EDGAR 10-K Filing

Company CIK: 860731
Filing Year: 2025
Filename: 860731_10-K_2025_0000860731-25-000007.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS.
DESCRIPTION OF BUSINESS
Tyler Technologies, Inc. (“Tyler” or “Company”) is a leading provider of integrated software and technology management solutions for the public sector. Our solutions empower local, state, and federal government entities to create smarter, safer, and stronger communities. We offer the broadest range of software solutions and services designed for every level of public sector government agency. Our solutions deliver mission-critical technology to support the essential functions of government, including public safety, justice, public health, taxation and budgeting, infrastructure and land use, outdoor recreation, utility and civic services, regulation, K-12 education, and social services. We provide both the back-office systems-of-record that serve the operational needs of specific government agencies, as well as platform technology solutions that are designed to integrate with our back-office solutions and be deployed and connected across many agencies. Examples of transformative platform technologies include our market-leading payments platform, data platform, low-code application development platform, and digital resident experience solutions.
We maintain deep, long-term relationships with state and local government agencies, including dedicated state-level offices in the 29 states in which we have enterprise contracts. Our professional information technology (“IT”) services include cloud-based software deployment, data conversion, and training. We also provide continuing client support services to ensure product performance and reliability, providing us with long-term client relationships and a significant base of recurring revenue.
MARKET OVERVIEW
The federal, state, and local public sector market is one of the largest and most decentralized IT markets in the country, consisting of hundreds of federal agencies, all 50 states, approximately 3,000 counties, 36,000 cities and towns, and 12,600 school districts. This market is also comprised of approximately 40,000 special districts and other agencies, each with specialized delegated responsibilities and unique information management requirements.
Today, government agencies play an essential role in all aspects of society, including providing protection and security, delivering public services, ensuring public health, effectively administrating public resources, developing and enforcing regulations, and maintaining engagement with the public. In an increasingly digital world, constituents expect more transparency, frictionless service, and better online experiences from public entities. As a result, government entities recognize the increasing value of information management systems and services to, among other things, improve transactional revenue collection, provide transparency and increased access to information, and streamline the delivery of services to their constituents. Government bodies recognize “digital government” is not just a modern convenience, but a requirement for good governance. From integrated public safety and justice information systems to systems that integrate tax, finance, infrastructure, and land use processes, many jurisdictions have benefited significantly from the implementation of jurisdiction-wide systems that allow different agencies or government offices to share data and provide a more comprehensive approach to information management.
Agencies at all levels of government face challenges in attracting and retaining the staff necessary to support their IT operations. As a result, they seek to establish long-term relationships with reliable providers of high-quality IT products and services such as Tyler.
Although governments often face budgetary constraints in their operations, their primary revenue sources are usually property, business, and sales tax revenue, as well as transactional fees and service charges, which historically tend to be relatively stable. Government agencies increasingly rely on digital payment solutions to streamline the collection and distribution of government funds. In addition, the acquisition of modern technology typically enables governments to operate more efficiently and securely and often provides a measurable return on investment that justifies the purchase of software and related services.
Tyler management believes we compete based on several key factors, including:
•The breadth, depth, and quality of our product and service offerings
•Deep industry expertise with proven implementation success
•Technological innovation
•Name recognition, reputation, and references
•Value and return-on-investment
•Financial strength and stability
PRODUCTS AND SERVICES
We provide a comprehensive and flexible suite of products and services that addresses the information technology needs of cities, counties, states, schools, federal agencies, and other government entities.
We design, develop, market, and support a broad range of software solutions to serve mission-critical “back-office” functions of the public sector. Many of our back-office software applications integrate with our transformative platform solutions, such as our unified payments platform, data and insights platform, and digital public engagement solutions that allow for real-time public access to a variety of information or that allow the public to transact business with governments online.
Each of our core software solutions consists of several fully integrated applications. In some of the product areas, such as financial management and education and property appraisal and tax, we offer multiple solutions designed to meet the needs of different sized governments.
A description of our primary suites of products and services follows:
Platform & Transformative Technology Solutions
Our platform and transformative technology solutions create the foundation for government innovation and enhance our clients’ ability to connect with constituents, conduct business, collect and disburse funds, safeguard systems, and leverage data to its fullest. Many of these solutions are integrated into our products, while others can be leveraged as add-on solutions. Our platform & transformative technology solutions include:
•Cybersecurity: Augments government agencies’ resources with access to advanced expertise for program design, 24/7 threat detection and response, customized employee training, vulnerability testing, and more.
•Data & Insights: Allows agencies to transform data into insights about financial, operational, and strategic outcomes by making it easier to surface meaningful data for informing government decisions and citizens.
•Digital Solutions: Provides a seamless cross-department experience so that agencies can deliver a unified citizen experience and achieve better outcomes while helping workers and policymakers share, communicate, and leverage data more effectively.
•Payments: The leading platform for public sector payments that processes nearly half a billion transactions annually and covers the entire payments life cycle, including billing, presentment, merchant onboarding, collections, reconciliation, and disbursements.
•Platform Technologies: A low-code application development platform purpose-built for the public sector. Enables government workers to quickly build solutions and applications that suit their needs.
•Outdoor Recreation: Designed specifically for local, state, and federal outdoor agencies, our solutions encompass campsite reservations, activity registrations, licensing sales and renewals, and real-time data for conservation and park management.
Public Administration Solutions
Our public administration solutions connect the dots between departments, agencies, municipalities, and states to deliver the core business functions of the public sector. By making it easier to manage the business side of the public sector, agencies can focus on delivering the resources and services required to make their community a place where people want to live. Our public administration solutions include:
•Civic Services: Business management and community development solutions manage permitting, enforcement, health and safety inspections, compliance, maintenance and work orders, 311 requests, and more.
•ERP: Integrates core financial applications with human resources, revenue management, tax billing, utilities, asset management, and payment processing.
•Property & Recording: Manages all aspects of the property tax life cycle, including appraisal services, valuation, tax billing and collections, assessment administration, and land and official records.
•Regulatory: Permitting, licensing and regulatory management help local, state, and federal government agencies and departments of any size simplify every aspect of regulatory compliance.
Courts & Public Safety Solutions
Our integrated courts and public safety solutions are used at the municipal, county, state, and federal levels to help courts, prosecutors, defenders, jails, sheriff’s offices, police departments, and probation officers keep their communities safe. Our courts and public safety solutions include:
•Corrections: Connects courts, public safety, and supervision agencies to ensure safer and more efficient operations for correctional facilities.
•Courts & Justice: Provides case management and shares data with all justice partners by connecting courts, prosecutors, public defenders, and the filing community.
•Public Safety: Provides real-time information and instant data sharing across jurisdictions and promotes intelligence-led responses so that help arrives faster and more prepared while complying with state and federal reporting mandates.
K-12 Education Solutions
Our integrated school solutions enable districts to operate as a single system across campuses and functions. By bringing data together and making it accessible as needed to administrators, teachers, students, bus drivers, and parents, we are able to improve everyone’s ability to support the educational journey. Our K-12 Education solutions include:
•School ERP: Manages K-12 schools’ most essential business functions by integrating financial, budgeting, and procurement data. Our suite of human resource management tools helps schools efficiently manage payroll and employee information and hire and retain qualified teachers, staff, and substitutes.
•Student Transportation: Manages every aspect of the student transportation operation with integrated software and telematic hardware solutions to help ensure operational efficiency and cost-effectiveness.
Health & Human Services Solutions
Our integrated solutions enable health and human service agencies to leverage data and optimize operations to better maintain the well-being of communities. Our health & human services solutions include:
•Environmental Health: Streamlines the process of issuing permits, performing health inspections, running reports, and investigating complaints.
•Disability & Benefits: Helps programs and agencies administer benefits and makes it easier to manage the complexity of services like medical cannabis regulation, veterans’ benefits, vocational rehabilitation, workers’ compensation, and more.
Revenues
We derive our revenues from three primary sources:
•Subscription-based services
•Maintenance and support
•Professional services
Subscription-Based Services
Subscriptions revenue consists of revenues derived from our SaaS arrangements and transaction-based fees. We are able to provide the majority of our software products through our SaaS model. The clients who choose this model typically do not wish to maintain, update and operate these systems directly, or make up-front capital expenditures to implement these advanced technologies. The contract terms for these arrangements range from one to 10 years but are typically contracted for periods of generally one to three years. The majority of our SaaS or hosting arrangements include additional professional services as well as maintenance and support services.
Transaction-based fees primarily relate to digital government services, online payment solutions (which are sometimes offered with the assistance of third-party vendors), and online dispute resolution solutions. Digital government services consist of websites and applications that allow consumers, such as businesses and citizens, to access government information, complete transactions and make electronic payments. Our online payments solution covers the entire payments life cycle, including billing, presentment, merchant onboarding, collections, reconciliation, and disbursements. We also provide electronic document filing solutions (“e-filing”) that simplify the filing and management of court related documents for courts and law offices.
Maintenance and Support
Support is provided to clients over the phone or via the Internet through help desks staffed by our client support representatives. For more complicated issues, our staff, with the clients’ permission, can log on to clients’ systems remotely. We maintain our clients’ software largely through releases that contain improvements and incremental additions of features and functionality, along with updates necessary because of legislative or regulatory changes.
Nearly 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, with a typical fee based on a percentage of the software product’s license fee. These fees can generally be increased on renewal and may also increase as new license fees increase. Maintenance and support fees are generally paid annually in advance. Most maintenance contracts automatically renew unless the client or Tyler gives notice of termination prior to expiration. Similar maintenance and support services are provided to our SaaS clients and are included in their subscription fees, which are classified as subscription-based revenue.
Professional Services
We provide a variety of professional services to clients who utilize our software products. Our clients contract with us for installation, training, and data conversion services in connection with their implementation of Tyler’s software solutions, whether through a SaaS arrangement or on-premise software license. The complete implementation process for a typical system includes planning, design, data conversion, set-up and testing. At the culmination of the implementation process, an implementation team is generally onsite at the client’s facility or available via remote video conferencing to help ensure the smooth go-live with the new system. Implementation fees are charged separately to clients on either a fixed-fee or hourly charge basis, depending on the contract.
Both in connection with the installation of new systems and on an ongoing basis, we provide extensive training services and programs related to our products and services. Training can be provided in our training centers, onsite at clients’ locations, at meetings and conferences, or remotely, and can be customized to meet clients’ requirements. The vast majority of our clients contract with us for training services, both to improve their employees’ proficiency and productivity and to fully utilize the functionality of our systems. Training services are generally billed on an hourly or daily basis, along with travel and other expenses.
Our other sources of revenue include software licenses and royalties and computer hardware equipment, which represent 3% and 4% of total revenues for the twelve months ended December 31, 2024 and 2023, respectively.
STRATEGY
Our objective is to grow our revenues and earnings organically, supplemented by focused strategic acquisitions. The key components of our business strategy are to:
•Provide high quality, value-added products and services to our clients. We compete on the basis of, among other things, delivering to clients our deep domain expertise in government operations through the high value products and services in the market. We believe we have achieved a reputation as a premium product and service provider to the public sector market.
•Continue to expand our product and service offerings. While we already have what we believe to be the broadest line of software products for the public sector, we continually strive to upgrade our core software applications and expand our complementary product and service offerings to respond to technological advancements and the changing needs of our clients. We regularly add new products and services to our portfolio through internal product development as well as acquisitions. We believe that the addition of new features and applications enhances the market appeal of our core products. We have also broadened our offerings of consulting and business process reengineering services.
•Accelerate our move to the cloud. We have offered most of our core products in both an on-premises license model and a cloud-based subscription model for several years and have seen a steady increase in the percentage of new software clients choosing our cloud model in recent years. Beginning in late 2019, we moved our approach to sales from “cloud-neutral” to “cloud-first,” with an increasing preference to provide our solutions in the cloud. We are making significant investments in optimizing our products to be deployed efficiently in the public cloud. Over a multi-year period we have been transitioning from hosting clients in Tyler’s proprietary data centers to utilizing Amazon Web Services (“AWS”) for cloud hosting.
•Expand our client base. We seek to establish long-term relationships with new clients primarily through our sales and marketing efforts. While we currently have clients in all 50 states, Canada, the Caribbean, the United Kingdom, Australia, and other international locations, some of our solutions have not fully achieved nationwide geographic penetration. We intend to continue to expand into new geographic markets by adding sales staff and targeting marketing efforts by solutions in those areas. We also intend to continue to expand our client base to include larger jurisdictions. While our traditional market focus has primarily been on small and mid-sized governments, our increased size and market presence, together with the technological advances and improved scalability of certain of our solutions, are allowing us to achieve increasing success in selling to larger clients. We also expect to expand our presence in international markets by leveraging our leadership position in the United States through the disciplined pursuit of selected opportunities in other countries.
•Expand our existing client relationships. Our existing client base offers significant opportunities for additional sales of solutions and services that we currently offer, but that existing clients do not fully utilize. Add-on sales to existing clients typically involve lower sales and marketing expense than sales to new clients. In particular, since the acquisition of NIC Inc. (“NIC”) in April 2021, we have been successfully selling Tyler software products into NIC’s client base and in turn providing NIC’s payment services to Tyler’s client base. We expect those opportunities to continue to expand.
•Grow recurring revenues. We have a large recurring revenue base from subscription-based services and maintenance and support, which generated revenues of $1.8 billion, or 84% of total revenues, in 2024. We have historically experienced very low client turnover (approximately 2% annually), and recurring revenues continue to grow as the installed client base increases. Subscription-based revenues have been our fastest growing revenue category over the past five years, increasing from $350.6 million in 2020 to $1.3 billion in 2024. We monitor Annualized Recurring Revenue (“ARR”), which is calculated based on quarter-to-date end total recurring revenues multiplied by four. ARR was $1.86 billion and $1.61 billion as of December 31, 2024, and 2023, respectively. ARR increased approximately 15% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements.
•Maximize economies of scale and take advantage of financial leverage in our business. We seek to build and maintain a larger client base to create economies of scale, enabling us to provide value-added products and services to our clients while expanding our operating margins. In addition, we believe that we have a marketing and administrative infrastructure in place that can be leveraged to accommodate significant long-term growth without proportionately increasing sales and marketing and general and administrative expenses.
•Attract and retain highly qualified employees. We believe that the depth and quality of our management and staff is one of our significant strengths, and that the ability to retain such employees is crucial to our continued growth and success. We believe that our stable management team, financial strength and growth opportunities, as well as our leadership position in the public sector market, enhance our attractiveness as an employer for highly skilled employees.
•Pursue strategic acquisitions. We selectively pursue strategic acquisitions that provide us with one or more of the following:
◦New products and services to complement our existing offerings
◦Entry into new markets related to the public sector
◦New clients and/or geographic expansion
•Establish strategic alliances. We have a strategic collaboration agreement with AWS for cloud hosting services, which brings together Tyler, the nation’s largest software company exclusively focused on the public sector, and AWS, the broadest and deepest cloud platform. Specifically, the agreement with AWS provides the framework for development, training and collaboration in order to support next-generation applications that have the scalability, resiliency, and security AWS offers. AWS is assisting us in accelerating innovation and the development of strategic initiatives. These initiatives bring the most advanced cloud-native services to Tyler clients to help improve the flow of information and provide a better experience for state, local, and federal governments.
SALES, MARKETING AND CLIENTS
We market our products and services primarily through direct sales and marketing personnel located throughout the United States. Other in-house sales staff focus on add-on sales, professional services and support. For certain products, we also utilize a partner network for both sales and professional services, primarily in the state and federal markets.
Sales of new systems are typically generated from referrals from other government offices or departments within a county or municipality, referrals from other local governments, relationships established between sales representatives and county or local officials, contacts at trade shows, direct mailings, and direct contact from prospects already familiar with us. We are active in numerous national, state, county, and local government associations and participate in annual meetings, trade shows, and educational events.
Clients consist primarily of federal, state, county and municipal agencies, school districts and other local government offices. In counties, clients include the auditor, treasurer, tax assessor/collector, county clerk, district clerk, county and district court judges, probation officers, sheriff, and county appraiser. At municipal government sites, clients include directors from various departments, including administration, finance, utilities, public works, code enforcement, personnel, purchasing, taxation, municipal court and police. At the state and federal levels, clients include Chief Information Officers and agency heads.
COMPETITION
We compete with numerous local, regional, and national firms that provide or offer some or many of the same solutions and services that we provide. Many of these competitors are smaller companies that may offer less expensive solutions than ours. Many of these firms operate within a specific geographic area and/or in a narrow product or service niche. We also compete with national firms, some of which have greater financial and technical resources than we do, including Oracle Corporation, Infor, SAP AG, Workday, Inc., CentralSquare Technologies, Thomson Reuters Corporation, Motorola Solutions, Inc., Axon Enterprise, Inc., and Constellation Software, Inc. In addition, we sometimes compete with consulting and systems integration firms, which develop custom systems, primarily for larger governments. We also occasionally compete with central internal information service departments of governments, which requires us to persuade the end-user department to discontinue service by its own personnel and outsource the service to us.
We compete on a variety of factors, including price, service, name recognition, reputation, technological capabilities, and the ability to configure products and services to address the individual requirements of the client. Our ability to offer an integrated system of applications for several offices or departments is often a competitive advantage. Governmental units often are required to seek competitive proposals through a request for proposal process, and some prospective clients use consultants to assist them with the proposal and vendor selection process.
SUPPLIERS
Substantially all of the computers, peripherals, printers, scanners, operating system software, office automation software, and other equipment necessary for the implementation and provision of our software systems and services are presently available from several third-party sources. Hardware is purchased on original equipment manufacturer or distributor terms at discounts from retail. We have not experienced any significant supply problems.
SEASONALITY
Transaction-based fees are generally the result of multi-year contracts with our clients that result in fees generated by payment transactions and digital government services and are collected on a recurring basis during the contract term. Transaction-based fees are historically highest in the second quarter, which coincides with peak outdoor recreation seasons and statutory filing deadlines in many jurisdictions, and lowest in the fourth quarter due to fewer business days and lower transaction volumes around holidays.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES
We regard certain features of our internal operations, software, and documentation as confidential and proprietary and rely on a combination of contractual restrictions, trade secret laws and other measures to protect our proprietary intellectual property. We generally do not rely on patents. We typically license our software products under non-exclusive license agreements, which are generally non-transferable and have a perpetual term.
HUMAN CAPITAL RESOURCES
Human Capital
Our experienced, collaborative team is one of the most significant contributors to our success in empowering the public sector to create smarter, safer, and stronger communities. Our effectiveness in attracting and developing talented team members, many of whom spend the majority of their careers at Tyler serving our public sector clients, demonstrates our commitment to providing a welcoming and safe workplace, with a strong culture, compensation and benefits, and continual growth opportunities for our team members.
As of December 31, 2024, we had approximately 7,400 team members. Approximately 94% of our team members work in one of our 54 U.S. offices or remotely in the U.S. Approximately 450 of our team members are in Canada, the Philippines, or India. Race and gender reporting are based on information provided by team members. We define leadership as positions which are one or two levels removed from our CEO with management responsibility. The tables below represent our workforce demographics as of December 31, 2024:
Race:
White
Asian
Black or African American
Hispanic or Latino
Two or more races
Native Americans and Other Pacific Islanders
Not specified
Overall 69.6% 7.7% 4.7% 4.9% 2.1% 0.5% 10.5%
Leadership 84.0% 6.3% 2.9% 3.1% 1.4% 0.4% 1.9%
Gender:
Male
Female
Non-Binary
Not specified
Overall
60.6% 37.1% 2.0% 0.3%
Leadership
62.1% 37.9% -% -%
We believe our efforts in managing and supporting our workforce are effective, as evidenced by current levels of applicants, team member tenure, high levels of engagement reported through survey feedback from Tyler team members, and low team member turnover.
Our team continues to work collaboratively with and for our clients and partners across multiple work arrangements: fully office-based, fully remote and a blended approach of office-based and remote work. Prior to COVID, approximately 40% of team members worked remotely, primarily in sales and professional services roles. As of December 31, 2024, approximately 55% of team members work remotely and 45% of team members are either partially or fully office-based. Collaboration is an important part of our culture. We are dedicated to creating opportunities for our team members to connect in person, enhancing both our partially and fully office-based presence, while maintaining the flexibility that supports their productivity and well-being.
Voluntary workforce turnover (rolling 12-month attrition) was 8% as of December 31, 2024 and 2023, which was similar to pre COVID levels of turnover at Tyler that consistently outperform industry levels. The average tenure of our team members continues to be approximately eight years, and approximately 30% of our employees have been employed by Tyler for more than ten years. The most frequent factor cited by team members leaving Tyler in 2024 was career opportunities. While 27% of positions filled in 2024 were filled by existing Tyler team members, we continue to invest in talent development and making career opportunities clear to team members, as discussed in further detail below.
Investments in Talent
We are committed to providing Tyler team members with career growth opportunities and the training and resources necessary to continually strengthen their skills. Our talent assessment and development programs are designed to provide managers and individual contributors with the resources needed to achieve career goals, strengthen management skills and effectively lead their teams.
For example, in 2024:
•Division presidents and corporate function executives conducted annual leadership assessment and talent reviews with their HR leaders and leadership teams to identify development priorities within their teams.
•The executive team, in partnership with HR, updated the leadership competencies required to execute our Tyler 2030 vision and beyond. The competencies were integrated into key people processes, including performance evaluations and 360 feedback assessments. They also served as the foundation for a new leadership framework to build a pipeline of talent from new leaders through executive level leadership.
•Nearly 250 Tyler managers participated in our nine-month Tyler Manager Development program which includes more than 50 hours of interactive, experiential learning focused on developing skills managers need to lead a high performing team. The program also includes multiple leadership assessments, including 360-degree feedback, and a dedicated mentor to support their development. To date, 50% of Tyler managers have participated in the program.
•Tyler enhanced our investment in our enterprise-wide mentoring platform to support mentoring relationships for targeted skill building and formal mentoring engagements.
•Tyler team members completed over 25,000 hours of Tyler-sponsored leadership training, professional development, and compliance training to support continuous learning and career development.
•As we continue our multi-year investment in developing cloud skills across the Tyler workforce, 657 Tyler team members participated in approximately 13,000 hours of AWS cloud training, resulting in 99 AWS certifications and 227 accreditations completed.
Oversight and Management
Our human resources team is tasked with leading and supporting our organization in managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, and talent management and development. Our executive team is responsible for periodically reviewing team member programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices. Management periodically reports to the Board of Directors and its committees regarding human capital measures and results that guide how we attract, retain and develop a workforce to enable our business strategies.
Health & Safety
We continually invest in the well-being of Tyler team members and their families, providing a range of resources in support of mental and emotional, financial, and physical health and wellness.
Inclusion
One of Tyler’s stated core values is inclusion, which we define as respecting and valuing each other. To organize our efforts on this particular value, we operate Tyler Together, with strategic pillars focused on our culture, career development, and community impact. In 2024, achievements included:
•Improved metrics in our talent attraction and retention efforts;
•Extending equity grants to a broader segment of our workforce, with over 20% of 2024 grantees representing first-time grantees; and
•The re-launch or first-time launch of Employee Resource Groups (“ERGs”) including Tyler Women, Tyler Military Veterans, and the Tyler LGBTQ+ Network, each with defined business objectives.
INTERNET WEBSITE AND AVAILABILITY OF PUBLIC FILINGS
We file annual, quarterly, current and other reports, proxy statements and other information with the Securities and Exchange Commission, or SEC, pursuant to the Securities Exchange Act. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room by calling the SEC at 1-800-732-0330. The SEC maintains an Internet site that contains reports, proxy and other information statements, and other information regarding issuers, including us, that file electronically with the SEC. The address of this site is http://www.sec.gov.
We also maintain a website at www.tylertech.com. We make available free of charge through this site our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Forms 4 and 5, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to the SEC. In addition, copies of our annual report will be made available, free of charge, upon written request.
Our “Code of Business Conduct and Ethics” is also available on our website. We intend to satisfy the disclosure requirements regarding amendments to, or waivers from, a provision of our Code of Business Conduct and Ethics by posting such information on our website.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a high degree of risk. Investors evaluating our company should carefully consider the factors described below and all other information contained in this Annual Report. Any of the following factors could materially harm our business, operating results, and financial condition. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results, and financial condition. This section should be read in conjunction with the Financial Statements and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report. We may make forward-looking statements from time to time, both written and oral. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements. Our actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report.
Risks Associated with Our Business, Including Our Software Products
Cyber-attacks and security vulnerabilities can disrupt our business and harm our competitive position.
Threats to IT security can take, and have in the past taken, a variety of forms. Individuals and groups of hackers, and sophisticated organizations including state-sponsored organizations, may take steps that pose threats to our clients and our IT. They have in the past and may in the future develop and deploy malicious software to gain access to our internal networks, and/or to attack our products and services, gain access to data centers we use to host client deployments, or act in a coordinated manner to launch distributed denial of service or other coordinated attacks. Cyber threats are constantly evolving, thereby increasing the difficulty of detecting and successfully defending against them. Cyber threats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and clients. Breaches of our internal network have disrupted and could in the future disrupt the security of our internal systems and business applications, and could impair our ability to provide services to our clients and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our competitive position, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improve technologies, or otherwise adversely affect our business. Our business policies and internal security controls may not keep pace with these evolving threats. For example, the evolving use of artificial intelligence (“AI”) increases the risk of cyberattacks and data breaches, which themselves can evolve more rapidly when artificial intelligence is used to facilitate the attack. Despite the network and application security, threat intelligence services, internal control measures, and physical security procedures we employ to safeguard our systems, we may still be vulnerable to a security breach, intrusion, or loss or theft of confidential client data, transaction data, or proprietary company information, which may harm our business, reputation and future financial results. Use of artificial intelligence by our team members, whether authorized or unauthorized, could increase the risk that our intellectual property and other proprietary information may be unintentionally disclosed. In addition, vulnerabilities in our clients’ on-premises infrastructure have in the past and may in the future be exploited by a bad actor, with the resulting impacts being linked to or attributed to, correctly or incorrectly, our software or services, which could also harm our business, reputation, and future financial results, even if our software or services were not the cause of the exploitation. The lost revenue and containment, remediation, investigation, legal and other costs could be significant and may exceed our insurance policy limits or may not be covered by insurance at all. Further, we may be subject to regulatory enforcement actions and litigation that could result in financial judgments or the payment of settlement amounts and disputes with insurance carriers concerning coverage.
Disclosure of personally identifiable information and/or other sensitive client data could result in liability and harm our reputation.
We store and process increasingly large amounts of personally identifiable information and other confidential information of our clients. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. Despite our efforts to improve security controls, it is possible our security controls over personal data, our training of employees on data security, and other practices we follow may not prevent the improper disclosure of sensitive client data that we store and manage. The evolving threat landscape, including new technologies that leverage artificial intelligence, may increase the external threats to the data we store and process. Disclosure of personally identifiable information and/or other sensitive client data has resulted in obligations to send “data breach” notifications under applicable state laws, or to assist our clients in doing so, and/or could result in liability and harm our reputation.
We depend on third parties with whom we engage or collaborate for certain projects, deliverables, and/or financial transaction processes. If these parties fail to satisfy their obligations to us or we are unable to maintain these relationships, our operating results and business prospects could be adversely affected.
To satisfy our obligations under client contracts, we often engage third parties to provide certain deliverables or fulfill certain requirements. We may also use third parties to ensure that our services and solutions integrate with the software, systems, or infrastructure requirements of other vendors and service providers. Our ability to serve our clients and deliver our solutions in a timely manner depends on our ability to retain and maintain relationships with third-party vendors and service providers and the ability of these third parties to meet their obligations in a timely manner, as well as on our effective oversight of their performance. If any third party fails to perform on a timely basis the agreed-upon services, our ability to fulfill our obligations may be jeopardized. Third-party performance deficiencies could result in breaches of our obligations with respect to, or the termination for default of, one or more of our client contracts. A breach or termination for default could expose us to liability for damages and have an adverse effect on our business prospects, results of operations, cash flows and financial condition and our ability to compete for future contracts and orders. A global economic slowdown, a pandemic, or similar circumstances could also adversely affect the businesses of our third-party providers, hindering their ability to provide the services on which we rely. Our agreements with third parties typically are non-exclusive and do not prohibit them from working with our competitors or from engaging with our clients directly. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our business, operating results or financial condition could be adversely affected.
In addition, we may act as a subcontractor to a third-party prime contractor to secure new projects. Subcontracting arrangements where we are not the prime contractor pose unique risks to us because we may not have control over the client relationship, and our ability to generate revenues under such subcontracts may depend on the prime contractor, its performance and relationship with the client, and its relationship with us. We could suffer losses in the event a prime contract under which we serve as a subcontractor is terminated, whether for non-performance by the prime contractor or otherwise. Upon a termination of the prime contract, our subcontract would similarly terminate, and the resulting contract loss could have an adverse effect on our business prospects, results of operations, cash flows, and financial condition and our ability to compete for future contracts and orders.
We rely on third-party providers-including Amazon Web Services-for hosting services and other technology-related services needed to deliver certain of our cloud solutions. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.
A material portion of our business is provided through software hosting services, which are sometimes hosted from and use computing infrastructure provided by third parties, including AWS. These hosting services depend on the uninterrupted operation of data centers and the ability to protect computer equipment and information stored in these data centers against damage that may be caused by natural disaster, fire, power loss, telecommunications or Internet failure, acts of terrorism, unauthorized intrusion, computer viruses, and other similar damaging events. If any of our data centers were to become inoperable for an extended period, we might be unable to fulfill our contractual commitments. Although we take what we believe to be reasonable precautions against such occurrences, we can give no assurance that damaging events such as these will not result in a prolonged interruption of our services, which could result in client dissatisfaction, loss of revenues, and damage to our business.
Third-party hosting service providers have no obligation to renew their agreements with us on commercially reasonable terms or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transition to a new provider and we may incur significant costs and possible service interruption in connection with doing so. In addition, such service providers could decide to close their facilities or change or suspend their service offerings without adequate notice to us. Moreover, any financial difficulties, such as bankruptcy, faced by such service providers may have negative effects on our business, the nature and extent of which are difficult to predict. Because we cannot easily switch third-party hosting service providers, any disruption with respect to our current providers would impact our operations and our business could be adversely impacted. Problems faced by our hosting service providers could adversely affect the experience of our clients. For example, AWS has experienced significant service outages in the past and may do so again in the future. As we continue to migrate legacy solutions deployed on premises to the cloud, and to optimize our solutions for the cloud, we may be exposed to additional cybersecurity threats.
Material portions of our business require the Internet infrastructure to be reliable.
Part of our future success continues to depend on the use of the Internet as a means to access public information and perform transactions electronically, including, for example, electronic filing of court documents and electronic payment processing. This in part requires ongoing maintenance of the Internet infrastructure, especially to prevent interruptions in service, as well as additional development of that infrastructure. This requires a reliable network backbone with the necessary speed, data capacity, security, and timely development of complementary products for providing reliable Internet access and services. If this infrastructure fails to be sufficiently developed or be adequately maintained, our business would be harmed because users may not be able to access our government portals. To date, any such outages have been temporary, and any business interruptions were contained and immaterial.
We employ third-party licensed software and software components for use in or with our solutions, and the inability to maintain these licenses or the presence of errors or security vulnerabilities in the software we license could limit the functionality of our products and result in increased costs or reduced service levels, which would adversely affect our business.
We incorporate and include third-party software into and with certain of our products and solutions. We also use third-party software and tools in certain areas of the development process for our solutions. We anticipate that we will continue to rely on such third-party software and development tools in the future. There can be no assurance that these third parties will continue to make their software or tools available to us on acceptable terms, or at all, not make their products available to our competitors on more favorable terms, invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software, or remain in business. Any impairment in our relationship with these third parties or our ability to license or otherwise use their software or tools could have a material adverse effect on our business, results of operations, cash flow, and financial condition. Although we believe that there are commercially reasonable alternatives to the third-party software and tools we currently license, this may not always be the case, or they may be difficult, time-consuming, or costly to replace. In addition, although we maintain a supplier security evaluation process, if the third-party software or tools we use has or have errors, security vulnerabilities, or otherwise malfunctions, the functionality of our solutions may be negatively impacted, our clients may experience reduced service levels, and our business may suffer. To the extent a third-party relies on artificial intelligence, improper processing of data by those service providers could harm our reputation, business and clients, or expose us to legal liability.
Certain of our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business.
Certain of our solutions include software covered by open source licenses. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions. It is possible under the terms of certain open source licenses, if we combine our proprietary software with open source software in a certain manner, that we could be required to release the source code of our proprietary software and make our proprietary software available under open source licenses. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our solutions, or otherwise be limited in the licensing of our solutions, each of which could reduce or eliminate the value of our solutions. In addition to risks related to license requirements, use of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with the use of open source software cannot be eliminated and could adversely affect our business.
We run the risk of errors or defects with new products or enhancements to existing products.
Our software products are complex and have in the past, and may in the future, contain errors or defects, especially when first introduced or when new versions or enhancements are released. Any such defects could result in a loss of revenues or delay market acceptance. Our license agreements typically contain provisions designed to limit our exposure to potential liability. However, it is possible we may not always successfully negotiate such provisions in our client contracts or the limitation of liability provisions may not be effective due to existing or future federal, state, or local laws, ordinances, or judicial decisions. Although we maintain errors and omissions and general liability insurance, and we try to structure contracts to limit liability, we cannot guarantee that a successful claim could not be made or would not have a material adverse effect on our future operating results.
We must timely respond to technological changes to be competitive.
The market for our products is characterized by technological change, evolving industry standards in software technology, changes in client requirements, and frequent new product introductions and enhancements. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. As a result, our future success will depend, in part, upon our ability to enhance existing products and develop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated client requirements, and achieve market acceptance. We cannot assure you that we will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner. The products, capabilities, or technologies developed by others could also render our products or technologies obsolete or noncompetitive. Our business may be adversely affected if we are unable to develop or acquire new software products or develop enhancements to existing products on a timely and cost-effective basis, or if such new products or enhancements do not achieve market acceptance.
As we assess the challenges and opportunities of incorporating AI technologies into our products and services, we may not successfully enhance our offerings in alignment with market demands or industry expectations at a pace that matches our competitors. Delays in adoption or innovation could render our offerings less competitive or obsolete. AI technology is rapidly evolving, and while we are prioritizing a measured approach based on known best practices, the investments required, the need for specialized skills and expertise, and the shifting legal and regulatory landscape may expose us to operational, financial, and reputational risks. Additionally, AI-generated outputs may be misleading, insecure, inaccurate, harmful, or otherwise flawed, potentially resulting in adverse consequences to our business.
We may be unable to protect our proprietary rights.
Many of our product and service offerings incorporate proprietary information, trade secrets, know-how, and other intellectual property rights. We rely on a combination of contracts, copyrights, and trade secret laws to establish and protect our proprietary rights in our technology. We cannot be certain that we have taken all appropriate steps to deter misappropriation of our intellectual property, including to the extent our data is consumed by generative artificial intelligence technology. There has also been an apparent evolution in the legal standards and regulations that courts and the U.S. patent office may apply in favorably evaluating software patent rights. We are not currently involved in any material intellectual property litigation; however, we may be a party to such litigation in the future to protect our proprietary information, trade secrets, know-how, and other intellectual property rights. We cannot assure you that third parties will not assert infringement or misappropriation claims against us with respect to current or future products. Any claims or litigation, with or without merit, could be time-consuming, costly, and a diversion to management. Any such claims and litigation could also cause product shipment delays or require us to enter into royalty or licensing arrangements. Such royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. Therefore, litigation to defend and enforce our intellectual property rights could have a material adverse effect on our business, regardless of the final outcome of such litigation.
Clients may elect to terminate our recurring contracts and manage operations internally.
We provide annually recurring maintenance contracts for clients who are deployed on-premises, and recurring Software as a Service contracts for clients who are deployed in the cloud. It is possible that our clients may elect to not renew recurring contracts for our software, trying instead to maintain and operate the software themselves using their perpetual license rights (excluding software applications that we provide on a hosted or software as a service basis), or migrating to a different cloud solution. Alternatively, clients may elect to drop maintenance on certain modules that they ultimately decide not to use. This could adversely affect our revenues and profits. Additionally, they may inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors, which could adversely affect our business.
Risks Associated with Selling Products and Services into the Public Sector Marketplace
Selling products and services into the public sector poses unique challenges.
We derive substantially all of our revenues from sales of software and services to state, county, and city governments, other federal or municipal agencies, and other public entities. We expect that sales to public sector clients will continue to account for substantially all of our revenues in the future. We face many risks and challenges associated with contracting with governmental entities, including:
•Resource limitations caused by budgetary constraints, which may provide for a termination of executed contracts due to a lack of future funding
•Long and complex sales cycles
•Contract payments at times are subject to achieving implementation milestones, and we may have differences with clients as to whether milestones have been achieved
•Political resistance to the concept of contracting with third parties to provide IT solutions, or resistance to adopting cloud solutions
•Legislative changes affecting a local government’s authority to contract with third parties
•Varying bid procedures and internal processes for bid acceptance
•Various other political factors, including changes in governmental administrations and personnel
Each of these risks is outside our control. If we fail to adequately adapt to these risks and uncertainties, our financial performance could be adversely affected.
Global health crises, such as a pandemic, may adversely affect our business and results of operations.
A public health crisis, such as a pandemic, may negatively impact our business and financial results. As seen with the COVID pandemic, certain infection rates or virus strains may result in government authorities imposing measures to contain the virus, including travel bans and restrictions, quarantines, and business limitations and shutdowns. While we are unable to accurately predict the full impact that a health crisis or pandemic would have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and associated compliance, a pandemic may negatively impact our revenues and other financial results.
Because an increasing portion of our revenues are recurring, the effect of public health-related shutdown on our results of operations may also not be fully reflected for some time. We may see some more immediate impact on our business should there be new delays in government procurement processes and uncertainty around public sector budgets, or new delays in implementations caused by travel restrictions, closed offices, or clients shifting focus to more pressing issues.
Appraisal projects and software implementations may be delayed if clients put projects on hold or slow projects by extending go-live dates. While we have the ability to deliver most of our professional services remotely, some of our professional services, including appraisal assessments, are more effective when performed on-site, and certain clients may continue to insist on on-site services in any event. In addition, our delivery of some professional services requires the availability of client personnel. There may be a negative impact on our revenues if we are unable to deliver these services. Also, we expect software licenses and subscriptions revenues to be negatively affected if there are delays in procurement processes. Some clients could request changes to payment terms, negatively impacting the timing of collections of accounts receivables in future periods.
We have historically evaluated goodwill for impairment annually as of October 1, or more frequently if impairment indicators arose. Subsequent to our annual goodwill impairment analysis, we monitor for any events or changes in circumstances, such as significant adverse changes in business climate or operating results, changes in management’s business strategy, an inability to successfully introduce new products in the marketplace, an inability to successfully achieve internal forecasts or significant declines in our stock price, which may represent an indicator of impairment. The occurrence of any of these events, which could be caused or impacted by a public health crisis similar to the COVID-19 pandemic, may require us to record future goodwill impairment charges.
A prolonged economic slowdown could harm our operations.
A prolonged economic slowdown or recession could reduce demand for our software products and services. Governments may face financial pressures that could in turn affect our growth rate and profitability in the future. There is no assurance that government spending levels will be unaffected by declining or stagnant general economic conditions, and if budget shortfalls occur, they may negatively impact government IT spending and could adversely affect our business.
The open bidding process creates uncertainty in predicting future contract awards.
Many governmental agencies purchase products and services through an open bidding process. Generally, a governmental entity will publish an established list of requirements requesting potential vendors to propose solutions for the established requirements. To respond successfully to these requests for proposals, we must accurately estimate our cost structure for servicing a proposed contract, the time required to establish operations for the prospective client, and the likely terms of any other third-party proposals submitted. We cannot guarantee that we will win any bids in the future through the request for proposal process, or that any winning bids will ultimately result in contracts on favorable terms. Our failure to secure contracts through the open bidding process, or to secure such contracts on favorable terms, may adversely affect our revenues and gross margins.
We face significant competition from other vendors and potential new entrants into our markets.
We believe we are a leading provider of integrated software solutions for the public sector.
Our market is highly fragmented with a large number of competitors that vary in size, product platform, and product scope. Our competitors include consulting firms, publicly held companies that focus on selected segments of the public sector market, and a significant number of smaller, privately held companies. Certain competitors have greater technical, marketing, and financial resources than we do. We cannot assure you that such competitors will not develop products or offer services that are superior to our products or services or that achieve greater market acceptance.
We also compete with internal, centralized IT departments of governmental entities, which requires us to persuade the end-user to stop the internal service and outsource to us. In addition, our clients and prospective clients could elect to provide information management services internally through new or existing departments, which could reduce the market for our services.
We could face additional competition as other established and emerging companies enter the public sector software market and new products and technologies are introduced. The development of next-generation solutions that utilize advanced features, including artificial intelligence and machine learning, may require us to make predictions about the willingness of the public sector market to adopt such offerings. As we choose to invest in such technologies, we may be required to commit significant resources to maintain the competitiveness of our offerings before knowing whether we have correctly predicted market receptiveness to them.
Increased competition could also result in pricing pressure, fewer client orders, reduced gross margins, and loss of market share. Current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing the ability of their products to address the needs of our prospective clients. It is possible that new competitors or alliances may emerge and rapidly gain significant market share. We cannot assure you that we will be able to compete successfully against current and future competitors, and the failure to do so would have a material adverse effect upon our business.
Fixed-price contracts may affect our profits.
Some of our contracts are structured on a fixed-price basis, which can lead to various risks, including:
•The failure to accurately estimate the resources and time required for an engagement
•The failure to effectively manage our clients’ expectations regarding the scope of services delivered for a fixed fee
•The failure to timely and satisfactorily complete fixed-price engagements within budget
If we do not adequately assess and manage these and other risks, we may be subject to cost overruns and penalties, which may harm our financial performance.
Changes in the insurance markets may affect our business.
Some of our clients, primarily those for our property appraisal services, require that we secure performance bonds before they will select us as their vendor. In addition, we have in the past been required to provide letters of credit as security for the issuance of a performance bond. We cannot guarantee that we will be able to secure such performance bonds in the future on terms that are favorable to us, if at all. Our inability to obtain performance bonds on favorable terms or at all could impact our future ability to win some contract awards, particularly large property appraisal services contracts, which could negatively impact revenues. In addition, the general insurance markets may experience volatility and/or restrictive coverage trends, which may lead to future increases in our general and administrative expense and negatively impact our operating results.
Risks Related to Our Indebtedness
Servicing our indebtedness requires a significant amount of cash. We may not have sufficient cash flow from our business to pay our indebtedness, and we may not otherwise have the ability to raise the funds necessary to settle for cash conversions of the Convertible Senior Notes or to repurchase the Convertible Senior Notes upon a fundamental change, or to repay our indebtedness obligations under our 2024 Credit Agreement, each of which could adversely affect our business and results of operations.
On September 25, 2024, the Company entered into a $700.0 million credit agreement with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender (the “2024 Credit Agreement”). The 2024 Credit Agreement provides for an unsecured revolving credit facility in an aggregate principal amount of up to $700.0 million, including subfacilities for standby letters of credit and swingline loans. On March 9, 2021, we issued 0.25% Convertible Senior Notes due in 2026 in the aggregate principal amount of $600.0 million (“the Convertible Senior Notes” or “the Notes”). The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 9, 2021, with U.S. Bank National Association as trustee.
As of December 31, 2024, we had outstanding an aggregate principal amount of $600 million of our Convertible Senior Notes and none under our 2024 Credit Agreement. Our indebtedness may increase our vulnerability to any generally adverse economic and industry conditions, and we and our subsidiaries may, subject to the limitations in the terms of our existing and future indebtedness, incur additional debt, secure existing or future debt or recapitalize our debt. If we incur additional indebtedness, the risks related to our business would increase and our ability to service or repay our indebtedness may be adversely impacted.
Pursuant to their terms, holders may convert their Convertible Senior Notes at their option prior to the scheduled maturities of their Convertible Senior Notes under certain circumstances. Upon conversion of the Convertible Senior Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be obligated to make cash payments. In addition, holders of our Convertible Senior Notes will have the right to require us to repurchase their Convertible Senior Notes upon the occurrence of a fundamental change (as defined in the Indenture, dated as of March 9, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”) (the “Indenture”)), at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any. Although it is our intention, and we currently expect to have the ability, to settle the Convertible Senior Notes in cash, there is a risk that we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Senior Notes surrendered or Convertible Senior Notes being converted. In addition, our ability to make payments may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Convertible Senior Notes at a time when the repurchase is required by the Indenture or to pay any cash payable on future conversions of the Convertible Senior Notes as required by the Indenture would constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other existing or future indebtedness. If the repayment of other indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the other indebtedness and repurchase the Convertible Senior Notes or make cash payments upon conversions thereof.
Our ability to make scheduled payments of the principal and interest on our indebtedness when due or to make payments upon conversion or repurchase demands with respect to our Convertible Senior Notes, or to refinance our indebtedness as we may need or desire, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our existing indebtedness, and any future indebtedness we may incur, and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our existing or future indebtedness and have a material adverse effect on our business, results of operations, and financial condition.
Covenant restrictions under our indebtedness may limit our ability to operate our business and may adversely affect our financial condition, results of operations, and earnings per share.
The Indenture governing the Convertible Senior Notes and the 2024 Credit Agreement do contain, and our future indebtedness agreements may contain, covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. Subject to customary carve-outs, thresholds and baskets, the 2024 Credit Agreement (and the Indenture by means of a cross-default) restricts, absent consent of the agent and lenders under the 2024 Credit Agreement, our ability and the ability of our restricted subsidiaries to, among other things:
• Incur additional indebtedness,
• Permit liens on our assets,
• Make certain investments, acquisitions and dispositions,
• Make certain specified fundamental changes, and
• Make certain restricted payments.
In addition, the 2024 Credit Agreement (and the Indenture by means of a cross-default) contains other customary affirmative and negative covenants, and events of default. The 2024 Credit Agreement is unsecured but requires us to maintain certain financial ratios regarding our total leverage and other financial conditions in addition to the restrictions described above. Events beyond our control, including changes in general economic and business conditions, may result in a breach of any of these covenants and result in a default under the 2024 Credit Agreement that may, in turn, result in a default under the Indenture. If an event of default under the 2024 Credit Agreement occurs, the lenders could terminate all commitments to lend and elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If we were unable to pay such amounts, the lenders could proceed against the guarantees by our direct and indirect material domestic subsidiaries. Should the lenders proceed against the guarantees, we cannot give assurance that we would have sufficient assets to pay amounts due on the 2024 Credit Agreement and the Convertible Senior Notes.
Variable rate indebtedness subjects the Company to interest rate risk, which could cause our debt service obligations to increase significantly.
Our borrowings under the 2024 Credit Agreement are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. Loans under the revolving credit facility will bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) plus a margin of 0.125% to 0.75% or (2) the one-, three-, or six-month SOFR rate plus a margin of 1.125% to 1.75%. The margin in each case is based upon Tyler’s total net leverage ratio, as determined pursuant to the 2024 Credit Agreement. In addition to paying interest on the outstanding principal of loans under the revolving credit facility, the Company is required to pay a commitment fee initially in the amount of 0.125% per annum, which will subsequently range from 0.125% to 0.25% based upon the Company’s total net leverage ratio.
The conditional conversion feature of the Convertible Senior Notes, if triggered, may adversely affect our financial condition and results of operations.
In the event the conditional conversion feature of the notes is triggered, holders of our Convertible Senior Notes will be entitled to convert the Convertible Senior Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Senior Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Senior Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Transactions relating to our Convertible Senior Notes may affect the value of our common stock.
Our Convertible Senior Notes may become convertible in the future at the option of their holders under certain circumstances. If holders of our Convertible Senior Notes elect to convert their notes, we may settle our conversion obligation by delivering to them a significant number of shares of our common stock, which would cause dilution to our existing shareholders.
Fluctuation in inflation and interest rate could adversely affect our financial condition and results of operations.
Our liquidity and ongoing access to capital could be materially and negatively affected by volatility in the financial and securities markets, including increased inflation and interest rates. Our continued access to sources of liquidity depends on multiple factors, including global macroeconomic conditions, the condition of global financial markets, the availability of sufficient amounts of financing and our operating performance. There have been periods of increased volatility in the financial and securities markets, as well as increased inflation and interest rates, which generally has made access to capital less certain and has increased the cost of obtaining new capital, and future volatility may create similar risks. We may need to obtain equity, equity-linked, or debt financing in the future to fund our operations, including our acquisition strategy, and there is no guarantee that such debt financing will be available in the future, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding.
Risks Associated with Our Periodic Results and Stock Price
Fluctuations in quarterly revenues could adversely impact our operating results and stock price.
Our revenues and operating results can be difficult to predict and may fluctuate substantially from quarter to quarter for a variety of reasons, including:
•The size of license transactions can vary significantly
•Clients may unexpectedly postpone or cancel procurement processes due to changes in strategic priorities, project objectives, budget, or personnel
•Client purchasing processes vary significantly and a client’s internal approval, expenditure authorization, and contract negotiation processes can be difficult and time consuming to complete, even after selection of a vendor
•The number, timing, and significance of software product enhancements and new software product announcements by us and our competitors may affect purchase decisions
•We may have to defer revenues under our revenue recognition policies and GAAP
In each fiscal quarter, our expense levels, operating costs, and staffing levels are based to some extent on projections of future revenues and are relatively fixed. If our actual revenues fall below expectations, we could experience a reduction in earnings. Also, if actual revenues or earnings for any given quarter fall below expectations, it may lead to a decline in our stock price.
Increases in our investment in research and development could decrease overall margins.
An important element of our corporate strategy is to continue to dedicate a significant amount of resources to research and development and related product and service opportunities, both through internal investments and the acquisition of intellectual property from companies that we have acquired. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position, and research and development expense could adversely affect operating margins.
Our stock price may be volatile.
The market price of our common stock may be volatile. Examples of factors that may significantly impact our stock price include:
•Actual or anticipated fluctuations in our operating results
•Announcements of technological innovations, new products, or new contracts by us or our competitors
•Developments with respect to patents, copyrights, or other proprietary rights
•Conditions and trends in the software and other technology industries
•Changes in financial estimates by securities analysts
•Changes in interest rates
•General economic and market conditions and other factors
In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices of technology company stocks and may in the future adversely affect the market price of our stock. Sometimes, securities class action litigation is filed following periods of volatility in the market price of a particular company’s securities. We cannot assure you that similar litigation will not occur in the future with respect to us. Such litigation could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect upon our financial performance.
Our financial outlook may not be realized.
From time to time, in press releases and otherwise, we may publish forecasts or other forward-looking statements regarding our results, including estimated revenues or earnings. Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and as a matter of course, any number of them may prove to be incorrect. Further, the achievement of any forecast depends on numerous risks and other factors (including those described in this discussion), many of which are beyond our control. As a result, we cannot be certain that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Current and potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information regarding us, our products and services, and the software industry when evaluating our prospective results of operations.
Risks Associated with Our Growth Strategy and Other General Corporate Risks
We may experience difficulties in executing our acquisition strategy.
A material portion of our historical growth has resulted from strategic acquisitions. Although our current focus is on organic internal growth, we will continue to identify and pursue strategic acquisitions with suitable candidates. These transactions involve significant challenges and risks, including risks that a transaction does not advance our business strategy; that we do not achieve the expected return on our investment; that we have difficulty integrating business systems and technology; that we have difficulty retaining or integrating new employees; that the transactions distract management from our other businesses; that we acquire unforeseen liabilities; and other unanticipated events. Our future success will depend, in part, on our ability to successfully integrate future acquisitions into our operations. It may take longer than expected to realize the full benefits of these transactions, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may be ultimately less than we expected. Although we conduct due diligence reviews of potential acquisition candidates, we may not identify all material liabilities or risks related to acquisition candidates. There can be no assurance that any such strategic acquisitions will be accomplished on favorable terms or will result in profitable operations.
Our failure to properly manage growth could adversely affect our business.
We continue to expand our operations by pursuing existing and potential market opportunities. This growth places significant demands on management and operational resources. In order to manage growth effectively, we must implement and improve our operational systems, procedures, and controls on a timely basis. If we fail to implement these systems, our business may be materially adversely affected.
Increases in labor costs, including wages, and an overall tightening of the labor market, could adversely affect our business, results of operations or financial condition.
The labor costs associated with our business are subject to several external factors, including unemployment levels and the quality and the size of the labor market, prevailing wage rates, minimum wage laws, wages and other forms of remuneration and benefits offered to prospective employees by competitor employers, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. If we are unable to mitigate wage rate increases driven by increases to the competitive labor market through automation and other labor savings initiatives, our labor costs may increase. Furthermore, high inflation rates could also push up our labor costs. There is no assurance that our revenues will increase at the same rate as these labor cost increases to maintain the same level of profitability.
In the event we must offer increased wages or other competitive benefits and incentives to attract and retain qualified personnel and fail to do so, the quality of our workforce could decline, causing certain aspects of our business to suffer. Increases in labor costs could force us to increase our prices, which could adversely impact sales. Although we have not experienced any material labor shortage to date, we have observed an overall tightening and increasingly competitive labor market and have recently experienced and expect to continue to experience some labor cost pressures. If we are unable to hire and retain capable employees, manage labor cost pressures, or if mitigating measures we take in response to increased labor costs have unintended negative effects, including on client service or retention, our business would be adversely affected. If competitive pressures or other factors prevent us from offsetting increased labor costs, our profitability may decline and could have an adverse effect on our business, results of operations or financial condition.
We may be unable to hire, integrate, and retain qualified personnel.
Our continued success will depend upon the availability and performance of our key management, sales, marketing, client support, and product development personnel. The loss of key management or technical personnel could adversely affect us. We believe that our continued success will depend in large part upon our ability to attract, integrate, and retain such personnel. We have at times experienced and may continue to experience challenges in recruiting qualified personnel. Competition for qualified software development, sales, and other personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. In addition, competitive job markets may increase our costs relating to compensation packages due to higher salary expectations and pressures.
Compliance with changing regulation of corporate governance may result in additional expenses.
Changing laws, regulations, and standards relating to corporate governance, compliance, and public disclosure can create uncertainty for public companies. The costs required to comply with such evolving laws across the various states and at the federal level are difficult to predict and/or harmonize. To maintain high standards of corporate governance, compliance, and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. This investment may result in an unforeseen increase in general and administrative expense and a diversion of management’s time and attention from revenue-generating activities, which may harm our operating results.
Evolving legal and regulatory landscape over artificial intelligence technologies creates uncertainties.
There is uncertainty about the extent to which privacy and data protection laws apply to artificial intelligence technologies, and any delay in addressing those concerns may result in liability or regulatory investigations and fines, as well as harms to our business and reputation. In addition, issues related to intellectual property rights in artificial intelligence technologies have not been fully addressed by the courts or regulators. As such, to the extent we implement generative artificial intelligence technologies into our products and/or services, we may face resulting exposure to claims related to copyright infringement or other intellectual property misappropriation.
We do not foresee paying dividends on our common stock.
We have not declared nor paid a cash dividend since we entered the software business in 1998. We intend to retain earnings for use in the operation and expansion of our business. We do not anticipate paying cash dividends on our common stock in the foreseeable future.
Provisions in our certificate of incorporation, bylaws, and Delaware law could deter takeover attempts.
Our Board of Directors may issue up to 1,000,000 shares of preferred stock and may determine the price, rights, preferences, privileges, and restrictions, including voting and conversion rights, of these preferred shares. These determinations may be made without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may make it more difficult for a third-party to acquire a majority of our outstanding voting stock. In addition, some provisions of our Certificate of Incorporation, Bylaws, and the Delaware General Corporation Law could also delay, prevent, or make more difficult a merger, tender offer, or proxy contest involving us.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
We occupy a total of approximately 1.4 million square feet of office space, of which approximately 787,000 square feet is in various office facilities we own. We own or lease offices for our major operations in the states of Arkansas, Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Massachusetts, Maine, Michigan, Missouri, Montana, New York, Ohio, Tennessee, Texas, Virginia, Washington, Washington D.C., Wisconsin, Ontario and British Columbia, Canada, the Philippines and India.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
During the first quarter of 2022, we received a notice of termination for convenience under a contractual arrangement with a state government client. Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.
The client was unresponsive to our outreach for several months, and on August 23, 2022, we filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. The client subsequently asked us to negotiate directly with the client to attempt to resolve the dispute. The negotiations were not successful, and on March 20, 2024, we reinitiated our lawsuit. Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time the matter remains unresolved. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange under the symbol “TYL”. At December 31, 2024, we had approximately 953 stockholders of record. Most of our stockholders hold their shares in street name; therefore, there are substantially more than 953 beneficial owners of our common stock.
We did not pay any cash dividends in 2024 or 2023. Our bank credit agreement contains restrictions on the payment of cash dividends. We intend to retain earnings for use in the operation and expansion of our business and do not anticipate paying a cash dividend in the foreseeable future.
The following table summarizes certain information related to our stock incentive plan, restricted stock units and our employee stock purchase plan. There are no warrants or rights related to our equity compensation plans as of December 31, 2024.
Number of securities to
be issued upon exercise
of outstanding options, warrants, purchase rights
and vesting of restricted stock units as of
December 31, 2024
Weighted average
exercise price of outstanding options
and unvested restricted stock units Number of securities remaining available for
future issuance under
equity compensation
plans (excluding securities reflected in initial column
as of December 31, 2024)
Plan Category
Equity compensation plans approved by security shareholders:
2018 Incentive Stock Plan 1,400,126 $ 336.60 4,385,446
Employee Stock Purchase Plan 8,100 490.14 484,293
1,408,226 $ 337.48 4,869,739
As of December 31, 2024, we had authorization to repurchase up to approximately 2.2 million additional shares of Tyler common stock. During 2024, we did not repurchase any shares of our common stock, except to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units as described below.
A summary of the repurchase activity during 2024 is as follows:
Period Total number of shares repurchased1 Additional number of shares authorized that may be repurchased Average price paid per share Maximum number of shares that may be repurchased under current authorization
Three months ended March 31 53,362 - $ 419.95 2,216,729
Three months ended June 30 25,506 - 480.23 2,191,223
Three months ended September 30 615 - 567.53 2,190,608
October 1 through October 31 273 - 586.23 2,190,335
November 1 through November 30 2,714 - 601.65 2,187,621
December 1 through December 31 25,761 - 629.06 2,161,860
108,231 - 489.74
The repurchase program, which was approved by our Board of Directors, was announced in October 2002, and was amended at various times from 2003 through 2019. There is no expiration date specified for the authorization, and we may repurchase stock under the program from time to time.
As of February 19, 2025, we had remaining authorization to repurchase up to 2.2 million additional shares of our common stock.
1 Includes 77,953 shares withheld by us to satisfy the minimum tax obligations of employees due upon vesting of restricted stock awards and units. The level of this acquisition activity varies from period to period based upon the timing of award grants and vesting. Also includes 30,278 shares for the settlement of certain fully indemnified matters related to two acquisitions completed in prior years resulting in the reimbursement of shares of our common stock from escrow.
Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The following table compares total shareholder returns for Tyler over the last five years to the Standard and Poor’s 500 Stock Index and the Standard and Poor’s 600 Information Technology Index assuming a $100 investment made on December 31, 2019. Each of the three measures of cumulative total return assumes reinvestment of dividends. The stock performance shown on the graph below is not necessarily indicative of future price performance.
Company / Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24
Tyler Technologies, Inc. 100 145.50 179.30 107.46 139.36 192.20
S&P 500 Stock Index 100 118.40 152.39 124.79 157.59 197.02
S&P 600 Information Technology Index 100 127.81 162.12 125.86 152.23 151.00

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]
This section has been eliminated as a result of adopting the November 19, 2020, amendment to Item 301 of Regulation S-K.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. For a comparison of our Results of Operations for the years ended December 31, 2023, and 2022, and our Cash Flow discussion for the year ended December 2023, see “Part II, Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 21, 2024.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (2) disruption to our business and harm to our competitive position resulting from cyber-attacks, security vulnerabilities and software updates; (3) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (4) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (5) material portions of our business require the Internet infrastructure to be adequately maintained; (6) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (7) general economic, political and market conditions, including continued inflation and rising interest rates; (8) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (9) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (10) the ability to attract and retain qualified personnel and dealing with rising labor costs, the loss or retirement of key members of management or other key personnel; and (11) costs of compliance and any failure to comply with government and stock exchange regulations. These factors and other risks that affect our business are described in Item 1A, “Risk Factors”. We expressly disclaim any obligation to publicly update or revise our forward-looking statements.
OVERVIEW
General
We provide integrated information management solutions and services for the public sector. We develop and market a broad line of software products and services to address the IT needs of public sector entities. We provide subscription-based services such as software as a service (“SaaS”) and transaction-based services primarily related to digital government services and payment processing. In addition, we provide professional IT services to our clients, including software and hardware installation, data conversion, training, and for certain clients, product modifications, along with continuing maintenance and support for clients using our systems. Additionally, we provide property appraisal services for taxing jurisdictions.
We report our results in two reportable segments. Our reportable segments are organized on the basis of a combination of the products and services they deliver to clients and the function the public sector client performs. Business units that have met the aggregation criteria have been combined into our two reportable segments. The Enterprise Software (“ES”) reportable segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: public administration solutions, courts and public safety solutions, education solutions, and property and recording solutions. The Platform Technologies (“PT”) reportable segment provides public sector entities with platform and transformative solutions including digital solutions, payment processing, streamlined data processing, and improved operations and workflows.
The primary financial measures used by the CODM for assessing performance and allocating resources are segment income or loss from operations. The CODM uses segment income or loss from operations before income taxes, not including gains and losses on investments, to allocate resources (including employees, property, and financial or capital resources) for each segment predominantly in the annual budget and forecasting process. Segment gross profit for our operating segments units is defined as gross profit before non-cash amortization of acquired software associated with acquisitions. Segment operating income for our reportable segments is defined as income before non-cash amortization of intangible assets associated with their acquisitions, interest expense, and income taxes. During the fiscal periods presented, we had no significant transaction between reportable segments. Corporate segment operating loss primarily consists of compensation costs for the executive management team, certain shared services staff, and share-based compensation expense for the entire company. Corporate segment operating loss also includes revenues and expenses related to a company-wide user conference. Certain presentation items from previous years have been adjusted to conform with current year presentation.
Recent Acquisitions
We did not complete any acquisitions during the twelve months ended December 31, 2024,.
On October 31, 2023, we acquired Resource Exploration, Inc. (“ResourceX”), a leading provider of budgeting software to the public sector, and ARInspect, Inc. (“ARInspect”), a leading provider of AI powered machine learning solutions for public sector field operations.
On August 8, 2023, we acquired Computing System Innovations, LLC (“CSI”), a leading provider of artificial intelligence automation, redaction, and indexing solution for courts, recorders, attorneys, and others.
The actual operating results of CSI and ResourceX are included in the operating results of the ES segment from their respective dates of acquisition. The operating results of ARInspect are included in the operating results of the PT segment since the date of acquisition.
2024 Operating Results
For the twelve months ended December 31, 2024, total revenues increased 9.5% compared to the prior period. Revenues from recent acquisitions contributed $10.4 million or 0.5%, to the total revenue increase.
Subscriptions revenue grew 15.8% for the twelve months ended December 31, 2024, primarily due to an ongoing shift toward SaaS arrangements for both new and existing clients, along with growth in certain transaction-based revenues. We monitor and analyze several key performance indicators in order to manage our business and evaluate our financial and operating performance. These indicators include the following:
Revenues - We derive our revenues from four primary sources: subscription-based arrangements from SaaS and transaction-based fees; maintenance; professional services; and software licenses and royalties. Subscriptions and maintenance are considered recurring revenue sources and comprised approximately 84% of our revenues in 2024. The number of new SaaS clients and the number of existing clients who convert from our traditional software arrangements to our SaaS model are a significant driver of our revenue growth, together with transaction-based revenues and maintenance rate increases. In addition, we also monitor our client base and attrition, which historically is very low. During 2024, based on our number of clients, attrition was approximately 2%.
Annualized Recurring Revenue (“ARR”) - Subscriptions and maintenance are considered recurring revenue sources. ARR is calculated by annualizing the current quarter’s recurring revenues from maintenance and subscriptions as reported in our statement of income. Management believes ARR is an indicator of the annual run rate of our recurring revenues, as well as a measure of the effectiveness of the strategies we deploy to drive revenue growth over time. ARR is a metric widely used by companies in the technology sector and by investors, which we believe offers insight to the stability of our maintenance and subscription revenues to be recognized within the year.
Subscriptions revenues primarily consist of revenues derived from our SaaS arrangements and transaction-based fees. These revenues are considered recurring because revenues from these sources are expected to re-occur in similar annual amounts for the term of our relationship with the client. Transaction-based fees are generally the result of multi-year contracts with our clients that result in fees generated by payment transactions and digital government services and are collected on a recurring basis during the contract term. Transaction-based revenues are historically highest in the second quarter, which coincides with peak outdoor recreation seasons and statutory filing deadlines in many jurisdictions, and lowest in the fourth quarter due to fewer business days and lower transaction volumes around holidays. Because ARR is an annualized revenue amount, the metric can fluctuate from quarter to quarter due to this seasonality. ARR was $1.86 billion and $1.61 billion as of December 31, 2024, and 2023, respectively. ARR increased approximately 15% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements for both new and existing clients and expansion in transaction-based fees.
Cost of Revenues and Gross Margins - Our primary cost components are hosting costs and personnel expenses in connection with providing software implementation, subscription-based services and maintenance and support to our clients. We can improve gross margins by controlling headcount and related costs and by expanding our revenue base, especially from those products and services that produce incremental revenue with relatively low incremental cost, such as subscription-based services, maintenance and support and software licenses and royalties. Continued migration of clients to our SaaS products and consolidation of versions of on-premises software products with support obligations could decrease support costs with resources redeployed toward development. As of December 31, 2024, our total employee count included in cost of revenues increased to 5,250 from 5,129 at December 31, 2023.
Sales and Marketing (“S&M”) Expense - The primary components of S&M expense include sales personnel salaries and share-based compensation expense, sales commissions, travel-related expenses, advertising and marketing materials, and allocated depreciation, facilities, and IT support. Sales commissions typically fluctuate with revenues and share-based compensation expense generally increases based on increased levels of awards issued during the period and as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues.
General and Administrative (“G&A”) Expense - The primary components of G&A expense include personnel salaries and share-based compensation expense for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, third-party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses. Share-based compensation expense generally increases based on increased level of awards issued during the period and as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues.
Research and development (“R&D”) expense - These costs include compensation costs for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to researching and developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs. As of December 31, 2024, our total employee count included in R&D expense increased to 870 from 830 at December 31, 2023
Liquidity and Cash Flows - The primary driver of our cash flows is net income. Uses of cash include acquisitions, capital investments in property and equipment and software development, debt repayment and discretionary purchases of treasury stock. Our working capital needs are fairly stable throughout the year with the significant components of cash inflows representing collection of accounts receivable and cash receipts from clients in advance of revenue being earned, offset by cash outflows, primarily payment of personnel expenses. In recent years, we have also received significant amounts of cash from employees exercising stock options and contributing to our Employee Stock Purchase Plan.
Balance Sheet - Cash, accounts receivable and deferred revenue balances are important indicators of our business.
Outlook
ARR was $1.86 billion and $1.61 billion as of December 31, 2024, and 2023, respectively, an increase of approximately 15% compared to the prior period. The public sector software market continues to experience heightened activity. We expect to continue to achieve solid growth in revenues and earnings. With our strong financial position and cash flow, we plan to continue to make significant investments in product development and continue to accelerate our move to the cloud to better position us to continue to expand our addressable market and strengthen our competitive position over the long term.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements. These financial statements have been prepared following the requirements of accounting principles generally accepted in the United States (“GAAP”) 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. The Notes to the Financial Statements included as part of this Annual Report describe our significant accounting policies used in the preparation of the financial statements. Significant items subject to such estimates and assumptions include the recoverability of goodwill and other intangible assets and estimated useful lives of intangible assets, the application of the progress toward completion methods of revenue recognition, estimation for revenue recognition and multiple performance obligation arrangements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies require significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition. We earn the majority of our revenues from subscription-based services and post-contract client support (“PCS” or “maintenance”). Other sources of revenue are professional services, software licenses and royalties, and hardware and other. Our software arrangements with clients contain multiple performance obligations that range from software licenses, installation, training, consulting, software modification and customization to meet specific client needs; hosting; and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include professional services, such as training or installation, are evaluated to determine whether those services are highly interdependent or interrelated to the product’s functionality. The transaction price is allocated to the distinct performance obligations on a relative standalone selling price (“SSP”) basis.
For arrangements that involve significant production, modification or customization of the software, or where professional services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the client over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred. 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.
Business Combinations. Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets acquired and liabilities assumed at their respective fair values. The determination of fair value requires the use of significant estimates and assumptions, and in making these determinations, management uses all available information.
For tangible and identifiable intangible assets acquired in a business combination, management estimates the fair value of assets acquired and liabilities assumed based on quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. The assumptions made in performing these valuations include, but are not limited to, discount rates, future revenues and operating costs, projections of capital costs, and other assumptions believed to be consistent with those used by principal market participants.
Due to the specialized nature of these calculations, we engage third-party specialists to assist management in evaluating our assumptions as well as appropriately measuring the fair value of assets acquired and liabilities assumed. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain new information about facts and circumstances that existed as of the closing date. If actual results are materially different than the assumptions we used to determine fair value of the assets acquired and liabilities assumed through a business combination as well as the estimated useful lives of the acquired intangible assets, it is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on our financial position and results of operations.
Goodwill and Other Intangible Assets. We perform an impairment assessment annually on October 1, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of each reporting unit’s goodwill. If the conclusion of an impairment assessment is that it is more likely than not that the fair value of the reporting unit is more than its carrying value, goodwill is not considered impaired, and we are not required to perform the quantitative goodwill impairment test. If the conclusion of an impairment assessment is that it is more likely than not that the fair value is less than its carrying value, we perform the quantitative goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. Impairments, if any, are based on the excess of the carrying amount over the fair value. There have been no impairments to goodwill in any of the periods presented. See Note 8, “Goodwill and Other Intangible Assets,” for additional information.
All intangible assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of other intangible assets is measured by comparison of the carrying amount to estimated undiscounted future cash flows. The assessment of recoverability or of the estimated useful life for amortization purposes will be affected if the timing or the amount of estimated future operating cash flows is not achieved. Such indicators may include, among others: a significant decline in expected future cash flows; a sustained, significant decline in stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; and reductions in growth rates. In addition, products, capabilities, or technologies developed by others may render our software products obsolete or non-competitive. Any adverse change in these factors could have a significant impact on the recoverability of goodwill or other intangible assets. During 2024, we did not identify any triggering events that would indicate that the carrying amount of our intangible assets may not be recoverable.
Recent adoption of new accounting pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU) 2023-07 - Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. ASU 2023-07 enhances the disclosures required for reportable segments in annual and interim consolidated financial statements. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. As of December 31, 2024, we adopted the new standard which has been applied retrospectively by the Company. This change did not have a significant impact on the Company’s financial statements and disclosures. See Note 2, “Segment and Related Information,” for further discussion.
New accounting pronouncements
In January 2025, the FASB issued ASU 2025-01 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This update clarifies that all public business entities must adopt the guidance in ASU 2024-03 for annual reporting periods beginning after December 15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. This guidance is not expected to have a material impact on the Company’s financial statements.
In November 2024, the FASB issued ASU 2024-04 - Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This guidance clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. It is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods, with early adoption permitted. This guidance is not expected to have a material impact on the Company’s financial statements.
In November 2024, the FASB issued ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This guidance requires public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. It is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. This guidance is not expected to have a material impact on the Company’s financial statements.
In December 2023, the FASB issued ASU 2023-09 - Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 with early adoption permitted. This guidance is not expected to have a material impact on the Company’s financial statements.
ANALYSIS OF RESULTS OF OPERATIONS AND OTHER
The following discussion compares the historical results of operations on a basis consistent with GAAP for the years ended December 31, 2024 and 2023:
Percentage of Total Revenues
Years Ended December 31,
2024 2023
Revenues:
Subscriptions 62.8 % 59.4 %
Maintenance 21.7 23.9
Professional services 12.3 12.8
Software licenses and royalties 1.2 2.0
Hardware and other 2.0 1.9
Total revenues 100.0 100.0
Cost of revenues:
Subscriptions, maintenance, and professional services 52.1 51.3
Software licenses, royalties, and amortization of acquired software 2.0 2.4
Amortization of software development 0.9 0.6
Hardware and other 1.2 1.5
Sales and marketing expense 7.4 7.7
General and administrative expense 14.1 15.8
Research and development expense 5.5 5.6
Amortization of other intangibles 2.8 3.8
Operating income 14.0 11.3
Interest expense (0.3) (1.2)
Other income, net 0.7 0.2
Income before income taxes 14.4 10.3
Income tax provision 2.1 1.7
Net income 12.3 % 8.6 %
2024 Compared to 2023
Revenues
Subscriptions.
The following table sets forth a comparison of our subscriptions revenue for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
ES $ 794,475 $ 634,262 $ 160,213 25 %
PT 548,456 525,250 23,206 4 %
Total subscriptions revenue
$ 1,342,931 $ 1,159,512 $ 183,419 16 %
Subscriptions revenue consists of revenues derived from our SaaS arrangements and transaction-based fees primarily related to digital government services and payment processing.
SaaS
The following table sets forth a comparison of our subscriptions revenue derived from SaaS fees for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
ES $ 559,842 $ 459,544 $ 100,298 22 %
PT 84,937 68,433 16,504 24 %
Total subscriptions revenue derived from SaaS fees
$ 644,779 $ 527,977 $ 116,802 22 %
For the twelve months ended December 31, 2024, the increase in SaaS fees compared to prior period is primarily attributable to new SaaS clients as well as existing on-premises clients who converted to our SaaS model. Since December 31, 2023, we have added 734 new SaaS clients, while 415 existing on-premises clients have converted to our SaaS offerings. Our new software contract mix for the twelve months ended December 31, 2024, was 12% perpetual software license arrangements and approximately 88% subscription-based arrangements, compared to approximately 17% perpetual software license arrangements and approximately 83% subscription-based arrangements for the twelve months ended December 31, 2023.
Transaction-based fees
The following table sets forth a comparison of our subscriptions revenue derived from transaction-based fees for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
ES $ 234,633 $ 174,718 $ 59,915 34 %
PT 463,519 456,817 6,702 1 %
Total subscriptions revenue derived from transaction-based fees
$ 698,152 $ 631,535 $ 66,617 11 %
For the twelve months ended December 31, 2024, contributing to the growth in transaction-based fees compared to prior period are the new transaction clients, volume increases from online payments and e-filing services, price increases by certain third-party processing partners from whom we receive a share of revenues, and the impact of transaction-based fees from recent acquisitions of $4.2 million. These increases are partially offset by a change from the gross revenue model to the net revenue model for payments revenue under one of our state enterprise agreements that results in merchant fees recorded as a reduction in revenue rather than as cost of revenues.
Maintenance.
The following table sets forth a comparison of our maintenance revenue for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
ES $ 438,455 $ 442,781 $ (4,326) (1) %
PT 24,677 23,880 797 3
Total maintenance revenue
$ 463,132 $ 466,661 $ (3,529) (1) %
We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue decreased compared to prior period primarily due to the impact of clients converting from on-premises license arrangements to SaaS, partially offset by maintenance price increases.
Professional services.
The following table sets forth a comparison of our professional services revenue for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
ES $ 219,933 $ 209,727 $ 10,206 5 %
PT 44,058 40,249 3,809 9
Total professional services revenue
$ 263,991 $ 249,976 $ 14,015 6 %
Professional services revenue primarily consists of professional services billed in connection with implementing our software, converting client data, training client personnel, custom development activities, consulting, and property appraisal services. New clients who implement our software generally contract with us to provide the related professional services. Existing clients also periodically purchase additional training, consulting and minor programming services.
The increase in professional services revenues compared to prior period is primarily attributable to higher new contract volume along with increased billing rates.
Software licenses and royalties.
The following table sets forth a comparison of our software licenses and royalties revenue for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
ES $ 25,292 $ 32,709 $ (7,417) (23) %
PT 1,065 5,387 (4,322) (80)
Total software licenses and royalties revenue
$ 26,357 $ 38,096 $ (11,739) (31) %
The decrease in software licenses and royalties revenue compared to prior period is primarily attributed to the shift in the mix of new software contracts toward more SaaS offerings.
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 that software license revenues will continue to decline as we shift our model away from perpetual software license to SaaS. Subscription-based arrangements result in lower software license revenue in the initial year as compared to perpetual software license arrangements, but generate higher overall revenue over the term of the contract.
Cost of revenues and overall gross margins
The following table sets forth a comparison of the key components of our cost of revenues for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Subscriptions, maintenance, and professional services $ 1,112,778 $ 1,001,221 $ 111,557 11 %
Software licenses and royalties 6,277 10,821 (4,544) (42)
Amortization of software development 18,806 12,625 6,181 49
Amortization of acquired software 36,964 36,062 902 3
Hardware and other 27,217 29,923 (2,706) (9)
Total cost of revenues $ 1,202,042 $ 1,090,652 $ 111,390 10 %
Subscriptions, maintenance, and professional services. Cost of subscriptions, maintenance and professional services primarily consist of personnel costs related to installation of our software, conversion of client data, training client personnel, public cloud hosting costs, and support activities, including enhancing existing solutions, and various other services such as custom development, ongoing operation of our SaaS solutions, property appraisal outsourcing activities, digital government services, and other transaction-based services such as e-filing. Other costs included are merchant and interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.
In 2024, the cost of subscriptions, maintenance and professional services grew 11% primarily due to increased hosting costs as we expand our SaaS client base and transition from our proprietary data centers to the public cloud, together with higher personnel costs. Our professional services staff grew by 121 employees since December 31, 2023, as we increased hiring to ensure that we are well-positioned to serve our growing client base. The increases were partially offset by a reduction in merchant fee expense associated with the change from the gross model to the net model for payments revenue under one of our state enterprise agreements.
Software licenses and royalties. Costs of software licenses and royalties primarily consist of direct third-party software costs. We do not have any direct costs associated with royalties. The cost of software licenses and royalties for the twelve months ended December 31, 2024, declined 42%, compared to the prior period due to lower third-party software costs.
Amortization of software development. Software development costs included in cost of revenues primarily consist of personnel costs. We begin to amortize capitalized costs when a product is available for general release to clients. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the software’s remaining estimated economic life of, generally, three to seven years.
In 2024, amortization of software development costs increased 49% compared to the prior period due to new capitalized software development projects going into service in the past year.
Amortization of acquired software. Amortization expense related to acquired software attributed to business combinations is included with cost of revenues. The estimated useful lives of acquired software ranges from three to 10 years.
In 2024, amortization of acquired software increased 3% compared to the prior period due to amortization of newly acquired software from recent acquisitions completed in fiscal year 2023, partially offset by assets becoming fully amortized in the fourth quarter 2023.
The following table sets forth a comparison of gross profit and overall gross margin for the periods presented as of December 31:
2024 2023 Change
Gross profit
$ 935,761 $ 861,099 $ 74,662
Overall gross margin 43.8 % 44.1 % (0.3) %
Overall gross margin. Our 2024 blended gross margin decreased 0.3% compared to 2023. The decline in the overall gross margin compared to the prior period is attributed to lower revenue from software licenses and maintenance, higher software development amortization expense, and higher personnel costs. The declines in overall gross margin were partially offset by a higher revenue mix for subscription revenues compared to the prior period, resulting in an increase in incremental margin related to subscriptions, maintenance and professional services.
Sales and marketing expense
Sales and marketing (“S&M”) expense consists primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing costs. The following table sets forth a comparison of our S&M expense for the years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Sales and marketing expense $ 157,731 $ 149,770 $ 7,961 5 %
S&M expense as a percentage of revenues was 7.4% in 2024 compared to 7.7% in 2023. S&M expense increased approximately 5% compared to the prior period, resulting from higher personnel, bonus, commission, and trade show expenses, offset by lower professional fees related to marketing and advertising.
General and administrative expense
General and administrative (“G&A”) expense consists primarily of personnel salaries and share-based compensation expense for general corporate functions including senior management, finance, accounting, legal, human resources and corporate development, as well as third-party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, amortization of software development for internal use, acquisition-related expenses and other administrative expenses. The following table sets forth a comparison of our G&A expense for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
General and administrative expense $ 300,938 $ 308,575 $ (7,637) (2) %
G&A expense as a percentage of revenue was 14.1% in 2024 compared to 15.8% in 2023. G&A expense decreased 2% compared to the prior period. The decline in G&A expense is primarily attributed to lower facilities costs resulting from lease restructurings, partially offset by higher share-based compensation costs and an increase in software and other IT support costs.
Research and development expense
Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development. Research and development expense consists mainly of costs associated with development of new products and new functionality in our current SaaS products. The following table sets forth a comparison of our research and development expense for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Research and development expense $ 117,939 $ 109,585 $ 8,354 8 %
Research and development expense as a percent of total revenue was 5.5% in 2024, compared to 5.6% in 2023. Research and development expense increased 8% in 2024 compared to the prior period, mainly due to a number of new Tyler product development initiatives shifting from capitalized development projects to projects that are expensed to research and development.
Amortization of other intangibles
Other intangibles represents the portion of the purchase price allocated to the identified intangible assets for client-related intangibles, trade names, and leases acquired. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues while amortization expense of other intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years. The following table sets forth a comparison of amortization of other intangibles for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Amortization of other intangibles $ 59,627 $ 74,632 $ (15,005) (20) %
In 2024, amortization of other intangibles decreased 20% compared to the prior period due to the impact of certain trade name intangible assets becoming fully amortized as a result of accelerated amortization expense in the fourth quarter of 2023 and partially in 2024.
Estimated annual amortization expense relating to client related, trade name, and leases acquired intangibles, excluding acquired software for which the amortization expense is recorded as cost of revenues, for the next five years and thereafter is as follows (in thousands):
2025 $ 55,274
2026 54,820
2027 54,440
2028 53,783
2029 53,250
Thereafter 427,816
Interest expense
The following table sets forth a comparison of our interest expense for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Interest expense $ (5,931) $ (23,629) $ 17,698 (75)%
Interest expense is comprised of interest expense and non-usage and other fees associated with our borrowings. The change in interest expense compared to the prior period is primarily attributable to lower interest incurred as a result of our repayment of the Term Loans in early 2024.
Other income, net
The following table sets forth a comparison of our other income, net for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Other income, net $ 14,572 $ 3,328 $ 11,244 338%
Other income, net, is primarily comprised of interest income from invested cash. The change in other income, net, compared to the prior period is due to increased interest income generated from higher invested cash balances in 2024 compared to 2023.
Income tax provision
The following table sets forth a comparison of our income tax provision for the listed years ended December 31 ($ in thousands):
Change
2024 2023 $ %
Income tax provision $ 45,141 $ 32,317 $ 12,824 40 %
Effective income tax rate 14.6 % 16.3 %
The increase in the income tax provision in 2024 compared to the prior period is primarily due to higher income before taxes, increased liabilities for uncertain tax positions, and higher state income taxes. This was partially offset by an increase in excess tax benefits from share-based compensation and research tax credits and a decrease in non-deductible business expense. The decrease in the effective income tax rate in 2024, compared to the prior period is driven by higher excess tax benefits from share-based compensation and decreases in liabilities for uncertain tax positions, state income taxes, and non-deductible business expenses offset by a decrease in research tax credit benefits relative to income before taxes. The tax benefits related to research tax credits totaled $22.1 million in 2024 compared to $20.5 million in 2023. The tax expense related to uncertain tax positions in 2024 was $10.1 million compared to $7.6 million in 2023. The share-based exercise and vesting activity in 2024 generated $21.1 million of excess tax benefits, while exercise and vesting activity in 2023 generated $9.3 million of excess tax benefits.
The effective income tax rates for the periods presented are different from the statutory United States federal income tax rate of 21% primarily due to the tax benefits of research tax credits and excess tax benefits related to stock incentive awards, offset by state income taxes, liabilities for uncertain tax positions, and non-deductible business expenses.
FINANCIAL CONDITION AND LIQUIDITY
As of December 31, 2024, we had cash and cash equivalents of $744.7 million compared to $165.5 million as of December 31, 2023. We also had $34.0 million invested in investment grade corporate bonds, U.S. Treasuries and asset-backed securities as of December 31, 2024. These investments have varying maturity dates through 2027 and are held as available-for-sale. 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 our revolving credit facility. 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 our cash on hand, cash provided by operating activities, and available credit are sufficient to fund our working capital requirements and capital expenditures for at least the next twelve months.
The following table sets forth a summary of cash flows for the listed years ended December 31 (in thousands):
2024 2023 2022
Cash flows provided (used) by:
Operating activities $ 624,633 $ 380,440 $ 381,455
Investing activities (67,612) (76,960) (172,530)
Financing activities 22,207 (311,844) (344,239)
Net increase (decrease) in cash and cash equivalents
$ 579,228 $ (8,364) $ (135,314)
In 2024, operating activities provided cash of $624.6 million, compared to $380.4 million in 2023. Operating activities that provided cash were primarily comprised of net income of $263.0 million, non-cash depreciation and amortization charges of $143.4 million, non-cash share-based compensation expense of $122.8 million and non-cash amortization of operating lease right-of-use assets of $8.9 million. Changes in working capital, excluding cash, increased cash provided by operating activities by approximately $91.7 million mainly due to timing of prepaid expenses, timing of payments for operating leases, timing of payments related to income taxes and deferred taxes associated with stock option activity during the period. These decreases were offset by an increase in deferred revenue during the period, an increase in accrued expenses due to timing of payments and increased collections from accounts receivables. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance and subscription renewal billings. Our renewal dates occur throughout the year, but our largest maintenance billing cycles occur in the second and fourth quarters. Subscription renewals are billed throughout the year.
Investing activities used cash of $67.6 million in 2024 compared to $77.0 million in 2023. We invested $32.4 million and received $16.0 million in proceeds from investment grade corporate bonds, U.S. Treasuries and asset-backed securities. Approximately $29.4 million of software development costs were capitalized. Approximately $20.5 million was invested in property and equipment, including $7.5 million related to real estate. The remaining additions were for computer equipment and furniture and fixtures in support of growth. We also paid approximately $1.4 million in holdbacks related to acquisitions completed in 2023.
Financing activities provided cash of $22.2 million in 2024 compared to used cash of $311.8 million in 2023, primarily attributable to cash received of $74.8 million from stock option exercises, net of withheld shares for taxes upon equity award settlement and employee stock purchase plan activity, partially offset by the repayment of $50.0 million of Term debt related to our 2021 Credit Agreement and payment of $2.6 million in debt issuances costs related to our newly signed 2024 Credit Agreement.
In February 2019, our Board of Directors authorized the repurchase of an additional 1.5 million shares of our common 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 2019. As of February 19, 2025, we have authorization from our Board of Directors to repurchase up to 2.2 million additional shares of our common stock. Our share repurchase program allows us to repurchase shares at our discretion. Market conditions as well as the volume of employee stock option exercises, influence the timing of the buybacks and the number of shares repurchased. 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.
On September 25, 2024, the Company entered into a $700.0 million credit agreement with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender (the “2024 Credit Agreement”). The 2024 Credit Agreement provides for an unsecured revolving credit facility in an aggregate principal amount of up to $700.0 million, including subfacilities for standby letters of credit and swingline loans. The 2024 Credit Agreement matures on September 25, 2029, and loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any SOFR breakage costs. The Company incurred issuance fees of $2.6 million in connection with the 2024 Credit Agreement. The 2024 Credit Agreement replaced Tyler’s previous $500.0 million unsecured credit facility under the credit agreement dated April 21, 2021, among the Company and various lenders party thereto (the “2021 Credit Agreement”), which was scheduled to mature in April 2026.
We repaid all amounts due under the Term Loans under the 2021 Credit Agreement and have no outstanding borrowings under the 2024 Credit Agreement, with an available borrowing capacity of $700.0 million as of December 31, 2024.
As of December 31, 2024, we had $600.0 million in outstanding principal for the Convertible Senior Notes due 2026. We will settle any conversions of the Convertible Senior Notes either entirely in cash or in a combination of cash and shares of our common stock, at our election. As of December 31, 2024, none of the conditions allowing holders of the Convertible Senior Notes to convert have been met.
We paid interest of $3.1 million in 2024 and $19.2 million in 2023. See Note 10, “Debt,” to the consolidated financial statements for discussions of the Convertible Senior Notes and the 2024 Credit Agreement.
We paid income taxes, net of refunds received, of $84.2 million in 2024 compared to $142.8 million in 2023.
We anticipate that 2025 capital spending will be between $32 million and $34 million, including approximately $19 million of software development. We expect the majority of the other capital spending will consist of computer equipment and software for infrastructure replacements and expansion. Capital spending and cash tax payments are expected to be funded from existing cash balances and cash flows from operations.
From time to time we engage in discussions with potential acquisition candidates. In order to 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 acquisition opportunities and how such opportunities will be financed.
We lease office facilities, transportation and other equipment for use in our operations. Most of our leases are non-cancelable operating lease agreements with remaining terms of one to 10 years. Some of these leases include options to extend for up to six years.
Our estimated future obligations consist of debt, uncertain tax positions, leases, and purchase commitments as of December 31, 2024. Refer to Note 10, “Debt,” Note 13, “Income Tax,” Note 16, “Leases,” and Note 19, “Commitment and Contingencies,” to the consolidated financial statements for related discussions.
CAPITALIZATION
At December 31, 2024, our capitalization consisted of $597.9 million of outstanding debt and $3.4 billion of shareholders’ equity.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. 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 December 31, 2024, we had no outstanding borrowings under our 2024 Credit Agreement and available borrowing capacity under the 2024 Credit Agreement was $700.0 million.
Loans under the revolving credit facility will bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) plus a margin of 0.125% to 0.75% or (2) the one-, three-, or six-month SOFR rate plus a margin of 1.125% to 1.75%.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The reports of our independent registered public accounting firm and our financial statements, related notes, and supplementary data are included as part of this Annual Report beginning on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. 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 periods 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 December 31, 2024. Based on this evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2024.
Management’s Report on Internal Control Over Financial Reporting
Tyler’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Securities Exchange Act Rule 13a-15(f). Tyler’s internal control over financial reporting is designed to provide reasonable assurance to Tyler’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of Tyler’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on our assessment, we concluded that, as of December 31, 2024, Tyler’s internal control over financial reporting was effective based on those criteria.
Tyler’s internal control over financial reporting as of December 31, 2024 has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited Tyler’s financial statements. Ernst & Young’s attestation report on Tyler’s internal control over financial reporting appears on page hereof.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
(c) Trading Plans.
None

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
“Tyler Management” and “Corporate Governance Principles and Board Matters”

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
“Executive Compensation”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
“Security Ownership of Certain Beneficial Owners and Management”

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
"Executive Compensation" and
“Certain Relationships and Related Transactions”

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required under this item may be found under the section captioned “Proposals For Consideration - Proposal Two - Ratification of Our Independent Auditors for Fiscal Year 2024” in our Proxy Statement when filed.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this Annual Report:
(a) (1) The financial statements are filed as part of this Annual Report.
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Statements of Income for the years ended December 31, 2024, 2023, and 2022
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023, and 2022
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024, 2023, and 2022
Notes to Consolidated Financial Statements
(2) Financial statement schedules:
There are no financial statement schedules filed as part of this Annual Report, since the required information is included in the financial statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.
(3) Exhibits
Certain of the exhibits to this Annual Report are hereby incorporated by reference, as specified:
Exhibit
Number Description
3.1
Amended and Restated Certificate of Incorporation of Tyler Three, as amended through May 14, 1990, and Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.1 to our Form 10-Q for the quarter ended June 30, 1990, and incorporated by reference herein), as amended by the Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to our Form 8-K, dated February 19, 1998, and incorporated by reference herein), as amended by Certificate of Amendment dated May 19, 1999 to the Restated Certificate of Incorporation (filed as Exhibit 3.4 to our Form 10-K for the year ended December 31, 2000, and incorporated by reference herein).
3.2
Amended and Restated By-Laws of Tyler Technologies Inc., dated May 11, 2023, (filed as Exhibit 3.1 to our Form 8-K dated May 15, 2023, and incorporated by reference herein).
4.1 Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our registration statement no. 33-33505 and incorporated by reference herein).
4.2
Indenture, dated as of March 9, 2021, between Tyler Technologies, Inc. and U.S. Bank National Association, as trustee, relating to the 0.25% Convertible Senior Notes due 2026 (filed as Exhibit 4.1 to our Form 8-K, dated March 9, 2021, and incorporated by reference herein).
Credit Agreement dated September 25, 2024, among Tyler Technologies, Inc. and Wells Fargo Bank, N. A. as Administrative Agent and other lenders party hereto (filed as Exhibit 10.1 to our Form 8-K dated September 30, 2024, and incorporated by reference herein)
10.1
Employee Stock Purchase Plan (filed as Exhibit 10.1 to our registration statement 333-182318 dated June 25, 2012 and incorporated by reference herein).
10.2
Amended and Restated Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and John S. Marr, Jr.(filed as Exhibit 10.1 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
10.3
Amended and Restated Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and H. Lynn Moore, Jr. (filed as Exhibit 10.2 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
10.4
Amended and Restated Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and Brian K. Miller (filed as Exhibit 10.3 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
10.5
Executive Employment Agreement, effective as of May 12, 2022, by and between Tyler Technologies, Inc. and Jeffrey D. Puckett (filed as Exhibit 10.4 to our Form 8-K dated May 18, 2022 and incorporated by reference herein).
10.6
Tyler Technologies, Inc. Amended and Restated 2018 Incentive Plan, effective as of May 9, 2024 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 9, 2024 and incorporated by reference herein).
Code of Business Conduct and Ethics of Tyler Technologies, Inc. dated May 9, 2024 (filed as Exhibit 14 to our form 10-K dated February 19, 2025, and incorporated by reference herein).
Revised Insider Trading Policy of Tyler Technologies, Inc., dated July 20, 2023,(filed as exhibit 10.1 to our Form 10-Q dated July 26, 2023, and incorporated by reference herein).
Exhibit
Number Description
*21
Subsidiaries of Tyler Technologies, Inc.
*23
Consent of Independent Registered Public Accounting Firm.
*31.1
Rule 13a-14(a) Certification by Principal Executive Officer.(a) Certification by Principal Executive Officer.
*31.2
Rule 13a-14(a) Certification by Principal Financial Officer.
*32.1
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
*101.INS Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags, including Cover Page XBRL tags, are embedded within the Inline XBRL Document.
*101.SCH Inline XBRL Taxonomy Extension Schema Document.
*101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
*101.LAB Inline XBRL Extension Labels Linkbase Document.
*101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
*101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* - Filed herewith.
A copy of each exhibit may be obtained at a price of 15 cents per page, with a $10.00 minimum order, by writing Investor Relations, 5101 Tennyson Parkway, Plano, Texas 75024.