UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended JuneSeptember 30, 2004

OR

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

Commission File Number 1-10485

TYLER TECHNOLOGIES, INC.

5949 SHERRY LANE, SUITE 1400
DALLAS, TEXAS
75225
(Address of principal executive offices)
(Zip code)

(972) 713-3700
(Registrant’s telephone number, including area code)

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)[X] No (   )[  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes (X)[X] No (   )[  ]

Number of shares of common stock of registrant outstanding at July 27,October 26, 2004: 41,305,19441,263,408

PART I. FINANCIAL INFORMATION

ItemITEM 1. Financial Statements

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)

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

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Tyler Technologies, Inc.

(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 JuneSeptember 30, 2004 and December 31, 2003 and operating result amounts are for the three and sixnine months ended JuneSeptember 30, 2004 and 2003, 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, 2003. 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.
		Although we have a number of operating subsidiaries, separate segment data has not been presented as they meet the criteria set forth in SFAS (Statement of Financial Accounting Standards) No. 131, “Disclosures About Segments of an Enterprise and Related Information” to be presented as one segment.
		In addition, certain other amounts for the previous year have been reclassified to conform to the current year presentation.
(2)		Acquisitions
		During December 2003 we acquired one company, Eden Systems, Inc. (“Eden”) and certain assets of a business that provides forms software to users of some of our software products. The results of these acquisitions have been included in our condensed consolidated financial statements since their respective dates of acquisition. We acquired 95% of the outstanding common stock of Eden on December 2, 2003. Eden provides financial, personnel and citizen services applications software for local governments similar to our financial and city solutions products. We believe Eden’s products and expertise will complement our business model and give us additional opportunities to provide our customers with solutions tailored specifically for local governments. In particular, the addition of Eden considerably increases our presence in the western part of the United States.
		Following is a summary of our 2003 acquisitions:

income tax effects. Pro forma information does not include acquisitions that are not considered material to our results of

4

We have $7.5 million invested in a certificate of deposit with a maturity date in excess of one year included in other assets of which $5.9$5.75 million is restricted to collateralize letters of credit required under our surety bond program. These letters of credit expire throughout 2004 and 2005.

5

(7)		Earnings Per Share
		The following table details the reconciliation of basic earnings per share to diluted earnings per share:

(9)		Comprehensive Income
		The components of comprehensive income are as follows:

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

		FORWARD-LOOKING STATEMENTS
		The statements in this discussion that are not historical statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our business, financial condition, business strategy, plans and the objectives of our management, and future prospects. In addition, we have made in the past and may make in the future other written or oral forward-looking statements, including statements regarding future operating performance, short- and long-term revenue and earnings growth, the timing of the revenue and earnings impact for new contracts, backlog, the value of new contract signings, business pipeline, and industry growth rates and our performance relative thereto. Any forward-looking statements may rely on a number of assumptions concerning future events and be subject to a number of uncertainties and other factors, many of which are outside our control, which could cause actual results to differ materially from such statements. These include, but are not limited to: our ability to improve productivity and achieve synergies from acquired businesses; technological risks associated with the development of new products and the enhancement of existing products; changes in the budgets and regulating environments of our government customers; competition in the industry in which we conduct business and the impact of competition on pricing, revenues and margins; with respect to customer contracts accounted for under the percentage-of-completion method of accounting, the performance of such contracts in accordance with our cost and revenue estimates; our ability to maintain health and other insurance coverage and capacity due to changes in the insurance market and the impact of increasing insurance costs on the results of operations; the costs to attract and retain qualified personnel, changes in product demand, the availability of products, economic conditions, costs of compliance with corporate governance and public disclosure requirements as issued by the Sarbanes-Oxley Act of 2002 and New York Stock Exchange rules, changes in tax risks and other risks indicated in our filings with the Securities and Exchange Commission. The factors described in this paragraph and other factors that may affect Tyler, its management or future financial results, as and when applicable, are discussed in Tyler’s filings with the Securities and Exchange Commission, on its Form 10-K for the year ended December 31, 2003. Except to the extent required by law, we are not obligated to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. When used in this Quarterly Report, the words “believes,” “plans,” “estimates,” “expects,” “anticipates,” “intends,” “continue,” “may,” “will,” “should”, “projects”, “forecast”, “might”, “could” or the negative of such terms and similar expressions as they relate to Tyler or our management are intended to identify forward-looking statements.
		GENERAL
		We provide integrated software systems and related services for local governments. We develop and market a broad line of software products 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 to our customers, 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 property appraisal outsourcing services for taxing jurisdictions.
		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 interim periods 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 on going basis, we evaluate our estimates, including those related to revenue recognition and capitalization, amortization and potential impairment of intangible assets and goodwill. As these are condensed financial statements, one should also read our Form 10-K for the year ended December 31, 2003 regarding expanded information about our critical accounting policies and estimates.

9

		ANALYSIS OF RESULTS OF OPERATIONS
		The following discussion compares the historical results of operations on a basis consistent with GAAP for the three and sixnine months ended JuneSeptember 30, 2004 and 2003. On December 2, 2003, we acquired 95% ownership of Eden Systems, IncInc. (“Eden”), and theirthe remaining 5% ownership during 2004. Their operating results have been included in our consolidated financial statements since the date of acquisition. Accordingly, the three and sixnine months ended JuneSeptember 30, 2004 includes the operating results of Eden, while the same three and six-monthnine-month periods in 2003 do not. This information should be considered when comparing to 2003 financial results of 2003.results. See Note 2 in the Notes to the Condensed Consolidated Financial Statements.

Revenues

The following table sets forth, a year-over-year comparison of the key components of our revenues for the following periods presented as of Juneended September 30:

	•	provided	Software services revenue related to appraisal products for the nine months ended September 30, 2004 included approximately $500,000 and $1.2$1.5 million from our subcontract agreement with the Valuation Office Agency of the increase, respectively. In addition, for the threeUnited Kingdom (“England contract”) and six months ended June 30, 2004, sales from$700,000 related to Orion, our new tax appraisal product totaled approximately $275,000product. We began implementing the England contract late in the third quarter of 2003 and $480,000, respectively;a contract with the State of Kansas to install Orion began in December 2003.
•		Higher software license sales in the three and six months ended June 30, 2004 compared to the same periods in 2003. Typically, contracts for software licenses include services such as installation of the software, converting the customers’ data to be compatible with the software and training customer personnel to use the software. Increased training staff also allowed for faster implementation of our backlog; and
•		Eden recorded $2.2 millionThe third quarter of 2004 included seven Odyssey Courts contracts which generated an additional $700,000 in service revenue compared to two Odyssey contracts in the prior year period. Implementation of five of these contracts began mid-year 2004 and $4.0 milliondid not generate substantial revenue in the first half of softwarethe year and therefore year-to-date services revenue forrelated to Odyssey Courts was flat compared to the three and six months ended June 30, 2004, respectively.prior year period.

Maintenance. We provide maintenance and support services for our software products and third party software. Maintenance revenues for the three months ended JuneSeptember 30, 2004 included $980,000$1.0 million from Eden. For the sixnine months ended JuneSeptember 30, 2004, Eden contributed maintenance revenues of $1.9$2.9 million. Excluding the impact from Eden, maintenance revenues increased approximately 17%16% due to growth in our installed customer base and slightly higher rates on certain product lines, during the three and sixnine months ended JuneSeptember 30, 2004 compared to the same prior year periods.

		Appraisal services. In March 2003, we signed a new six-year contract to provide Nassau County, New York Board of Assessors (“Nassau County Extension”) with updated property assessments and additional property appraisal and tax software. The following table contains thedecrease in appraisal services revenues foris due to the timing of significant appraisal contracts, forspecifically the periods presented:completion of our contract with Lake County, Indiana, during the third quarter of 2003.

		Cost of Revenues and Gross Margins
		The following table sets forth a comparison of the key components of our cost of revenues and associated gross margins, and those components stated as a percentage of related revenues for the following periods presented as of Juneended September 30:

		Cost of appraisal services revenues.
		During the second quarter, the decreaseThe change in costs of appraisal services revenue wereis consistent with the decreasechange in appraisal service revenues. For the sixnine months ended JuneSeptember 30, 2004, the increase in the cost of appraisal revenue is slightly higher than the prior year period due to the use of sub-contractors in the first quarter of 2004 to supplement our appraisal staff on some of our larger contracts. The nature and timing of these contracts required us to retain staff on either short notice or with specific qualifications that increased the associated costs as a percentage of appraisal revenue.
		Gross margin.
		Excluding the results of Eden, our gross margins for the three and six-month periodsnine-months ending JuneSeptember 30, 2004 were 37.3%35.8% and 36.6%36.3%, respectively, compared to 40.8% and 38.5% in the comparable prior year periods, respectively. TheseThe decline in gross margins were down slightly from the comparable prior year periods primarilywas due to higherthe following factors:

	•		Higher amortization costs of our software development products.products released mid-year;
	•		Our overall product mix included less software license revenues; and
	•		The utilization of sub-contractors by our property appraisal and tax division during the first quarter of 2004.

Selling, General and Administrative Expenses

		The following table sets forth, comparisons of our selling, general and administrative expenses (SG&A) for the following periods presented as of Juneended September 30:

intangibles are composed of the excess of the purchase price over the fair value of net tangible assets acquired that is allocated to acquired and amortizable software, customer base and trade name with the remainder allocated to goodwill that is not subject to amortization.

Realized Gain on Sale of Investment in H.T.E., Inc.

On March 25, 2003, we received cash proceeds of $39.3 million in connection with a transaction to sell all of our 5.6 million shares of H.T.E., Inc. (“HTE”) common stock to SunGard Data Systems Inc. for $7.00 cash per share. Our original cost basis in the HTE shares was $15.8 million. After transaction and other costs, we recorded a gross realized gain of $23.2 million ($16.2 million or $0.35$0.36 per diluted share after income taxes of $7.0 million) for the sixnine months ended JuneSeptember 30, 2003.

Other Income, Net

The following table sets forth a comparison of the key components of other income, net, for the following periods presented as of Juneended September 30: