the Tax Act recorded in 2018, and in 2017, the tax benefit of the domestic production activities deduction.

March 31, 2018.

The ~~decrease~~increase in the effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017~~2018 was principally due ~~primarily~~ to the ~~reduction of the U.S. corporate tax rate from 35% to 21% as a result of the Tax Act, the increase~~decrease in excess tax benefit related to stock option exercises and the research tax credit benefit, offset by the elimination of the domestic production activities deduction and the increased limitations on the deduction for executive compensation. In the fourth quarter of 2017, we recorded a $26.0 million (as adjusted under Topic 606) tax benefit due to the remeasurement of deferred tax assets and liabilities at a lower tax rate. As of September 30, 2018, we increased the provisional amounts for the income tax effects of the Tax Act recorded in 2017 to $27.7 million to reflect actual amounts reported in income tax returns filings. We will continue to analyze the estimates and further guidance on the application of the law, and additional revisions may occur throughout the allowable measurement period which will not exceed one year from the enactment of the Tax Act. Overall, the changes due to the Tax Act will favorably affect income tax expense and future U.S. earnings. exercises.

We made tax payments of ~~$6.8 million~~$88,000 and ~~$29.0 million~~$218,000 in the ~~nine~~three months ended ~~September 30,~~March 31, 2019, and 2018, ~~and 2017,~~ respectively.

(9) Earnings Per Share

The following table details the reconciliation of basic earnings per share to diluted earnings per ~~share:~~share (in thousands):



	Three Months Ended March 31,
	2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	27,348	$	37,825
Denominator:
Weighted-average basic common shares outstanding	38,308		38,002
Assumed conversion of dilutive securities:
Stock awards	1,277		1,834
Denominator for diluted earnings per share - Adjusted weighted-average shares	39,585		39,836
Earnings per common share:
Basic	$	0.71	$	1.00
Diluted	$	0.69	$	0.95

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
As Adjusted As Adjusted
Numerator for basic and diluted earnings per share:
Net income $ 38,924
$ 38,836
$ 115,910
$ 103,375
Denominator:

Weighted-average basic common shares outstanding 38,761
37,391
38,533
37,238
Assumed conversion of dilutive securities:

Stock options 1,767
1,951
1,812
2,028
Denominator for diluted earnings per share
- Adjusted weighted-average shares
40,528
39,342
40,345
39,266
Earnings per common share:

Basic $ 1.00
$ 1.04
$ 3.01
$ 2.78
Diluted $ 0.96
$ 0.99
$ 2.87
$ 2.63

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and March 31, 2018, stock ~~options~~awards representing the right to purchase common stock of approximately ~~350,000~~1,253,000 shares and ~~734,000~~1,111,000 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~~

(10) Leases

We lease office facilities for use in our operations, as well as transportation and other equipment. Most of our leases are non-cancelable operating lease agreements and they expire from one year to seven years. Some of these leases include options to extend for up to 10 years.We had no finance leases and no related party lease agreements as of March 31, 2019. Operating lease cost was approximately $2.1 million for the three ~~and nine~~ months ended ~~September 30, 2017, stock options representing~~March 31, 2019 and $1.6 million for the three months ended March 31, 2018.

The components of operating lease expense were as follows (in thousands):



Lease Costs	Financial Statement Classification	Three Months Ended March 31,
		2019

Operating lease cost	Selling, general and administrative expenses	$	1,370
Short-term lease cost	Selling, general and administrative expenses	570
Variable lease cost	Selling, general and administrative expenses	163
Net lease cost		$	2,103

As of March 31, 2019, ROU lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows (in thousands):



	March 31, 2019
	2019

Assets:
Operating lease right-of-use assets	$	20,067
Liabilities:
Operating leases, short-term	5,777
Operating leases, long-term	18,956
Total lease liabilities	$	24,733

Supplemental information related to leases was as follows (in thousands):



Other Information	Three Months Ended March 31,
	2019

Cash Flows:
Cash paid amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,530

Lease Term and Discount Rate:
Weighted average remaining lease term (years)	5
Weighted average discount rate	4.00		%

As of March 31, 2019, maturities of lease liabilities were as follows (in thousands):



Year ending December 31,	Amount

2019 (Remaining 2019)	$	5,316
2020	6,579
2021	5,293
2022	3,375
2023	2,716
Thereafter	3,989
Total lease payments	27,268
Less: Interest	(2,535		)
Present value of operating lease liabilities	$	24,733

As of December 31, 2018, the future minimum lease commitments related to lease agreements under Topic 840, the predecessor of Topic 842, were as follows (in thousands):



Year ending December 31,	Amount
2019	$	5,994
2020	5,146
2021	3,976
2022	1,925
2023	1,164
Thereafter	2,132
Total	$	20,337

We own office buildings in Bangor, Falmouth and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; and Moraine, Ohio. We lease space in some of these buildings to third-party tenants. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between 2019 and 2025, some of which have options to extend the lease for up to five years. We determine if an arrangement is a lease at inception. None of our leases allow the lessee to purchase ~~common stock of approximately 1,499,000~~the leased asset.

Rental income for the three months ended March 31, 2019 totaled $284,000 and ~~1,303,000 shares were not~~for the three months ended March 31, 2018 totaled $357,000. Rental income is included in Other revenue on the ~~computation~~condensed consolidated statement of ~~diluted earnings per share because their inclusion would have~~income. Future minimum operating rental income based on contractual agreements are as follows (in thousands):



Year ending December 31,	Amount

2019 (Remaining 2019)	$	998
2020	1,341
2021	1,372
2022	1,402
2023	1,432
Thereafter	2,395
Total	$	8,940

As of March 31, 2019, we had ~~an anti-dilutive effect.~~ no additional significant operating or finance leases that had not yet commenced.

~~(10)~~(11) Share-Based Compensation

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



	Three Months Ended March 31,
	2019		2018
Cost of software services, maintenance and subscriptions	$	3,798	$	2,776
Selling, general and administrative expenses	10,618		7,781
Total share-based compensation expense	$	14,416	$	10,557

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Cost of software services, maintenance and subscriptions $ 3,909
$ 2,524
$ 9,640
$ 6,874
Selling, general and administrative expenses 10,567
7,267
28,326
20,494
Total share-based compensation expense $ 14,476
$ 9,791
$ 37,966
$ 27,368

~~(11)~~

(12) Segment and Related Information

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

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

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

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

courts and justice and public safety software solutions;

data and insights solutions; and

appraisal and tax software solutions and property appraisal services.

In accordance with ASC 280-10, Segment Reporting, the financial management, education and planning, regulatory and maintenance software solutions unit; financial management, municipal courts, planning, regulatory and maintenance, and land and vital records management software solutions unit; courts and justice and public safety software solutions unit; and the data and insights solutions unit meet the criteria for aggregation and are presented in one reportable segment, the Enterprise Software (“ES”) segment. The ES segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as financial management and courts and justice processes; public safety; planning, regulatory and maintenance; land and vital records management, and data analytics. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction.

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



For the three months ended March 31, 2019
	Enterprise Software		Appraisal and Tax		Corporate			Totals
Revenues
Software licenses and royalties	$	19,011	$	2,782	$	—		$	21,793
Subscriptions	64,642		2,633		—			67,275
Software services	41,967		6,476		—			48,443
Maintenance	94,012		6,140		—			100,152
Appraisal services	—		5,214		—			5,214
Hardware and other	4,190		2		(3		)	4,189
Intercompany	3,553		—		(3,553		)	—
Total revenues	$	227,375	$	23,247	$	(3,556	)	$	247,066
Segment operating income	$	57,034	$	5,535	$	(16,546	)	$	46,023


For the three months ended September 30, 2018
For the three months ended March 31, 2018
	Enterprise Software		Appraisal and Tax		Corporate			Totals		Enterprise Software		Appraisal and Tax		Corporate			Totals
Revenues
Software licenses and royalties	$	19,544	$	2,900	$	—		$	22,444	$	20,689	$	2,087	$	—		$	22,776
Subscriptions	56,220		2,479		—			58,699		46,683		2,345		—			49,028
Software services	41,640		6,559		—			48,199		40,286		5,653		—			45,939
Maintenance	90,072		6,143		—			96,215		87,813		6,084		—			93,897
Appraisal services	—		5,544		—			5,544		—		5,394		—			5,394
Hardware and other	4,999		—		(33		)	4,966		3,800		—		340			4,140
Intercompany	3,373		—		(3,373		)	—		3,237		—		(3,237		)	—
Total revenues	$	215,848	$	23,625	$	(3,406	)	$	236,067	$	202,508	$	21,563	$	(2,897	)	$	221,174
Segment operating income	$	59,334	$	6,695	$	(18,161	)	$	47,868	$	56,615	$	4,647	$	(13,727	)	$	47,535



	Three Months Ended March 31,
Reconciliation of reportable segment operating income to the Company's consolidated totals:	2019			2018
Total segment operating income	$	46,023		$	47,535
Amortization of acquired software	(6,682		)	(5,382		)
Amortization of other intangibles	(4,850		)	(3,315		)
Other income (expense), net	586			599
Income before income taxes	$	35,077		$	39,437

For the nine months ended September 30, 2018
Enterprise Software Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 60,224
$ 7,396
$ —
$ 67,620
Subscriptions 153,541
7,195
—
160,736
Software services 126,928
17,884
—
144,812
Maintenance 267,681
18,507
—
286,188
Appraisal services —
16,470
—
16,470
Hardware and other 12,525
33
4,917
17,475
Intercompany 9,696
—
(9,696 ) —
Total revenues $ 630,595
$ 67,485
$ (4,779 ) $ 693,301
Segment operating income $ 174,365
$ 16,845
$ (48,900 ) $ 142,310

For the three months ended September 30, 2017
As Adjusted
Enterprise
Software
Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 21,143
$ 1,619
$ —
$ 22,762
Subscriptions 42,338
2,014
—
44,352
Software services 40,861
5,184
—
46,045
Maintenance 86,138
5,709
—
91,847
Appraisal services —
6,290
—
6,290
Hardware and other 3,412
—
(2 ) 3,410
Intercompany 2,660
—
(2,660 ) —
Total revenues $ 196,552
$ 20,816
$ (2,662 ) $ 214,706
Segment operating income $ 61,243
$ 5,450
$ (13,578 ) $ 53,115

For the nine months ended September 30, 2017
As Adjusted
Enterprise
Software
Appraisal and Tax Corporate Totals
Revenues
Software licenses and royalties $ 58,805
$ 5,021
$ —
$ 63,826
Subscriptions 119,033
5,698
—
124,731
Software services 120,190
14,211
—
134,401
Maintenance 251,457
15,508
—
266,965
Appraisal services —
19,268
—
19,268
Hardware and other 9,385
—
4,622
14,007
Intercompany 7,309
—
(7,309 ) —
Total revenues $ 566,179
$ 59,706
$ (2,687 ) $ 623,198
Segment operating income $ 167,767
$ 14,371
$ (37,468 ) $ 144,670

Three Months Ended September 30, Nine Months Ended September 30,
Reconciliation of reportable segment operating income to the Company's consolidated totals: 2018 2017 2018 2017
As Adjusted As Adjusted
Total segment operating income $ 47,868
$ 53,115
$ 142,310
$ 144,670
Amortization of acquired software (5,897 ) (5,473 ) (17,003 ) (16,243 )
Amortization of customer and trade name intangibles (4,386 ) (3,360 ) (11,742 ) (10,016 )
Other income (expense), net 1,041
75
2,198
(216 )
Income before income taxes $ 38,626
$ 44,357
$ 115,763
$ 118,195

~~(12)~~(13) Disaggregation of Revenue

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

Timing of Revenue Recognition

Timing of revenue recognition by revenue category during the period is as ~~follows:~~follows (in thousands):


For the three months ended September 30, 2018
For the three months ended March 31, 2019
	Products and services transferred at a point in time		Products and services transferred over time		Total		Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Software licenses and royalties	$	17,373	$	5,071	$	22,444	$	16,910	$	4,883	$	21,793
Subscriptions	—		58,699		58,699		—		67,275		67,275
Software services	—		48,199		48,199		—		48,443		48,443
Maintenance	—		96,215		96,215		—		100,152		100,152
Appraisal services	—		5,544		5,544		—		5,214		5,214
Hardware and other	4,966		—		4,966		4,189		—		4,189
Total	$	22,339	$	213,728	$	236,067	$	21,099	$	225,967	$	247,066

For the nine months ended September 30, 2018
Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 53,697
$ 13,923
$ 67,620
Subscriptions —
160,736
160,736
Software services —
144,812
144,812
Maintenance —
286,188
286,188
Appraisal services —
16,470
16,470
Hardware and other 17,475
—
17,475
Total $ 71,172
$ 622,129
$ 693,301



For the three months ended March 31, 2018
	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Software licenses and royalties	$	19,063	$	3,713	$	22,776
Subscriptions	—		49,028		49,028
Software services	—		45,939		45,939
Maintenance	—		93,897		93,897
Appraisal services	—		5,394		5,394
Hardware and other	4,140		—		4,140
Total	$	23,203	$	197,971	$	221,174

For the three months ended September 30, 2017
As Adjusted Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 18,007
$ 4,755
$ 22,762
Subscriptions —
44,352
44,352
Software services —
46,045
46,045
Maintenance —
91,847
91,847
Appraisal services —
6,290
6,290
Hardware and other 3,410
—
3,410
Total $ 21,417
$ 193,289
$ 214,706

For the nine months ended September 30, 2017
As Adjusted Products and services transferred at a point in time Products and services transferred over time Total
Revenues
Software licenses and royalties $ 51,257
$ 12,569
$ 63,826
Subscriptions —
124,731
124,731
Software services —
134,401
134,401
Maintenance —
266,965
266,965
Appraisal services —
19,268
19,268
Hardware and other 14,007
—
14,007
Total $ 65,264
$ 557,934
$ 623,198

Recurring Revenue

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

Recurring revenues and non-recurring revenues recognized during the period are as ~~follows:~~follows (in thousands):


For the three months ended September 30, 2018
For the three months ended March 31, 2019
	Enterprise Software		Appraisal and Tax		Corporate			Totals		Enterprise Software		Appraisal and Tax		Corporate			Totals

Recurring revenues	$	146,292	$	8,622	$	—		$	154,914	$	158,654	$	8,773	$	—		$	167,427
Non-recurring revenues	66,183		15,003		(33		)	81,153		65,168		14,474		(3		)	79,639
Intercompany	3,373		—		(3,373		)	—		3,553		—		(3,553		)	—
Total revenues	$	215,848	$	23,625	$	(3,406	)	$	236,067	$	227,375	$	23,247	$	(3,556	)	$	247,066



For the three months ended March 31, 2018
	Enterprise Software		Appraisal and Tax		Corporate			Totals

Recurring revenues	$	134,496	$	8,429	$	—		$	142,925
Non-recurring revenues	64,775		13,134		340			78,249
Intercompany	3,237		—		(3,237		)	—
Total revenues	$	202,508	$	21,563	$	(2,897	)	$	221,174

For the nine months ended September 30, 2018

Enterprise
Software
Appraisal and Tax Corporate Totals

Recurring revenues $ 421,222
$ 25,702
$ —
$ 446,924
Non-recurring revenues 199,677
41,783
4,917
246,377
Intercompany 9,696
—
(9,696 ) —
Total revenues $ 630,595
$ 67,485
$ (4,779 ) $ 693,301

For the three months ended September 30, 2017
As Adjusted
Enterprise
Software
Appraisal and Tax Corporate Totals

Recurring revenues $ 128,476
$ 7,723
$ —
$ 136,199
Non-recurring revenues 65,416
13,093
(2 ) 78,507
Intercompany 2,660
—
(2,660 ) —
Total revenues $ 196,552
$ 20,816
$ (2,662 ) $ 214,706

For the nine months ended September 30, 2017
As Adjusted
Enterprise
Software
Appraisal and Tax Corporate Totals

Recurring revenues $ 370,490
$ 21,206
$ —
$ 391,696
Non-recurring revenues 188,380
38,500
4,622
231,502
Intercompany 7,309
—
(7,309 ) —
Total revenues $ 566,179
$ 59,706
$ (2,687 ) $ 623,198

(14) Deferred Revenue and Performance Obligations

Total deferred revenue, including long-term, by segment is as ~~follows:~~follows (in thousands):



	March 31, 2019		December 31, 2018
Enterprise Software	$	298,184	$	327,521
Appraisal and Tax	21,589		20,018
Corporate	569		3,397
Totals	$	320,342	$	350,936

September 30, 2018 December 31, 2017
As Adjusted
Enterprise Software $ 307,872
$ 277,198
Appraisal and Tax 16,450
20,387
Corporate 2,592
2,302
Totals $ 326,914
$ 299,887

~~The opening balance of total deferred revenue, including long-term, was $290.1 million (as adjusted) as of January 1, 2017.~~

Changes in total deferred revenue, including long-term, were as ~~follows:~~follows (in thousands):



	March 31, 2019
Balance, beginning of period December 31, 2018	$	350,936
Deferral of revenue	167,975
Recognition of deferred revenue	(198,569		)
Balance, end of period	$	320,342

September 30, 2018
Balance, beginning of period December 31, 2017 (As Adjusted) $ 299,887
Deferral of revenue 649,152
Recognition of deferred revenue (622,125 )
Balance, end of period $ 326,914

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized ("Backlog"), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of ~~September 30, 2018~~March 31, 2019, was ~~$1.2~~$1.3 billion, of which we expect to recognize approximately ~~51%~~50% as revenue over the next 12 months and the remainder thereafter.

~~(14)~~(15) Commitments and Contingencies

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.

~~(15) Subsequent Events~~

~~The following events and transactions occurred subsequent to September 30, 2018:~~

On October 1, 2018, we acquired all of the capital stock of TradeMaster, Inc. dba MobileEyes, a company that develops software to improve public safety by supporting fire prevention and suppression, emergency response, and structural safety. The total purchase price was approximately $4.8 million in cash, subject to certain post-closing adjustments.

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

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (2) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (3) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (4) material portions of our business require the Internet infrastructure to be adequately maintained; (5) 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) general economic, political and market conditions; (7) 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) 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) 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) costs of compliance and any failure to comply with government and stock exchange regulations. A detailed discussion of these factors and other risks that affect our business are described in Item 1A, “Risk Factors.” We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

We provide integrated information management solutions and services for the public sector, with a focus on local governments. 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 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~~such as software as a service (“SaaS”), which primarily utilize the Tyler private cloud, ~~such as e-filing,~~and electronic document filing solutions (“e-filing”), which ~~simplifies~~simplify the filing and management of court related documents. Revenues for e-filing are derived from transaction fees and, in some cases, fixed fee arrangements. We also provide property appraisal outsourcing services for taxing jurisdictions.

Our products generally automate seven 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 (6) land and vital records ~~and documents,~~management and (7) data and insights. We report our results in two segments. The Enterprise Software (“ES”) segment provides federal, municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such asas: financial management; courts and justice processes; public safety; planning, regulatory and maintenance; land and vital records ~~and documents;~~management; and data ~~and insights.~~analytics. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction.

Our total employee count increased to ~~4,447~~5,053 at ~~September 30, 2018,~~March 31, 2019, from ~~4,039~~4,121 at ~~September 30, 2017.~~March 31, 2018.

For the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, total revenues increased ~~10% and 11%~~12%, ~~respectively,~~ compared to the prior year periods. Organic revenue growth was 7% and 9% for the three and nine months ended September 30, 2018, respectively compared to the prior year periods and revenues from acquisitions completed as of September 30, 2018 contributed 3% and 2% of growth for the three and nine months ended September 30, 2018, respectively.period.

Subscriptions revenue grew ~~32% and 29%~~37% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, due to a gradual shift toward cloud-based, software as a service business, as well as continued strong growth in our e-filing revenues from courts. ~~Organic~~Excluding the impact of recent acquisitions, subscriptions revenue increased 22% ~~and 23%~~ for the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2019.

Our backlog at ~~September 30, 2018~~March 31, 2019 was ~~$1.2~~$1.3 billion, a 7%5% increase from last year.

Adoption of New ~~Revenue~~Lease Accounting Standard

On January 1, ~~2018,~~2019, we adopted ASU No. ~~2014-09,~~2016-02, Leases ("Topic 842") using the ~~full retrospective~~transition method that allows us to initially apply the guidance at the adoption date of ~~transition, which requires~~January 1, 2019, and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We used the package of practical expedients that ~~the new standard be applied~~allows us to ~~all periods presented.~~not reassess: (1) lease classification for any expired or existing leases and (2) initial direct costs for any expired or existing leases. The impacts of adoption are reflected in the financial information herein. For additional ~~details,~~information, see Note 210 to our condensed consolidated financial statements in this report.

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”) 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,” included in our Form 10-K for the year ended December 31, ~~2017.~~2018. Except for the accounting policies for ~~revenue recognition, trade and other receivables, and deferred commissions that were~~operating leases updated as a result of adopting ASU No. ~~2014-09,~~2016-02, 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, ~~2017.~~

ANALYSIS OF RESULTS OF OPERATIONS

On ~~April 30, 2018,~~February 28, 2019, we acquired all of the capital stock of ~~Socrata,~~MP Holdings Parent, Inc. dba MicroPact ("~~Socrata"~~MicroPact"), a ~~company that provides open data~~leading provider of commercial off-the-shelf (COTS) solutions, including entellitrak®, a low-code application development platform for case management and ~~data-as-a-service solutions for state and local government agencies including cloud-based data integration, visualization, analysis, and reporting solutions.~~business process management used extensively in the public sector. The following table details revenue for ~~Socrata~~MicroPact for the ~~periods presented as of September 30, 2018,~~quarter ended March 31, 2019, which is included in our condensed consolidated statements of ~~income:~~income from the date of acquisition:

~~On August 31, 2018, we~~We also acquired ~~CaseloadPRO, L.P.~~all the assets of Civic, LLC ("~~CaseloadPRO"~~MyCivic"), a company that provides a fully featured probation case management system. On April 30, 2018, we also acquired Sage Data Security, LLC ("Sage"), a cybersecurity company offering a suite of services that supports an entire cybersecurity lifecycle.software solutions to connect communities. The impact of ~~these acquisitions~~this acquisition on our operating results is not considered material ~~individually and in the aggregate,~~ and is not included in the table above. The results of these acquisitions are included with the operating results of the ES segment from their dates of acquisition.

Software licenses and royalties

The following table sets forth a comparison of our software licenses and royalties revenue for the periods presented as of ~~September 30:~~March 31:

~~Software~~Excluding the results of acquisitions, software licenses and royalties revenue decreased ~~1% and increased 6%~~7.4% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to the prior year period. The decline was primarily due to a shift in the mix of new software contracts toward more subscription agreements compared to the prior year. Our total new contract value mix for the three months ended ~~September 30, 2018~~March 31, 2019, was ~~primarily due to an increase in the number of new software clients choosing our subscription-based options, rather than purchasing the software under a traditional~~approximately 46% perpetual software license ~~arrangement. The increase in software licenses~~arrangements and ~~royalties revenue~~approximately 54% subscription-based arrangements compared to total new contract value mix for the ~~nine~~three months ended ~~September 30,~~March 31, 2018, ~~is attributed to additions to our implementation staff, which increased our capacity to deliver backlog.~~of approximately 60% perpetual software license arrangements and approximately 40% subscription-based arrangements.

Although the mix of new contracts between subscription-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect our longer-term software license growth rate to slow as a growing number of clients choose our subscription-based options, rather than purchasing the software under a traditional perpetual software license arrangement. Subscription-based arrangements result in lower software license revenue in the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract. Our new client mix for the nine months ended September 30, 2018, was approximately 43% perpetual software license arrangements and approximately 57% subscription-based arrangements compared to a client mix for the nine months ended September 30, 2017, of approximately 51% perpetual software license arrangements and approximately 49% subscription-based arrangements.

The following table sets forth a comparison of our subscriptions revenue for the periods presented as of ~~September 30:~~March 31:

Subscriptions revenue primarily consists of revenue derived from our SaaS arrangements, which utilize the Tyler private cloud. As part of our subscription-based services, we also provide 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.

Excluding the results of acquisitions, subscriptions revenue grew 22% ~~and 23%~~ for the three ~~and nine~~ months ending ~~September 30, 2018, respectively,~~March 31, 2019, compared to the prior year. 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~~ months ending ~~September 30, 2018, respectively,~~March 31, 2019, we added ~~81 and 329~~128 new SaaS clients and ~~31 and 89~~13 existing on-premises clients converted to our SaaS model. Since ~~September 30, 2017,~~March 31, 2018, we have added ~~412~~416 new SaaS clients while ~~108~~84 existing on-premises clients converted to our SaaS model. Also, e-filing services contributed approximately ~~$1.4 million and $5.6~~$2.2 million to the subscriptions revenue increase for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, due to the addition of new e-filing clients, as well as increased volumes as the result of several existing clients mandating e-filing. ~~The acquisition of Socrata, which primarily has a subscription revenue model, also contributed to the increase in subscription revenues.~~

The following table sets forth a comparison of our software services revenue for the periods presented as of ~~September 30:~~March 31:

Software services revenue primarily consists of professional services delivered in connection with implementing our software, converting client data, training client personnel, custom development activities and consulting. New clients who acquire our software generally also contract with us to provide the related software services. Existing clients also periodically purchase additional training, consulting and minor programming services. Excluding the results ~~from~~of acquisitions, ~~for the three and nine months ended September 30, 2018, respectively,~~ software services revenue decreased ~~1% and increased 5%~~2% for the three months ended March 31, 2019 compared to the prior year period. ~~For the three months ended, the slight decrease~~The decline in software services is attributed to ~~delays~~an increase in ~~the delivery~~our client mix toward SaaS and recognition of services on certain new contracts because of extended sales processes and client-driven schedules. For the nine months ended, the increase is due to higher new contract volume and the addition of professional services staff to grow our capacity to deliver backlog. Excluding employees added with acquisitions, oursubscription-based arrangements that require fewer implementation ~~and support staff has grown by 86 employees since September 30, 2017.~~services.

The following table sets forth a comparison of our maintenance revenue for the periods presented as of ~~September 30:~~March 31:

We provide maintenance and support services for our software products and certain third-party software. ~~Maintenance~~Excluding the results of acquisitions, maintenance revenue grew ~~5% and 7%~~4% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to the prior year period.

Maintenance revenue increased mainly due to annual maintenance rate increases and growth in our installed customer base from new software license sales partially offset by clients converting from on-premises license arrangements to SaaS.

The following table sets forth a comparison of our appraisal services revenue for the periods presented as of ~~September 30:~~March 31:

Appraisal services revenue for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, decreased by ~~12% and 15%~~3% compared to the prior year primarily due to the successful completion of several ~~large~~ revaluation projects in ~~mid-2017.~~mid - 2018. 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 30:~~March 31:

The following table sets forth a comparison of gross margin percentage by revenue type for the periods presented as of ~~September 30:~~March 31:

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. In the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, our software licenses, royalties and acquired software gross margin decreased ~~2.8% and 0.6%~~7.4% compared to the prior year period due to the decline in software licenses revenues coupled with higher amortization expense for acquired software resulting from acquisitions. Excluding the impact of acquisitions amortization expense, our software license, royalties and acquired software gross margin was 71.7% for the both three and nine months ended September 30, 2018, respectively.

Software services, maintenance and subscriptions. Cost of software services, maintenance and subscriptions 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 ongoing operation of SaaS and e-filing arrangements. The software services, maintenance and subscription gross margin in the three ~~and nine~~ months ended ~~September 30, 2018, respectively, decreased 1.1% and 0.6%~~March 31, 2019, increased 1.9% from the comparable prior year period. Excluding employees added through acquisitions, our implementation and support staff has grown by 86104 employees since ~~September 30, 2017,~~March 31, 2018, as we accelerated hiring to ensure that we are well-positioned to deliver our current backlog and anticipated new business. 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.

Appraisal services. Appraisal services revenue was approximately 2% of total revenue for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2019. The appraisal services gross margin for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, increased ~~1.8% and decreased 0.7%~~3.9% compared to the same period in ~~2017.~~2018. During the three months ended ~~September 30, 2018,~~March 31, 2019, appraisal gross margin increased due to lower headcount of appraisal staff. During the nine months ended September 30, 2018, appraisal gross margin decreased primarily due to the completion of certain higher-margin projects in 2017 and a lower volume of revenues in the current period to cover relatively fixed costs. The appraisal services business is somewhat cyclical and driven in part by statutory revaluation cycles in various states.

For the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, our overall gross margin ~~decreased 1.1% and~~increased 0.5% compared to the prior year period. Our overall gross margin ~~decrease~~increase for the ~~both~~ three ~~and nine months~~month period is ~~mainly~~ attributed to ~~additions~~a higher revenue mix for subscription revenues compared to ~~our implementation~~the prior year period resulting in an increase in incremental margin related to software services, maintenance and subscriptions. 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 ~~combined with~~and economies of scale. The increase in overall margins are offset by lower ~~margin revenues~~margins from software licenses, in part due to higher amortization expense for acquired software resulting from acquisitions.

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 30:~~March 31:

SG&A as a percentage of revenues was 23% for the three months ended March 31, 2019, compared to 22% for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2018, compared to 21% for both the three and nine months ended September 30, 2017.~~March 31, 2018. SG&A expense increased ~~18% and 17%~~21% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively.~~March 31, 2019. This increase is mainly due to higher share-based compensation expense, increased staffing levels, and an increase in commission expense as a result of higher sales. Excluding employees added with acquisitions, we have added 3052 SG&A employees, mainly to our sales and finance teams, since ~~September 30, 2017.~~March 31, 2018. For the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, stock compensation expense rose ~~$3.3 million and $7.8~~$2.8 million compared to the same period in ~~2017,~~2018, mainly due to an increase in share-based awards issued in connection with our stock compensation plan coupled with the higher fair value of each share-based award due to the increase in our stock price.

Research and Development Expense

The following table sets forth a comparison of our research and development expense for the periods presented as of ~~September 30:~~March 31:

Research and development expense consists mainly of costs associated with development of new products and technologies from which we do not currently generate significant revenue.

Research and development expense in the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, increased ~~44% and 30%~~45% compared to prior period mainly due to a number of new Tyler product development initiatives across our product ~~suites.~~suites, as well as investments related to newly acquired businesses. To support these initiatives, our research and development staff has grown by ~~133~~211 since ~~September 30, 2017.~~

Amortization of ~~Customer and Trade Name~~Other Intangibles

Acquisition intangibles are composed of the excess of the purchase price over the fair value of net tangible assets acquired that is primarily 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 ~~of customer and trade name intangibles increased substantially from the comparable prior year periods due to the acquisition of Socrata in April 2018. 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. Increase in amortization of other intangibles is attributed to the acquisition of Socrata, Inc., which closed during the second quarter of 2018.

The following table sets forth a comparison of amortization of customer and trade name intangibles for the periods presented as of ~~September 30:~~March 31:

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

The following table sets forth a comparison of our other income, ~~(expense),~~ net, for the periods presented as of ~~September 30:~~March 31:

Other income, ~~(expense),~~ net, is comprised of interest expense and non-usage and other fees associated with our revolving credit agreement ~~as well as~~net of interest income from invested cash. The change in other income, ~~(expense),~~ net, in the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to the prior period is due to increased interest ~~income~~expense from ~~significantly higher~~new debt outstanding coupled with lower levels of ~~cash investments resulting from cash generated in the last year. We had no debt in the current period, as we repaid all borrowings under the revolving line of credit in January 2017.~~invested cash.

Income Tax Provision

The following table sets forth a comparison of our income tax provision for the periods presented as of ~~September 30:~~March 31:

The ~~decrease~~increase in effective tax rate for the three months ended ~~September 30, 2018,~~March 31, 2019, as compared to the same period in ~~2017~~2018, was principally due ~~primarily~~ to the ~~reduction of the U.S. corporate tax rate from 35% to 21% as a result of the Tax Act, the increase~~decrease in ~~the~~ excess tax benefit related to share-based compensation and research tax credit benefit, offset by the elimination of the domestic production activities deduction and the increased limitations on the deduction for executive compensation.stock option exercises. The effective income tax rates for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively, were different from the statutory United States federal income tax rates of 21% ~~and 35%, respectively, principally~~ due to excess tax benefits related to stock option ~~exercises.~~exercises, state income taxes, non-deductible business expenses, and the tax benefit of research tax credits. The excess tax benefit related to stock option exercises realized was ~~$9.3 million and $30.0~~$1.7 million for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~$9.0 million and $27.6~~$9.1 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2018. Excluding the excess tax benefits, the effective rate was ~~23.3% and 25.8%~~26.8% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~32.8% and 35.9% (as adjusted)~~27.2% for the three ~~and nine~~ months ended September 30, 2017, respectively. Other differences from the federal statutory income tax rate include state income taxes, non-deductible business expenses, the tax benefit of research tax credits, provisional amounts associated with the Tax Act recorded in 2018, and in 2017, the tax benefit of the domestic production activities deduction.March 31, 2018.

FINANCIAL CONDITION AND LIQUIDITY

As of ~~September 30, 2018,~~March 31, 2019, we had cash and cash equivalents of ~~$219.5~~$39.4 million compared to ~~$185.9~~$134.3 million at December 31, ~~2017.~~2018. We also had ~~$95.8~~$81.0 million invested in investment grade corporate and municipal bonds as of ~~September 30, 2018.~~March 31, 2019. These investments mature through 2022, and we intend to hold these investments until maturity. As of ~~September 30, 2018,~~March 31, 2019, we believe our cash from operating activities, revolving line of credit, 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~~three months ended ~~September 30:~~March 31:

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 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~~three months ended ~~September 30, 2018,~~March 31, 2019, operating activities provided cash of ~~$179.4~~$24.0 million. Operating activities that provided cash were primarily comprised of net income of ~~$115.9~~$27.3 million, non-cash depreciation and amortization charges of ~~$45.6~~$17.3 million and non-cash share-based compensation expense of ~~$38.0~~$14.4 million. Working capital, excluding cash, increased approximately ~~$20.2~~$35.1 million ~~mainly~~ due ~~to higher accounts receivable because of an increase~~the decline in ~~unbilled receivables attributed to revenues recognized prior billings,~~deferred revenue balances, the timing of payments related to bonuses ~~timing of tax payments~~and prepaid commissions, and the deferred taxes associated with stock option activity during the period. These increases were offset by ~~an increase~~collections of annual maintenance renewal billings that are billed in ~~deferred revenue attributed to growth in our installed software maintenance customer base and growth in subscription-based arrangements.~~the fourth quarter, as well as the timing of income tax payments.

Our days sales outstanding (“DSO”) was ~~107~~104 days at ~~September 30, 2018,~~March 31, 2019, compared to ~~102~~111 days ~~(as adjusted)~~ at December 31, ~~2017~~2018 and 9488 days ~~(as adjusted)~~ at ~~September 30, 2017.~~March 31, 2018. The ~~increase~~decrease in ~~our~~ DSO compared to December 31, 2018, is ~~mainly due to an increase in unbilled receivables~~primarily attributed to the increase in software license revenue for which we have recognized revenue at the point in time when the software is made available to the customer but the billing has not yet been submitted to the customer, as well as an increase in software services contracts accounted for using progress-to-completion method of revenue recognition in which the services are performed in one accounting period but the billing normally occurs subsequently in another accounting period. Furthermore, our maintenance billing cycle typically ~~peaks~~peaking 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 increase in DSO compared to March 31, 2018, is mainly due to an increase in unbilled receivables attributed to an increase in software services contracts accounted for using progress-to-completion method of revenue recognition in which the services are performed in one accounting period, but the billing normally occurs subsequently in another accounting period.

Investing activities used cash of ~~$222.3~~$194.9 million in the ~~nine~~three months ending ~~September 30, 2018.~~March 31, 2019. On August 31, 2018, we acquired all of the assets of CaseloadPRO, L.P., a company that provides a fully featured probation case management system. The purchase price was $9.2 million, of which $9.1 million was paid in cash and approximately $150,000 was accrued as of September 30, 2018. On April 30, 2018,February 28, 2019, we acquired all of the capital stock of Socrata, a company that provides open data and data-as-a-service solutions for state local and government agencies including cloud-based data integration, visualization, analysis, and reporting solutions.MicroPact. The total purchase price, net of cash acquired of ~~$1.7~~$2.0 million, was ~~$147.6~~approximately $204.2 million, including $197.5 million paid in ~~cash.~~cash, accrued contingent consideration of $7.0 million and $1.7 million accrued for certain holdbacks. On ~~April 30, 2018,~~February 1, 2019, we ~~also~~ acquired all the assets of the equity interests of Sage, a cybersecurity company offering a suite of services that supports an entire cybersecurity lifecycle, including program development, education and training, technical testing, advisory services, and digital forensics.MyCivic. The ~~total~~ purchase price was ~~$11.6~~$3.7 million of which $3.6 million was paid in ~~cash.~~cash and approximately $90,000 was accrued for a working capital holdback. Approximately ~~$23.5~~$12.3 million was invested in property and equipment, including ~~$1.8~~$8.7 million related to real estate. Approximately $690,000 of software development was capitalized in the quarter. The remaining additions were for computer equipment and furniture and fixtures in support of internal growth, particularly with respect to data centers supporting growth in our cloud-based offerings.

Investing activities used cash of $41.0 million in the three months ending March 31, 2018. Approximately $8.9 million was invested in property and equipment including $891,000 for real estate construction costs. The remaining additions were for computer equipment and furniture and fixtures in support of internal growth, particularly with respect to data centers supporting growth in our cloud-based offerings.

Investing activities used cash of $75.8 million in the nine months ending September 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. On August 2, 2017, we acquired all of the capital stock of Digital Health Department, Inc., a company that provides environmental health software, offering a software-as-a-service (SaaS) solution for public health compliance and inspections processes. The total purchase price, net of debt assumed, was $3.9 million, 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 $7.0 million, of which $6.1 million was paid in cash and $0.9 million was accrued as of September 30, 2017. The impact of these acquisitions on our operating results is not material.

Financing activities provided cash of ~~$76.5~~$76.1 million in the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and were comprised of purchases of treasury shares, net borrowings from our revolving line of credit, proceeds from stock option exercises and employee stock purchase plan activity. During the three months ended March 31, 2019, we repurchased approximately 72,000 shares of our common stock for an aggregate purchase price of $14.3 million, with an average price per share of $199.03.

Financing activities provided cash of $21.1 million in the three months ended March 31, 2018, and were comprised of proceeds from stock option exercises and employee stock purchase plan activity. We did not repurchase any shares of our common stock during the ~~nine~~three months ended ~~September 30,~~March 31, 2018.

Financing activities provided cash of $21.9 million in the nine months ended September 30, 2017, and were comprised of purchases of treasury shares, proceeds from stock option exercises and employee stock purchase plan activity. During the nine months ended September 30, 2017, we purchased 42,000 shares of our common stock for an aggregate purchase price of $6.2 million at an average price paid per share of $147.30.

~~We had authorization from~~In February 2019, our board of directors toauthorized the repurchase ~~up to 2.0~~of an additional 1.5 million ~~additional~~ shares of Tyler common ~~stock as of September 30, 2018.~~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 March 31, 2019, we had authorization from our board of directors to repurchase up to 2.6 million additional shares of Tyler 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.

~~Subsequent to September 30, 2018 and through October 31, 2018, we purchased approximately 155,000 shares of our common stock for an aggregate cash purchase price of $32.3 million.~~

We made tax payments of ~~$6.8 million~~$88,000 and $218,000 in the ~~nine~~three months ended ~~September 30,~~March 31, 2019, and 2018, ~~compared to tax payments of $29.0 million in the nine months ended September 30, 2017.~~respectively.

~~Excluding acquisitions, we~~We anticipate that ~~2018~~2019 capital spending will be between ~~$23~~$48 million and ~~$26~~$50 million, including approximately $2$22 million related to real ~~estate.~~estate and approximately $6 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. We currently do not expect to capitalize significant amounts related to software development in 2018, but the actual amount 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 and cash flows from ~~operations and borrowings under our revolving line of credit.~~operations.

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 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 2026.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

As of ~~September 30, 2018,~~March 31, 2019, we had no outstanding borrowings of $85.0 million at interest rates of approximately 3.80% under a 30-day LIBOR contract. As of March 31, 2019, available borrowing capacity under the Credit ~~Facility.~~ Facility was $215.0 million.

Loans under the Credit Facility bear interest, at Tyler’s option, at a per annum rate of either (1) the Wells Fargo Bank prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 1.25% to 2.00%.

During the three months ended March 31, 2019, our effective average interest rate for borrowings was 3.78%. As of ~~September 30, 2018,~~March 31, 2019, our interest rate was ~~5.25%~~5.75% under the Wells Fargo Bank prime ~~rate and 3.49% under a 30-day LIBOR contract.~~rate. The Credit Facility is secured by substantially all of our assets.

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 30, 2018.~~March 31, 2019.

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 30, 2018,~~March 31, 2019, 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 ~~2017~~2018 Annual Report on Form 10-K. We believe those risk factors are the most relevant to our business and could cause our results to differ materially from the forward-looking statements made by us. Please note, however, that those are not the only risk factors facing us. Additional risks that we do not consider material, or of which we are not currently aware, may also have an adverse impact on us. Our business, financial condition and results of operations could be seriously harmed if any of these risks or uncertainties actually occurs or materializes. In that event, the market price for our common stock could decline, and our shareholders may lose all or part of their investment. During the three months ended ~~September 30, 2018,~~March 31, 2019, 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, ~~2017.~~2018.

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 to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 10.1		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John S. Marr Jr. effective February 26, 2018 (filed as Exhibit 10.1 to our Form 8-K dated March 9, 2018 and incorporated by reference herein).

~~Exhibit 10.2~~		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and H. Lynn Moore, Jr effective February 26, 2018 (filed as Exhibit 10.2 to our Form 8-K dated March 9, 2018 and incorporated by reference herein).

~~Exhibit 10.3~~		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and Brian K. Miller effective February 26, 2018 (filed as Exhibit 10.3 to our Form 8-K dated March 9, 2018 and incorporated by reference herein).

~~Exhibit 10.4~~		Agreement and plan of merger by and among Tyler Technologies, Inc. ~~and Dedomena Acquisition,~~, TMP Subsidiary Inc., ~~Socrata, Inc~~MP Holdings Parent, Inc. (filed as Exhibit ~~10.4~~10.7 to our Form ~~10-Q~~10-K dated ~~May 10, 2018~~Feb 20, 2019 and incorporated by reference herein).

~~Exhibit 10.5~~		~~Employee Stock Purchase Plan (filed as Exhibit 10.1 to our registration statement 333-225011 dated May 17, 2018 and incorporated by reference herein).~~

Exhibit 101		Instance Document

Exhibit 101		Schema Document

Exhibit 101		Calculation Linkbase Document

Exhibit 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 31, 2018~~May 8, 2019

3530



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



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



	September 30, 2018
Balance, beginning of period December 31, 2017	$	5,427
Provisions for losses - accounts receivable	1,714
Collection of accounts previously written off	(212		)
Deductions for accounts charged off or credits issued	(1,819		)
Balance, end of period	$	5,110



	Three Months Ended September 30, 2017							Nine Months Ended September 30, 2017
	As Reported		Adjustments			As Adjusted		As Reported		Adjustments			As Adjusted
Statement of Income:

Software licenses and royalties	$	19,842	$	2,920		$	22,762	$	55,172	$	8,654		$	63,826
Subscriptions	44,840		(488		)	44,352		125,889		(1,158		)	124,731
Software services	47,479		(1,434		)	46,045		139,869		(5,468		)	134,401
Maintenance	92,285		(438		)	91,847		268,556		(1,591		)	266,965
Appraisal services	6,290		—			6,290		19,268		—			19,268
Hardware and other	3,410		—			3,410		14,057		(50		)	14,007
Total revenues	214,146		560			214,706		622,811		387			623,198
Selling, general and administrative expenses	44,656		(143		)	44,513		131,249		(956		)	130,293
Amortization of customer and trade name intangibles	3,492		(132		)	3,360		10,413		(397		)	10,016
Operating income	43,447		835			44,282		116,671		1,740			118,411
Income tax provision	5,259		262			5,521		14,308		512			14,820
Net income	$	38,263	$	573		$	38,836	$	102,147	$	1,228		$	103,375

Earnings per common share:
Basic	$	1.02				$	1.04	$	2.74				$	2.78
Diluted	$	0.97				$	0.99	$	2.60				$	2.63




Cash	$	1,724
Accounts receivable	3,616
Other current assets	2,057
Other noncurrent assets	68
Identifiable intangible assets	75,000
Goodwill	78,909
Accounts payable	(1,254		)
Accrued expenses	(1,717		)
Deferred revenue	(5,915		)
Deferred tax liabilities, net	(3,120		)
Total consideration	$	149,368



	September 30, 2018
Balance, beginning of period December 31, 2017 (As Adjusted)	$	299,887
Deferral of revenue	649,152
Recognition of deferred revenue	(622,125		)
Balance, end of period	$	326,914


	Percent of Total Revenues
	Third Quarter				Nine Months Ended				Percent of Total Revenues
	2018		2017		2018		2017		First Quarter
			As Adjusted				As Adjusted		2019		2018
Revenues:
Software licenses and royalties	9.5	%	10.6	%	9.8	%	10.2	%	8.8	%	10.3	%
Subscriptions	24.9		20.7		23.2		20.0		27.2		22.2
Software services	20.4		21.4		20.9		21.6		19.6		20.8
Maintenance	40.8		42.8		41.2		42.9		40.6		42.4
Appraisal services	2.3		2.9		2.4		3.1		2.1		2.4
Hardware and other	2.1		1.6		2.5		2.2		1.7		1.9
Total revenues	100.0		100.0		100.0		100.0		100.0		100.0
Cost of revenues:
Software licenses, royalties and acquired software	2.9		2.9		2.9		3.0		3.0		2.8
Software services, maintenance and subscriptions	47.2		45.7		47.2		46.2		47.4		48.0
Appraisal services	1.5		1.9		1.6		2.0		1.4		1.7
Hardware and other	1.1		1.1		1.7		1.7		1.2		1.1
Selling, general and administrative expenses	22.3		20.7		22.0		20.9		23.4		21.5
Research and development expense	7.2		5.5		6.6		5.7		7.7		5.9
Amortization of customer and trade name intangibles	1.9		1.6		1.7		1.6		2.0		1.5
Operating income	15.9		20.6		16.3		18.9		13.9		17.5
Other income (expense), net	0.4		—		0.3		(0.2	)
Other income, net									0.2		0.3
Income before income taxes	16.3		20.6		16.6		18.7		14.1		17.8
Income (benefit) tax provision	(0.1	)	2.6		—		2.4
Income tax provision									3.1		0.7
Net income	16.4	%	18.0	%	16.6	%	16.3	%	11.0	%	17.1	%


	Third Quarter				Change					Nine Months Ended				Change				First Quarter				Change
($ in thousands)	2018		2017		$			%		2018		2017		$		%		2019		2018		$			%
			As Adjusted									As Adjusted
ES	$	19,544	$	21,143	$	(1,599	)	(8	)%	$	60,224	$	58,805	$	1,419	2	%	$	19,011	$	20,689	$	(1,678	)	(8	)%
A&T	2,900		1,619		1,281			79		7,396		5,021		2,375		47		2,782		2,087		695			33
Total software licenses and royalties revenue	$	22,444	$	22,762	$	(318	)	(1	)%	$	67,620	$	63,826	$	3,794	6	%	$	21,793	$	22,776	$	(983	)	(4	)%