UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

OR

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

Commission File Number 1-10485

TYLER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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

5101 TENNYSON PARKWAY	PLANO	Texas	75024
(Address of principal executive offices)	(City)	(State)	(Zip code)

(972) 713-3700

(Registrant’s telephone number, including area code)

Title of each class	Trading symbol	Name of each exchange on which registered
COMMON STOCK, $0.01 PAR VALUE	TYL	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   ☒     No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer," "accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes   ☐     No   ☒

The number of shares of common stock of registrant outstanding on October 25, 2022 was 41,639,898.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Software licenses and royalties	$	20,269	$	22,673	$	51,784	$	55,210
Subscriptions	254,346		252,942		755,604		554,979
Professional services	63,180		54,624		187,802		155,601
Maintenance	117,338		117,833		351,182		356,566
Appraisal services	8,638		7,146		25,968		19,876
Hardware and other	9,420		4,655		25,643		16,518
Total revenues	473,191		459,873		1,397,983		1,158,750
Cost of revenues:
Software licenses and royalties	3,162		1,547		8,640		4,151
Amortization of acquired software	13,622		12,896		40,882		32,683
Subscriptions, professional services and maintenance	239,928		241,944		721,017		576,035
Appraisal services	5,783		4,506		17,695		13,552
Hardware and other	6,033		2,764		19,219		9,845
Total cost of revenues	268,528		263,657		807,453		636,266
Gross profit	204,663		196,216		590,530		522,484
Selling, general and administrative expenses	103,619		101,847		301,216		289,543
Research and development expense	25,190		24,002		72,517		69,243
Amortization of other intangibles	14,941		14,183		43,259		31,015
Operating income	60,913		56,184		173,538		132,683
Interest expense	(9,258)		(5,396)		(20,276)		(18,311)
Other income, net	131		445		712		1,249
Income before income taxes	51,786		51,233		153,974		115,621
Income tax (benefit) provision	(1,447)		7,063		20,811		8,945
Net income	$	53,233	$	44,170	$	133,163	$	106,676
Earnings per common share:
Basic	$	1.28	$	1.08	$	3.21	$	2.61
Diluted	$	1.26	$	1.04	$	3.14	$	2.53

See accompanying notes.

2

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	53,233	$	44,170	$	133,163	$	106,676
Other comprehensive loss, net of tax:
Securities available-for-sale and transferred securities:
Change in net unrealized holding losses on available for sale securities during the period	(109)		—		(852)		—
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	—		—		(27)		—
Reclassification adjustment for net loss on sale of available for sale securities, included in net income	72		—		79		—
Other comprehensive loss, net of tax	(37)		—		(800)		—
Comprehensive income	$	53,196	$	44,170	$	132,363	$	106,676

See accompanying notes.

3

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

	September 30, 2022 (unaudited)		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	185,927	$	309,171
Accounts receivable (less allowance for losses and sales adjustments of $14,057 in 2022 and $12,086 in 2021)	561,780		521,059
Short-term investments	39,360		52,300
Prepaid expenses	59,096		55,513
Income tax receivable	7,379		18,137
Other current assets	6,608		8,151
Total current assets	860,150		964,331
Accounts receivable, long-term	9,213		13,937
Operating lease right-of-use assets	53,202		39,720
Property and equipment, net	175,196		181,193
Other assets:
Software development costs, net	51,092		28,489
Goodwill	2,449,405		2,359,674
Other intangibles, net	1,004,045		1,052,493
Non-current investments	22,627		46,353
Other non-current assets	50,443		45,971
	$	4,675,373	$	4,732,161
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	108,121	$	119,988
Accrued liabilities	134,313		158,424
Operating lease liabilities	10,581		10,560
Deferred revenue	529,233		510,529
Current portion of term loans	30,000		30,000
Total current liabilities	812,248		829,501
Revolving credit facility	—		—
Term loans	452,138		718,511
Convertible senior notes due 2026, net	594,054		592,765
Deferred revenue, long-term	2,473		38
Deferred income taxes	203,204		228,085
Operating lease liabilities, long-term	49,759		36,336
Other long-term liabilities	14,199		2,893
Total liabilities	2,128,075		2,408,129
Commitments and contingencies	—		—
Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of September 30, 2022 and December 31, 2021	481		481
Additional paid-in capital	1,164,359		1,075,650
Accumulated other comprehensive loss, net of tax	(846)		(46)
Retained earnings	1,406,777		1,273,614
Treasury stock, at cost; 6,525,259 and 6,832,640 shares in 2022 and 2021, respectively	(23,473)		(25,667)
Total shareholders' equity	2,547,298		2,324,032
	$	4,675,373	$	4,732,161

See accompanying notes.

4

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	133,163	$	106,676
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	116,950		97,864
Losses from sale of investments	44		—
Share-based compensation expense	77,991		80,360
Operating lease right-of-use assets expense	9,240		7,016
Deferred income tax benefit	(32,845)		(15,681)
Changes in operating assets and liabilities, exclusive of effects of    acquired companies:
Accounts receivable	(34,163)		2,403
Income tax receivable	10,759		24,171
Prepaid expenses and other current assets	(6,568)		(10,456)
Accounts payable	(13,750)		(64,383)
Operating lease liabilities	(9,324)		(3,904)
Accrued liabilities	(23,797)		4,817
Deferred revenue	20,592		29,609
Other long-term liabilities	11,306		(1,749)
Net cash provided by operating activities	259,598		256,743
Cash flows from investing activities:
Additions to property and equipment	(17,441)		(20,770)
Purchase of marketable security investments	(20,428)		(75,684)
Proceeds and maturities from marketable security investments	55,052		114,563
Investment in software	(25,557)		(14,966)
Cost of acquisitions, net of cash acquired	(117,706)		(2,088,394)
Other	326		463
Net cash used by investing activities	(125,754)		(2,084,788)
Cash flows from financing activities:
Net borrowings on revolving credit facility	—		—
Payment on term loans	(270,000)		(57,500)
Proceeds from term loans	—		900,000
Proceeds from issuance of convertible senior notes	—		600,000
Payment of debt issuance costs	—		(27,165)
Purchase of treasury shares	—		(12,975)
Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award	298		46,433
Contributions from employee stock purchase plan	12,614		9,757
Net cash (used) provided by financing activities	(257,088)		1,458,550
Net decrease in cash and cash equivalents	(123,244)		(369,495)
Cash and cash equivalents at beginning of period	309,171		603,623
Cash and cash equivalents at end of period	$	185,927	$	234,128

See accompanying notes.

5

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at June 30, 2022	48,148	$	481	$	1,128,821	$	(809)	$	1,353,544	(6,584)	$	(23,710)	$	2,458,327
Net income	—	—		—		—		53,233		—	—		53,233
Unrealized loss on available-for-sale securities, net of tax	—	—		—		(37)		—		—	—		(37)
Exercise of stock options and vesting of restricted stock units	—	—		4,232		—		—		45	758		4,990
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—		—		(2)	(585)		(585)
Stock compensation	—	—		26,912		—		—		—	—		26,912
Issuance of shares pursuant to employee stock purchase plan	—	—		4,394		—		—		16	64		4,458
Balance at September 30, 2022	48,148	$	481	$	1,164,359	$	(846)	$	1,406,777	(6,525)	$	(23,473)	$	2,547,298

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at June 30, 2021	48,148	$	481	$	962,557	$	(46)	$	1,174,662	(7,315)	$	(29,663)	$	2,107,991
Net income	—	—		—		—		44,170		—	—		44,170
Exercise of stock options and vesting of restricted stock units	—	—		14,712		—		—		112	2,333		17,045
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—		—		(3)	(1,451)		(1,451)
Stock compensation	—	—		29,461		—		—		—	—		29,461
Issuance of shares pursuant to employee stock purchase plan	—	—		3,482		—		—		9	75		3,557
Treasury stock purchases	—	—		—		—		—		—	—		—
Purchase Consideration for Converted Stock	—	—		—		—		—		—	—		—
Balance at September 30, 2021	48,148	$	481	$	1,010,212	$	(46)	$	1,218,832	(7,197)	$	(28,706)	$	2,200,773

6

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2021	48,148	$	481	$	1,075,650	$	(46)	$	1,273,614	(6,833)	$	(25,667)	$	2,324,032
Net income	—	—		—		—		133,163		—	—		133,163
Unrealized loss on available-for-sale securities, net of tax	—	—		—		(800)		—		—	—		(800)
Exercise of stock options and vesting of restricted stock units	—	—		(1,665)		—		—		324	22,878		21,213
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—		—		(52)	(20,915)		(20,915)
Stock compensation	—	—		77,991		—		—		—	—		77,991
Issuance of shares pursuant to employee stock purchase plan	—	—		12,383		—		—		36	231		12,614
Balance at September 30, 2022	48,148	$	481	$	1,164,359	$	(846)	$	1,406,777	(6,525)	$	(23,473)	$	2,547,298

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2020	48,148	$	481	$	905,332	$	(46)	$	1,112,156	(7,609)	$	(31,812)	$	1,986,111
Net income	—	—		—		—		106,676		—	—		106,676
Exercise of stock options and vesting of restricted stock units	—	—		13,089		—		—		458	33,344		46,433
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—		—		(40)	(17,461)		(17,461)
Stock compensation	—	—		80,360		—		—		—	—		80,360
Issuance of shares pursuant to employee stock purchase plan	—	—		9,559		—		—		26	198		9,757
Treasury stock purchases	—	—		—		—		—		(32)	(12,975)		(12,975)
Purchase Consideration for Converted Stock	—	—		1,872		—		—		—	—		1,872
Balance at September 30, 2021	48,148	$	481	$	1,010,212	$	(46)	$	1,218,832	(7,197)	$	(28,706)	$	2,200,773

7

Tyler Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Tables in thousands, except per share data)

(1)    Basis of Presentation

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

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). During the three and nine months ended September 30, 2022, we had approximately $37,000 and $800,000 of other comprehensive loss, net of taxes, from our available-for-sale investment holdings and no items of other comprehensive income (loss) during the three and nine months ended September 30, 2021.

(2)    Accounting Standards and Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

REVENUE RECOGNITION

Nature of Products and Services

We earn revenues from software licenses, royalties, subscription-based services, professional services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

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

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

Most of our software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include 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.

8

Significant Judgments:

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

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

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

Subscriptions revenue primarily consists of revenue derived from our SaaS arrangements. Other sources of subscription-based revenues are derived from transaction-based fees primarily related to digital government services and payment processing. We also provide electronic document filing solutions (“e-filing”) that simplify the filing and management of court related documents for courts and law offices. E-filing revenue is derived from transaction fees and fixed fee arrangements. For transaction-based revenues from digital government services, payments, and e-filing transaction fees, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period. Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates, additional revenues for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably, and its realization is probable.

Refer to Note 15 - “Disaggregation of Revenue” for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenue and cash flows of our various revenue categories.

Contract Balances:

Accounts receivable and allowance for losses and sales adjustments

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

9

At September 30, 2022, and December 31, 2021, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $571.0 million and $535.0 million, respectively. We have recorded unbilled receivables of $137.7 million and $140.3 million at September 30, 2022 and December 31, 2021, respectively. Included in unbilled receivables are retention receivables of $7.6 million and $7.7 million at September 30, 2022 and December 31, 2021, respectively, which become payable upon the completion of the contract or completion of our appraisal fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.

We maintain allowances for losses and sales adjustments, which losses are recorded against revenue at the time the loss is incurred. Since most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for losses and sales adjustments may require revision, include, but are not limited to, managing our client’s expectations regarding the scope of the services to be delivered and defects or errors in new versions or enhancements of our software products. Our allowance for losses and sales adjustments of $14.1 million and $12.1 million at September 30, 2022, and December 31, 2021, respectively, does not include provisions for credit losses. Because we rarely experience credit losses with our clients, we have not recorded a material reserve for credit losses.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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

(3)    Acquisitions

On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a leading provider of technology solutions for campground and outdoor recreation management. The total purchase price, net of cash acquired of $6.4 million, was approximately $116.6 million, consisting of $117.9 million paid in cash and approximately $5.0 million related to indemnity holdbacks, subject to certain post-closing adjustments.

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

Cash	$	6,361
Accounts receivable	1,730
Other current assets	594
Other noncurrent assets	698
Goodwill and identifiable intangible assets	125,643
Accounts payable	(1,881)
Accrued expenses	(357)
Other noncurrent liabilities	(742)
Deferred revenue	(688)
Deferred tax liabilities, net	(8,428)
Total consideration	$	122,930

10

In connection with this transaction, we acquired total tangible assets of $9.4 million and assumed liabilities of approximately $3.7 million. We recorded goodwill of approximately $91.5 million, none of which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately $34.1 million. The identifiable intangible assets are attributable to customer relationships, acquired software, and trade name and will be amortized over a weighted average period of approximately 13 years. We recorded net deferred tax liabilities of $8.4 million related to the tax effect of our estimated fair value allocations. Since the acquisition date, we recorded adjustments to the preliminary opening balance sheet attributed to decreases in other current assets, other noncurrent assets, identifiable intangible assets, accrued expenses, and deferred revenue, and increases in accounts receivable, accounts payable, and deferred tax liabilities, resulting in a net increase to goodwill of approximately $10.4 million.

The goodwill of approximately $91.5 million arising from this acquisition is primarily attributed to our ability to generate increased revenues, earnings, and cash flow by expanding our addressable market and client base.

The operating results of US eDirect are included with the operating results of the Platform Technologies segment since its date of acquisition. The impact of the US eDirect acquisition on our operating results, assets, and liabilities is not material. For the nine months ended September 30, 2022, we incurred fees of approximately $1.2 million for financial advisory, legal, accounting, due diligence, valuation, and other various services necessary to complete acquisitions. These costs were expensed in 2022 and are included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

As of September 30, 2022, the purchase price allocation for US eDirect is not final; therefore, certain preliminary valuation estimates of fair value assumed at the acquisition date for intangible assets, receivables, and related deferred taxes are subject to change as valuations are finalized. Our balance sheet as of September 30, 2022, reflects the allocation of the purchase price to the net assets acquired based on their estimated fair value at the date of the acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level 3 unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	473,191	$	464,608	$	1,399,205	$	1,172,575
Net income	53,233		43,851		121,416		105,950
Basic earnings per share	$	1.28	$	1.07	$	2.92	$	2.60
Diluted earnings per share	$	1.26	$	1.04	$	2.86	$	2.51

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

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(4)    Debt

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

	Rate	Maturity Date	September 30, 2022		December 31, 2021
2021 Credit Agreement
Revolving credit facility	L + 1.50%	April 2026	$	—	$	—
Term Loan A-1	L + 1.50%	April 2026	380,000		585,000
Term Loan A-2	L + 1.25%	April 2024	105,000		170,000
Convertible Senior Notes due 2026	0.25%	March 2026	600,000		600,000
Total borrowings			1,085,000		1,355,000
Less: unamortized debt discount and debt issuance costs			(8,808)		(13,724)
Total borrowings, net			1,076,192		1,341,276
Less: current portion of debt			(30,000)		(30,000)
Carrying value			$	1,046,192	$	1,311,276

2021 Credit Agreement

In connection with the completion of the acquisition of NIC on April 21, 2021, we, as borrower, entered into a new $1.4 billion Credit Agreement (the “2021 Credit Agreement”) with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender. The 2021 Credit Agreement provides for (1) a senior unsecured revolving credit facility in an aggregate principal amount of up to $500 million, including sub-facilities for standby letters of credit and swingline loans (the “Revolving Credit Facility”), (2) an amortizing five-year term loan in the aggregate amount of $600 million (the “Term Loan A-1”), and (3) a non-amortizing three-year term loan in the aggregate amount of $300 million (the “Term Loan A-2”) and, together (the “Term Loans”). The 2021 Credit Agreement matures on April 20, 2026, and the loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any LIBOR breakage costs. In addition to the required amortization payments on the Term Loan A-1 of 5% annually, certain mandatory quarterly prepayments of the Term Loans and the Revolving Credit Facility will be required (i) upon the issuance or incurrence of additional debt not otherwise permitted under the 2021 Credit Agreement and (ii) upon the occurrence of certain asset sales and insurance and condemnation recoveries, subject to certain thresholds, baskets, and reinvestment provisions as provided in the 2021 Credit Agreement.

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

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

Convertible Senior Notes due 2026

On March 9, 2021, we issued 0.25% Convertible Senior Notes due 2026 in the aggregate principal amount of $600.0 million (“the Convertible Senior Notes” or “the Notes”). The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 9, 2021, with U.S. Bank National Association, as trustee. The net proceeds from the issuance of the Convertible Senior Notes were $591.4 million, net of initial purchasers’ discounts of $6.0 million and debt issuance costs of $2.6 million.

The Convertible Senior Notes are senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

The Convertible Senior Notes accrue interest at a rate of 0.25% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Convertible Senior Notes mature on March 15, 2026, unless earlier repurchased, redeemed, or converted.

Before September 15, 2025, holders of the Convertible Senior Notes have the right to convert their Convertible Senior Notes only upon the occurrence of certain events. Under the terms of the Indenture, the Convertible Senior Notes are convertible into common stock of Tyler Technologies, Inc. (referred to as “our common stock” herein) at the following times or circumstances:

•during any calendar quarter commencing after the calendar quarter ended September 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

•during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of Convertible Senior Notes, as determined following a request by their holder in accordance with the procedures in the indenture, for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

•upon the occurrence of certain corporate events or distributions on our common stock, including but not limited to a “Fundamental Change” (as defined in the Indenture);

•upon the occurrence of specified corporate events; or

•on or after September 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, March 15, 2026.

With certain exceptions, upon a change of control or other fundamental change (both as defined in the Indenture governing the Convertible Senior Notes), the holders of the Convertible Senior Notes may require us to repurchase all or part of the principal amount of the Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes, plus any accrued and unpaid interest to, but excluding, the redemption date.

As of September 30, 2022, none of the conditions allowing holders of the Convertible Senior Notes to convert have been met.

From and including September 15, 2025, holders of the Convertible Senior Notes may convert their Convertible Senior Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle any conversions of the Convertible Senior Notes either entirely in cash or in a combination of cash and shares of common stock, at our election. However, upon conversion of any Convertible Senior Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted.

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

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

Effective Interest

The weighted average interest rates for the borrowings under the 2021 Credit Agreement and Convertible Senior Notes due 2026 were 4.56% and 0.25%, as of September 30, 2022, respectively. During the nine months ended September 30, 2022, the effective interest rates for our borrowings were 3.28% and 0.54% for the 2021 Credit Agreement and the Convertible Senior Notes, respectively. The following sets forth the interest expense recognized related to the borrowings under the 2021 Credit Agreement and Convertible Senior Notes and is included in interest expense in the accompanying condensed consolidated statements of income:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Contractual interest expense - Revolving Credit Facility	$	(320)	$	(391)	$	(948)	$	(925)
Contractual interest expense - Term Loans	(5,234)		(3,492)		(12,603)		(6,153)
Contractual interest expense - Convertible Senior Notes	(375)		(379)		(1,125)		(838)
Amortization of debt discount and debt issuance costs	(3,329)		(1,134)		(5,600)		(2,176)
Interest expense and amortization of debt issuance costs - terminated 2019 Credit Agreement and Senior Unsecured Bridge loan facility	—		—		—		(8,219)
Total	$	(9,258)	$	(5,396)	$	(20,276)	$	(18,311)

As of September 30, 2022, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026. Under our 2021 Credit Agreement, we had $485 million in outstanding principal for the Term Loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of $500 million as of September 30, 2022. As of September 30, 2022, we had one outstanding standalone letter of credit totaling $1.5 million. The letter of credit, which guarantees our performance under a client contract, renews automatically annually unless canceled in writing, and expires in the third quarter of 2026. For the nine months ended September 30, 2022, we repaid $