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 June 30, 2023

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 July 25, 2023 was 42,078,410.

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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Subscriptions	$	297,789	$	255,816	$	578,254	$	501,259
Maintenance	116,539		116,815		231,670		233,844
Professional services	66,420		71,937		127,349		141,952
Software licenses and royalties	9,779		15,009		19,909		31,515
Hardware and other	13,752		9,108		18,951		16,222
Total revenues	504,279		468,685		976,133		924,792
Cost of revenues:
Subscriptions, maintenance, and professional services	255,789		250,168		508,204		493,000
Software licenses and royalties	2,432		1,547		4,745		2,992
Amortization of software development	2,896		1,322		5,485		2,486
Amortization of acquired software	8,924		14,039		17,844		27,260
Hardware and other	11,061		8,161		16,841		13,188
Total cost of revenues	281,102		275,237		553,119		538,926
Gross profit	223,177		193,448		423,014		385,866
Sales and marketing expense	37,103		31,881		74,206		67,087
General and administrative expense	77,681		67,820		150,041		130,509
Research and development expense	28,153		23,386		55,139		47,327
Amortization of other intangibles	18,366		13,604		36,774		28,318
Operating income	61,874		56,757		106,854		112,625
Interest expense	(6,387)		(6,214)		(14,071)		(11,018)
Other income, net	643		216		1,889		581
Income before income taxes	56,130		50,759		94,672		102,188
Income tax provision	7,000		10,813		14,667		22,258
Net income	$	49,130	$	39,946	$	80,005	$	79,930
Earnings per common share:
Basic	$	1.17	$	0.96	$	1.91	$	1.93
Diluted	$	1.15	$	0.94	$	1.87	$	1.88

See accompanying notes.

2

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	49,130	$	39,946	$	80,005	$	79,930
Other comprehensive income (loss), net of tax:
Securities available-for-sale and transferred securities:
Change in net unrealized holding (loss) gain on available for sale securities during the period	(36)		(114)		58		(743)
Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity	—		—		—		(27)
Reclassification adjustment for net loss on sale of available for sale securities, included in net income	1		48		1		7
Other comprehensive (loss) income, net of tax	(35)		(66)		59		(763)
Comprehensive income	$	49,095	$	39,880	$	80,064	$	79,167

See accompanying notes.

3

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)

	June 30, 2023 (unaudited)		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	118,764	$	173,857
Accounts receivable (less allowance for losses and sales adjustments of $19,643 in 2023 and $14,761 in 2022)	638,726		577,257
Short-term investments	19,100		37,030
Prepaid expenses	70,783		50,859
Other current assets	9,507		8,239
Total current assets	856,880		847,242
Accounts receivable, long-term	8,310		8,271
Operating lease right-of-use assets	46,824		50,989
Property and equipment, net	165,721		172,786
Other assets:
Software development costs, net	61,228		48,189
Goodwill	2,489,084		2,489,308
Other intangibles, net	948,990		1,002,164
Non-current investments	10,116		18,508
Other non-current assets	48,396		49,960
	$	4,635,549	$	4,687,417
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	118,534	$	104,813
Accrued liabilities	126,557		131,941
Operating lease liabilities	11,381		10,736
Current income tax payable	1,905		43,667
Deferred revenue	565,840		568,538
Current portion of term loans	30,000		30,000
Total current liabilities	854,217		889,695
Term loans, net	243,729		362,905
Convertible senior notes due 2026, net	595,345		594,484
Deferred revenue, long-term	1,164		2,037
Deferred income taxes	109,247		148,891
Operating lease liabilities, long-term	44,483		48,049
Other long-term liabilities	19,113		16,967
Total liabilities	1,867,298		2,063,028
Commitments and contingencies	—		—
Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of June 30, 2023 and December 31, 2022	481		481
Additional paid-in capital	1,272,315		1,209,725
Accumulated other comprehensive loss, net of tax	(785)		(844)
Retained earnings	1,517,859		1,437,854
Treasury stock, at cost; 6,081,263 and 6,364,991 shares in 2023 and 2022, respectively	(21,619)		(22,827)
Total shareholders' equity	2,768,251		2,624,389
	$	4,635,549	$	4,687,417

See accompanying notes.

4

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	80,005	$	79,930
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	75,748		75,866
Losses (gains) from sale of investments	2		(53)
Share-based compensation expense	53,924		51,079
Amortization of operating lease right-of-use assets	6,569		5,104
Deferred income tax benefit	(39,665)		(19,136)
Other	445		—
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	(51,508)		(73,396)
Income tax payable	(41,762)		15,586
Prepaid expenses and other current assets	(20,122)		(6,033)
Accounts payable	13,721		9,130
Operating lease liabilities	(5,324)		(6,522)
Accrued liabilities	(15,083)		(24,723)
Deferred revenue	(3,571)		17,474
Other long-term liabilities	2,146		5,914
Net cash provided by operating activities	55,525		130,220
Cash flows from investing activities:
Additions to property and equipment	(6,370)		(12,757)
Purchase of marketable security investments	(10,617)		(4,592)
Proceeds and maturities from marketable security investments	37,107		40,595
Investment in software development	(18,753)		(16,463)
Cost of acquisitions, net of cash acquired	(1,875)		(117,313)
Other	16		152
Net cash used by investing activities	(492)		(110,378)
Cash flows from financing activities:
Payment on term loans	(120,000)		(80,000)
Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award settlement	2,123		(4,107)
Contributions from employee stock purchase plan	7,751		8,156
Net cash used by financing activities	(110,126)		(75,951)
Net decrease in cash and cash equivalents	(55,093)		(56,109)
Cash and cash equivalents at beginning of period	173,857		309,171
Cash and cash equivalents at end of period	$	118,764	$	253,062

See accompanying notes.

5

	Six Months Ended June 30,
	2023		2022
Supplemental cash flow information:
Cash paid for interest	$	12,286	$	5,716
Cash paid for income taxes, net	92,933		24,286
Non-cash investing and financing activities:
Non-cash additions to property and equipment	$	368	$	84

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 March 31, 2023	48,148	$	481	$	1,239,945	$	(750)	$	1,468,729	(6,244)	$	(22,272)	$	2,686,133
Net income	—	—		—		—		49,130		—	—		49,130
Other comprehensive loss, net of tax	—	—		—		(35)		—		—	—		(35)
Exercise of stock options and vesting of restricted stock units	—	—		1,692		—		—		173	11,042		12,734
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—		—		(26)	(10,452)		(10,452)
Stock compensation	—	—		26,028		—		—		—	—		26,028
Issuance of shares pursuant to employee stock purchase plan	—	—		4,650		—		—		16	63		4,713
Balance at June 30, 2023	48,148	$	481	$	1,272,315	$	(785)	$	1,517,859	(6,081)	$	(21,619)	$	2,768,251

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at March 31, 2022	48,148	$	481	$	1,098,933	$	(743)	$	1,313,598	(6,697)	$	(24,535)	$	2,387,734
Net income	—	—		—		—		39,946		—	—		39,946
Other comprehensive loss, net of tax	—	—		—		(66)		—		—	—		(66)
Exercise of stock options and vesting of restricted stock units	—	—		(288)		—		—		122	8,466		8,178
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—		—		(21)	(7,743)		(7,743)
Stock compensation	—	—		25,800		—		—		—	—		25,800
Issuance of shares pursuant to employee stock purchase plan	—	—		4,376		—		—		12	102		4,478
Balance at June 30, 2022	48,148	$	481	$	1,128,821	$	(809)	$	1,353,544	(6,584)	$	(23,710)	$	2,458,327

7

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, 2022	48,148	$	481	$	1,209,725	$	(844)	$	1,437,854	(6,365)	$	(22,827)	$	2,624,389
Net income	—	—		—		—		80,005		—	—		80,005
Other comprehensive gain, net of tax	—	—		—		59		—		—	—		59
Exercise of stock options and vesting of restricted stock units	—	—		1,023		—		—		309	19,844		20,867
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—		—		(52)	(18,744)		(18,744)
Stock compensation	—	—		53,924		—		—		—	—		53,924
Issuance of shares pursuant to employee stock purchase plan	—	—		7,643		—		—		27	108		7,751
Balance at June 30, 2023	48,148	$	481	$	1,272,315	$	(785)	$	1,517,859	(6,081)	$	(21,619)	$	2,768,251

	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2021	48,148	$	481	$	1,075,650	$	(46)	$	1,273,614	(6,833)	$	(25,667)	$	2,324,032
Net income	—	—		—		—		79,930		—	—		79,930
Other comprehensive loss, net of tax	—	—		—		(763)		—		—	—		(763)
Exercise of stock options and vesting of restricted stock units	—	—		(5,897)		—		—		279	22,120		16,223
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—		—		(50)	(20,330)		(20,330)
Stock compensation	—	—		51,079		—		—		—	—		51,079
Issuance of shares pursuant to employee stock purchase plan	—	—		7,989		—		—		20	167		8,156
Balance at June 30, 2022	48,148	$	481	$	1,128,821	$	(809)	$	1,353,544	(6,584)	$	(23,710)	$	2,458,327

8

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 June 30, 2023, and December 31, 2022, and operating result amounts are for the three and six months ended June 30, 2023, and 2022, 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, 2022. 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. As of January 1, 2023, we have elected to no longer report the appraisal services revenue and related costs as separate categories in the statement of income due to less significance on our overall operating results. Therefore, we have combined the appraisal services revenue category with the professional services revenue category; and the related cost of revenue category for appraisal services is now combined with the cost of revenue category related to subscriptions, maintenance and professional services on the condensed consolidated statements of income for all reporting periods presented.

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 six months ended June 30, 2023, we had approximately $35,000 of other comprehensive loss and $59,000 of other comprehensive income, net of taxes, from our available-for-sale investment holdings and $66,000 and $763,000 of other comprehensive loss during the three and six months ended June 30, 2022.

(2)    Accounting Standards and Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2022, filed with the SEC on February 22, 2023, 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

The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. We earn the majority of our revenues from subscription-based services and post-contract customer support (“PCS” or “maintenance”). Other sources of revenue are professional services, software licenses and royalties, and hardware and other. 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

9

Subscriptions revenue consists of revenue derived from our software as a service ("SaaS") arrangements and 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 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 revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably and its realization is probable.

Other 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. 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. 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. 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.

Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.

Refer to Note 4, “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.

At June 30, 2023, and December 31, 2022, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $647.0 million and $585.5 million, respectively. We have recorded unbilled receivables of $127.1 million and $135.4 million at June 30, 2023 and December 31, 2022, respectively. Included in unbilled receivables are retention receivables of $9.2 million and $8.6 million at June 30, 2023 and December 31, 2022, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.

We maintain allowances for losses and sales adjustments, which 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 $19.6 million and $14.8 million at June 30, 2023 and December 31, 2022, 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.

10

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

There were no new not yet adopted accounting pronouncements currently issued that would affect the Company or have a material impact on its consolidated financial position or results of operations in future periods.

(3)    Segment and Related Information

We provide integrated information management solutions and services for the public sector.

We provide our software systems and related professional services through six business units, which focus on the following products:

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

•financial management, municipal courts, planning, regulatory, and maintenance software solutions;

•courts and justice and public safety software solutions;

•property and recording solutions;

•platform solutions including case management and business process management; and

•digital solutions including payments and government services.

In accordance with ASC 280-10, Segment Reporting, we report our results in 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: financial management and education; planning, regulatory and maintenance; courts and justice; public safety; and property and recording solutions. The Platform Technologies ("PT") reportable segment provides public sector entities with software solutions to perform transaction processing, streamline data processing, and improve operations and workflows such as platform solutions and digital solutions.

We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before non-cash amortization of intangible assets associated with their acquisitions, interest expense, and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the contractual arrangement. 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.

For the three months ended June 30, 2023	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Subscriptions:
SaaS	$	115,877	$	15,579	$	—	$	131,456
Transaction-based fees	38,677		127,656		—		166,333
Maintenance	109,953		6,586		—		116,539
Professional services	55,256		11,164		—		66,420
Software licenses and royalties	9,479		300		—		9,779
Hardware and other	6,381		—		7,371		13,752
Intercompany	6,852		—		(6,852)		—
Total revenues	$	342,475	$	161,285	$	519	$	504,279
Segment operating income (loss)	$	111,185	$	38,797	$	(60,818)	$	89,164

11

For the three months ended June 30, 2022	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Subscriptions:
SaaS	$	97,703	$	11,802	$	—	$	109,505
Transaction-based fees	30,991		115,320		—		146,311
Maintenance	110,760		6,055		—		116,815
Professional services	50,653		21,284		—		71,937
Software licenses and royalties	14,623		386		—		15,009
Hardware and other	5,498		—		3,610		9,108
Intercompany	5,342		—		(5,342)		—
Total revenues	$	315,570	$	154,847	$	(1,732)	$	468,685
Segment operating income (loss)	$	102,090	$	36,301	$	(53,991)	$	84,400

For the six months ended June 30, 2023	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Subscriptions:
SaaS	$	226,919	$	31,132	$	—	$	258,051
Transaction-based fees	76,049		244,154		—		320,203
Maintenance	220,035		11,635		—		231,670
Professional services	106,755		20,594		—		127,349
Software licenses and royalties	17,547		2,362		—		19,909
Hardware and other	11,580		—		7,371		18,951
Intercompany	11,935		—		(11,935)		—
Total revenues	$	670,820	$	309,877	$	(4,564)	$	976,133
Segment operating income (loss)	$	211,165	$	68,335	$	(118,028)	$	161,472

For the six months ended June 30, 2022	Enterprise Software		Platform Technologies		Corporate		Totals
Revenues
Subscriptions:
SaaS	$	188,474	$	22,813	$	—	$	211,287
Transaction-based fees	60,536		229,436		—		289,972
Maintenance	221,455		12,389		—		233,844
Professional services	101,820		40,132		—		141,952
Software licenses and royalties	30,728		787		—		31,515
Hardware and other	12,612		—		3,610		16,222
Intercompany	10,931		—		(10,931)		—
Total revenues	$	626,556	$	305,557	$	(7,321)	$	924,792
Segment operating income (loss)	$	208,619	$	67,034	$	(107,450)	$	168,203

	Three Months Ended June 30,				Six Months Ended June 30,
Reconciliation of reportable segment operating income to the Company's consolidated totals:	2023		2022		2023		2022
Total segment operating income	$	89,164	$	84,400	$	161,472	$	168,203
Amortization of acquired software	(8,924)		(14,039)		(17,844)		(27,260)
Amortization of other intangibles	(18,366)		(13,604)		(36,774)		(28,318)
Interest expense	(6,387)		(6,214)		(14,071)		(11,018)
Other income, net	643		216		1,889		581
Income before income taxes	$	56,130	$	50,759	$	94,672	$	102,188

12

(4)    Disaggregation of Revenue

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

Timing of Revenue Recognition

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

For the three months ended June 30, 2023	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Subscriptions:
SaaS	$	—	$	131,456	$	131,456
Transaction-based fees	—		166,333		166,333
Maintenance	—		116,539		116,539
Professional services	—		66,420		66,420
Software licenses and royalties	8,793		986		9,779
Hardware and other	13,752		—		13,752
Total	$	22,545	$	481,734	$	504,279

For the three months ended June 30, 2022	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Subscriptions:
SaaS	$	—	$	109,505	$	109,505
Transaction-based fees	—		146,311		146,311
Maintenance	—		116,815		116,815
Professional services	—		71,937		71,937
Software licenses and royalties	12,683		2,326		15,009
Hardware and other	9,108		—		9,108
Total	$	21,791	$	446,894	$	468,685

For the six months ended June 30, 2023	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Subscriptions:
SaaS	$	—	$	258,051	$	258,051
Transaction-based fees	—		320,203		320,203
Maintenance	—		231,670		231,670
Professional services	—		127,349		127,349
Software licenses and royalties	18,074		1,835		19,909
Hardware and other	18,951		—		18,951
Total	$	37,025	$	939,108	$	976,133

13

For the six months ended June 30, 2022	Products and services transferred at a point in time		Products and services transferred over time		Total
Revenues
Subscriptions:
SaaS	$	—	$	211,287	$	211,287
Transaction-based fees	—		289,972		289,972
Maintenance	—		233,844		233,844
Professional services	—		141,952		141,952
Software licenses and royalties	26,752		4,763		31,515
Hardware and other	16,222		—		16,222
Total	$	42,974	$	881,818	$	924,792

Recurring Revenues

The majority of our revenue is comprised of revenues from subscriptions and maintenance, which we consider to be recurring revenues. Subscriptions revenue primarily consists of revenues derived from our SaaS arrangements and transaction-based fees, which relate to digital government services, e-filing transactions, and payment processing. The contract terms for subscription arrangements range from one to 10 years but are typically contracted for initial periods of three to five years. Virtually all of our on-premises software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenues. That maintenance and support is generally provided under annual, or in some cases, multi-year contracts. We consider all other revenue categories to be non-recurring revenues.

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

For the three months ended June 30, 2023	Enterprise Software		Platform Technologies		Corporate		Totals
Recurring revenues	$	264,507	$	149,821	$	—	$	414,328
Non-recurring revenues	71,116		11,464		7,371		89,951
Intercompany	6,852		—		(6,852)		—
Total revenues	$	342,475	$	161,285	$	519	$	504,279

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

For the six months ended June 30, 2023	Enterprise Software		Platform Technologies		Corporate		Totals
Recurring revenues	$	523,003	$	286,921	$	—	$	809,924
Non-recurring revenues	135,882		22,956		7,371		166,209
Intercompany	11,935		—		(11,935)		—
Total revenues	$	670,820	$	309,877	$	(4,564)	$	976,133

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

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(5)    Deferred Revenue and Performance Obligations

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

	June 30, 2023		December 31, 2022
Enterprise Software	$	536,663	$	533,902
Platform Technologies	28,591		33,691
Corporate	1,750		2,982
Totals	$	567,004	$	570,575

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

	Six months ended June 30, 2023
Balance as of December 31, 2022	$	570,575
Deferral of revenue	662,311
Recognition of deferred revenue	(665,882)
Balance as of June 30, 2023	$	567,004

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized (“backlog”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of June 30, 2023, was $1.90 billion, of which we expect to recognize approximately 46% as revenue over the next 12 months and the remainder thereafter.

(6)    Deferred Commissions

Sales commissions earned by our salesforce are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of associated revenue over a period of benefit that we have determined to be generally three to seven years. Deferred commissions were $44.9 million and $43.8 million as of June 30, 2023, and December 31, 2022, respectively. Amortization expense was $4.3 million and $8.6 million for the three and six months ended June 30, 2023, respectively, and $3.7 million and $7.2 million for the three and six months ended 2022, respectively. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in sales and marketing expense in the accompanying condensed consolidated statements of income.

(7)    Acquisitions

On October 31, 2022, we acquired Rapid Financial Solutions, LLC (Rapid), a provider of reliable, scalable, and secure payments with best-in-class card issuance and digital disbursement capabilities. The total purchase price, net of cash acquired of $2.2 million, was approximately $67.4 million, consisting of $51.5 million paid in cash and $18.2 million of common stock.

We have performed a preliminary valuation analysis of the fair market value of Rapid’s assets and liabilities. In connection with this transaction, we acquired total tangible assets of $12.9 million and assumed liabilities of approximately $10.6 million. In the first quarter of 2023, we recorded $10.0 million for assumed liabilities related to litigation outstanding at the time of acquisition as the amount became probable and estimable and a related $10.0 million indemnification receivable from escrowed amounts established at acquisition. We recorded goodwill of approximately $40.0 million, all of which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately $27.6 million. The goodwill 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 $27.6 million of intangible assets are attributable to customer relationships, acquired software, and trade name and will be amortized over a weighted average period of approximately 10 years.

The operating results of Rapid are included with the operating results of the Platform Technologies segment since its date of acquisition and the impact of this acquisition on our operating results, assets, and liabilities is not material.

15

As of June 30, 2023, the purchase price allocation for Rapid 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 June 30, 2023, 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. For the six months ended June 30, 2023, we incurred fees of approximately $72,000 for financial advisory, legal, accounting, due diligence, valuation, and other various services necessary to complete acquisitions.

(8)    Debt

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

	Rate	Maturity Date	June 30, 2023		December 31, 2022
2021 Credit Agreement
Revolving credit facility	S + 1.50%	April 2026	$	—	$	—
Term Loan A-1	S + 1.50%	April 2026	250,000		290,000
Term Loan A-2	S + 1.25%	April 2024	25,000		105,000
Convertible Senior Notes due 2026	0.25%	March 2026	600,000		600,000
Total borrowings			875,000		995,000
Less: unamortized debt discount and debt issuance costs			(5,926)		(7,611)
Total borrowings, net			869,074		987,389
Less: current portion of debt			(30,000)		(30,000)
Carrying value			$	839,074	$	957,389

2021 Credit Agreement

In connection with the completion of the acquisition of NIC, Inc. 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 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.

On January 28, 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the Secured Overnight Financing Rate (“SOFR”) reference rate.

In accordance with our amended 2021 Credit Agreement, the 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 SOFR 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 SOFR 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. 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