tyl-10q_20160331.htm

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

The number of shares of common stock of registrant outstanding on April 22, 2016 was 36,118,700.

	Three months ended March 31,
	2016			2015
Revenues:
Software licenses and royalties	$	16,850		$	14,300
Subscriptions		34,089			25,288
Software services		42,430			30,804
Maintenance		76,032			57,348
Appraisal services		6,558			6,089
Hardware and other		3,334			1,137
Total revenues		179,293			134,966

Cost of revenues:
Software licenses and royalties		638			553
Acquired software		5,459			456
Software services, maintenance and subscriptions		85,270			65,377
Appraisal services		3,962			4,135
Hardware and other		1,846			566
Total cost of revenues		97,175			71,087

Gross profit		82,118			63,879

Selling, general and administrative expenses		40,759			28,545
Research and development expense		9,956			7,004
Amortization of customer and trade name intangibles		3,362			1,152

Operating income		28,041			27,178

Other income (expense), net		(467	)		181
Income before income taxes		27,574			27,359
Income tax provision		10,495			10,086
Net income	$	17,079		$	17,273

Earnings per common share:
Basic	$	0.47		$	0.51
Diluted	$	0.44		$	0.48

	March 31,
	2016			December 31,
	(unaudited)			2015
ASSETS
Current assets:
Cash and cash equivalents	$	35,341		$	33,087
Accounts receivable (less allowance for losses of $1,571 in 2016 and $1,640 in 2015)		137,332			176,360
Short-term investments		18,332			13,423
Prepaid expenses		20,984			22,334
Income tax receivable		11,798			21,080
Other current assets		1,749			1,931
Total current assets		225,536			268,215

Accounts receivable, long-term		3,098			2,777
Property and equipment, net		114,291			101,112
Other assets:
Goodwill		655,167			653,666
Other intangibles, net		286,475			295,378
Non-current investments and other assets		33,442			35,422
	$	1,318,009		$	1,356,570

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,316		$	6,789
Accrued liabilities		33,260			49,156
Deferred revenue		250,108			281,627
Total current liabilities		289,684			337,572

Revolving line of credit		140,000			66,000
Deferred revenue, long-term		4,561			3,115
Deferred income taxes		91,775			91,026

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 in 2016 and 2015		481			481
Additional paid-in capital		608,496			607,755
Accumulated other comprehensive loss, net of tax		(46	)		(46	)
Retained earnings		343,098			326,019
Treasury stock, at cost; 12,043,727 and 11,373,666 shares in 2016 and 2015, respectively		(160,040	)		(75,352	)
Total shareholders' equity		791,989			858,857
	$	1,318,009		$	1,356,570

See accompanying notes.

	Three months ended March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	17,079		$	17,273
Adjustments to reconcile net income to cash provided (used) by operations:
Depreciation and amortization		12,176			3,713
Share-based compensation expense		6,480			4,258
Excess tax benefit from exercises of share-based arrangements		(1,051	)		(3,558	)
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable		35,750			8,320
Income taxes		10,424			8,394
Prepaid expenses and other current assets		2,074			763
Accounts payable		(473	)		(328	)
Accrued liabilities		(11,738	)		(16,423	)
Deferred revenue		(30,451	)		(24,507	)
Net cash provided (used) by operating activities		40,270			(2,095	)

Cash flows from investing activities:
Purchase of marketable security investments		(6,410	)		—
Proceeds from marketable security investments		3,025			—
Cost of acquisitions		(2,000	)		(325	)
Additions to property and equipment		(16,722	)		(1,909	)
Investment in Record Holdings Pty Limited		—			(15,000	)
Increase in other		(49	)		—
Net cash used by investing activities		(22,156	)		(17,234	)

Cash flows from financing activities:
Increase in net borrowings on revolving line of credit		74,000			—
Purchase of treasury shares		(93,930	)		—
Proceeds from exercise of stock options		1,781			3,425
Contributions from employee stock purchase plan		1,238			900
Excess tax benefit from exercises of share-based arrangements		1,051			3,558
Net cash (used) provided by financing activities		(15,860	)		7,883

Net increase (decrease) in cash and cash equivalents		2,254			(11,446	)
Cash and cash equivalents at beginning of period		33,087			206,167
Cash and cash equivalents at end of period	$	35,341		$	194,721

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 March 31, 2016 and December 31, 2015 and operating result amounts are for the three months ended March 31, 2016 and 2015, 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, 2015. 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.

In November 2015, we acquired all of the capital stock of New World Systems Corporation (“NWS”), which provides public safety and financial solutions for local governments. The operating results of NWS are included with the operating results of the Enterprise Software Solutions segment, since the date of acquisition. In the three months ended March 31, 2016, we paid $2.0 million related to the working capital holdback of $4.0 million, which was accrued at December 31, 2015. We reduced the remaining working capital accrued liability and also recorded several miscellaneous adjustments to the preliminary opening balance sheet related to additional reserves for receivables and contingencies and other miscellaneous items for a net increase to goodwill of approximately $1.5 million. As of March 31, 2016, the purchase price allocation for NWS is not yet complete. The preliminary estimates of fair value assumed at the acquisition date for intangibles, liabilities, deferred revenue, and related deferred taxes are subject to change as valuations are finalized.

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

As of March 2016, we have $33.9 million in investment grade corporate and municipal bonds with maturity dates ranging from 2016 through mid-2017. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair value of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or other observable market data. These investments are included in short-term investments and non-current investments and other assets.

We have a $15.0 million investment in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The fair value of this investment is based on valuations using Level III, unobservable inputs that are supported by little or no market value activity and that are significant to the fair value of the investment. This investment is included in non-current investments and other assets.

As of March 31, 2016, we had authorization from our board of directors to repurchase up to 643,000 additional shares of Tyler common stock.

On November 16, 2015, we entered into a $300.0 million Credit Agreement (the “Credit Facility”) with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. The Credit Facility provides for a revolving credit line up to $300.0 million, including a $10.0 million sublimit for letters of credit. The Credit Facility matures on November 16, 2020. Borrowings under the Credit Facility may be used for general corporate purposes, including working capital requirements, acquisitions and share repurchases.

Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180 day LIBOR rate plus a margin of 1.25% to 2.00%. As of March 31, 2016, our interest rate was 1.7%. The Credit Facility is secured by substantially all of our assets. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of March 31, 2016, we were in compliance with those covenants.

As of March 31, 2016, we had $140.0 million in outstanding borrowings and two outstanding letters of credit totaling $3.2 million. Unused borrowing capacity under the Credit Facility was $156.8 million.

For the three months ended March 31, 2016 and March 31, 2015, we had effective income tax rates of 38.1% and 36.9%, respectively. The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 35% principally due to state income taxes, non-deductible share-based compensation expense, the qualified manufacturing activities deduction, disqualifying incentive stock option dispositions and non-deductible meals and entertainment costs.

We made tax payments of $71,000 and $1.5 million in the three months ended March 31, 2016 and March 31, 2015, respectively.

The following table details the reconciliation of basic earnings per share to diluted earnings per share:

	Three months ended March 31,
	2016		2015
Numerator for basic and diluted earnings per share:
Net income	$	17,079	$	17,273
Denominator:
Weighted-average basic common shares outstanding		36,549		33,562
Assumed conversion of dilutive securities:
Stock options		2,008		2,333
Denominator for diluted earnings per share - Adjusted weighted-average shares		38,557		35,895
Earnings per common share:
Basic	$	0.47	$	0.51
Diluted	$	0.44	$	0.48

For the three months ended March 31, 2016 and March 31, 2015, stock options representing the right to purchase common stock of approximately 762,000 shares and 648,000 shares, respectively, were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

The following table summarizes share-based compensation expense related to share-based awards recorded in the statements of income, pursuant to Accounting Standards Codification (“ASC”) 718, Stock Compensation:

We are a major provider of integrated information management solutions and services for the public sector, with a focus on local governments.

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

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

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

For the three months ended March 31, 2016
	Enterprise Software Solutions		Appraisal and Tax Software Solutions and Services		Corporate			Totals
Revenues
Software licenses and royalties	$	15,654	$	1,196	$	—		$	16,850
Subscriptions		31,985		2,104		—			34,089
Software services		38,605		3,825		—			42,430
Maintenance		71,400		4,632		—			76,032
Appraisal services		—		6,558		—			6,558
Hardware and other		3,036		15		283			3,334
Intercompany		1,160		—		(1,160	)		—
Total revenues	$	161,840	$	18,330	$	(877	)	$	179,293
Segment operating income	$	40,669	$	4,830	$	(8,637	)	$	36,862



For the three months ended March 31, 2015
	Enterprise Software Solutions		Appraisal and Tax Software Solutions and Services		Corporate			Totals
Revenues
Software licenses and royalties	$	12,327	$	1,973	$	—		$	14,300
Subscriptions		24,309		979		—			25,288
Software services		29,168		1,636		—			30,804
Maintenance		53,014		4,334		—			57,348
Appraisal services		—		6,089		—			6,089
Hardware and other		1,138		—		(1	)		1,137
Intercompany		926		—		(926	)		—
Total revenues	$	120,882	$	15,011	$	(927	)	$	134,966
Segment operating income	$	32,254	$	3,067	$	(6,535	)	$	28,786

Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject.

Revenue from Contracts with Customers. On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” This ASU is the result of a convergence project between the FASB and the International Accounting Standards Board. The core principle behind ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The guidance in the ASU supersedes existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2016 with early application not permitted. The ASU allows two

methods of adoption; a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements.

On August 12, 2015, the FASB voted for a one-year deferral of the effective date of the new standard and now requires application of the new standard no later than annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. However, under the proposal, public entities would be permitted to elect to early adopt the new standard as of the original effective date. We are currently assessing the financial impact of adopting the new standard and the methods of adoption; however, given the scope of the new standard, we are currently unable to provide a reasonable estimate regarding the financial impact or which method of adoption of the new standard we will elect. We currently expect to adopt the new standard in fiscal year 2018 in accordance with the revised effective date.

Leases. On February 25, 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early application is permitted for all business entities upon issuance. We are currently assessing the financial impact of adopting the new standard however, given the scope of the new standard, we are currently unable to provide a reasonable estimate regarding the financial impact. We currently expect to adopt the new standard in fiscal year 2019.

Compensation-Stock Compensation. On March 31, 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)”, that will require entities to recognize the income tax effects of share based payments to employees in the income statement when the awards vest or are settled. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years and early adoption is permitted. We are currently assessing the financial impact of adopting the new standard. Given the scope of the new standard, we are currently unable to provide a reasonable estimate regarding the financial impact, but expect it will impact our income tax expense and effective tax rate. We currently plan to adopt the new standard in fiscal year 2016.

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (2) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (3) our ability to successfully achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (4) material portions of our business require the Internet infrastructure to be adequately maintained; (5) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (6) general economic, political and market conditions; (7) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (8) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (9) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel; and (10) costs of compliance and any failure to comply with government and stock exchange regulations. A detailed discussion of these factors and other risks that affect our business are described in Item 1A, “Risk Factors.” We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

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

Our products generally automate six major functional areas: (1) financial management and education, (2) courts and justice, (3) public safety, (4) property appraisal and tax, (5) planning, regulatory and maintenance, and (6) land and vital records management. We report our results in two segments. The Enterprise Software Solutions (“ESS”) segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as financial management; courts and justice processes; public safety; planning, regulatory and maintenance; and land and vital records management. The Appraisal and Tax Software Solutions and Services (“ATSS”) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction.

Our total employee count increased to 3,627 at March 31, 2016 from 2,934 at March 31, 2015. This increase includes 520 employees added as the result of two acquisitions in 2015.

For the three months ended March 31, 2016, total revenues increased 33% compared to the prior year period. Organic revenue increased 14% and revenues from acquisitions completed in 2015 contributed 19%. Continued strong growth in our e-filing revenues from courts, as well as a gradual shift toward cloud-based, software as a service business led to a 35% growth in revenues from subscriptions, of which 31% was organic. Activity in the local government software market continues to be good, and with the inclusion of New World Systems Corporation (“ NWS”),which was acquired in November 2015, our backlog at March 31, 2016 reached $808.7 million, a 17% increase from last year.

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of accounting principles generally accepted in the United States (“GAAP”) for the interim period and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition and amortization and potential impairment of intangible assets and goodwill and share-based compensation expense. As these are condensed financial statements, one should also read expanded information about our critical accounting policies and estimates provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2015. There have been no material changes to our critical accounting policies and estimates from the information provided in our Form 10-K for the year ended December 31, 2015.

	Percent of Total Revenues First Quarter
	2016				2015
Revenues:
Software licenses and royalties		9.4		%		10.6	%
Subscriptions		19.0				18.7
Software services		23.7				22.8
Maintenance		42.4				42.5
Appraisal services		3.7				4.5
Hardware and other		1.8				0.9
Total revenues		100.0				100.0
Operating Expenses:
Cost of software licenses, royalties and acquired software		3.4				0.7
Cost of software services, maintenance and subscriptions		47.6				48.4
Cost of appraisal services		2.2				3.1
Cost of hardware and other		1.0				0.4
Selling, general and administrative expenses		22.7				21.1
Research and development expense		5.6				5.2
Amortization of customer and trade name intangibles		1.9				1.0
Operating income		15.6				20.1
Other income (expense), net		(0.2	)			0.1
Income before income taxes		15.4				20.2
Income tax provision		5.9				7.4
Net income		9.5		%		12.8	%

On November 16, 2015, we acquired NWS, which provides public safety and financial solutions for local governments. The following table details revenue for NWS for the three months ended March 31, 2016, which is included in our consolidated statement of income:

In May 2015, we acquired a company which provides mobile hand-held solutions primarily to law enforcement agencies for field accident reporting and electronically issuing citations. The impact of this acquisition on our operating results is not considered material and is not included in the table above. The results of these two acquisitions are included with the operating results of the ESS segment from their dates of acquisition.

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

Excluding the results of acquisitions, software license revenue decreased 9% for the three months ended March 31, 2016 compared to the prior year period. The majority of this reduction was due to more clients choosing our subscription based option, rather than purchasing the software under a traditional perpetual software arrangement.

Although the mix of new contracts between subscription-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect our longer-term software license growth rate to continue to be negatively impacted by a growing number of customers choosing our subscription-based options, rather than purchasing the software under a traditional perpetual software license arrangement. Subscription-based arrangements result in lower software license revenue in the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract. Our new client mix for the three months ended March 31, 2016 was approximately 66% selecting perpetual software license arrangements and approximately 34% selecting subscription-based arrangements compared to a client mix for the three months ended March 31, 2015 of approximately 72% selecting perpetual software license arrangements and approximately 28% selecting subscription-based arrangements. 65 new clients entered into subscription-based software arrangements for the three months ended March 31, 2016 compared to 32 new clients for the three months ended March 31, 2015.

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

Subscription-based services revenue primarily consists of revenue derived from our SaaS arrangements, which utilize the Tyler private cloud. As part of our subscription-based services, we also provide e-filing arrangements that simplify the filing and management of court related documents for courts and law offices. E-filing revenue is derived from transaction fees and fixed fee arrangements.

Excluding acquisitions, subscriptions revenue grew 31% for the three months ending March 31, 2016, compared to the prior year period. New SaaS clients as well as existing clients who converted to our SaaS model provided the majority of the subscriptions revenue increase. In the three months ending March 31, 2016, we added 65 new SaaS clients and 11 existing on-premises clients converted to our SaaS model. Since March 31, 2015, we have added 167 new SaaS clients and 58 existing on-premises clients have converted to our SaaS model. Also, e-filing services contributed approximately $1.5 million to the subscriptions revenue increase for the three months ended March 31, 2016. Almost half of the e-filing revenue increase related to implementation of a statewide contract that began in mid-2015. The remaining increase related to several county and state clients that have implemented mandatory electronic filing.

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

Software services revenue primarily consists of professional services billed in connection with implementing our software, converting client data, training client personnel, custom development activities and consulting. New clients who purchase our proprietary software licenses generally also contract with us to provide for the related software services. Existing clients also periodically purchase additional training, consulting and minor programming services. Excluding the results of acquisitions, software services revenue grew 20% compared to the prior year period. This growth is partly due to additions to our implementation and support staff, which increased our capacity to deliver backlog, and a contract mix that included more custom development and other services.

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

We provide maintenance and support services for our software products and certain third-party software. Excluding the results of acquisitions, maintenance revenue grew 8% compared to the prior year. Maintenance and support revenue increased mainly due to growth in our installed customer base from new software license sales as well as annual maintenance rate increases.

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



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

Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller Reporting Company	¨


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


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

	Three months ended March 31,
Reconciliation of reportable segment operating income to the Company's consolidated totals:	2016			2015
Total segment operating income	$	36,862		$	28,786
Amortization of acquired software		(5,459	)		(456	)
Amortization of customer and trade name intangibles		(3,362	)		(1,152	)
Other income (expense), net		(467	)		181
Income before income taxes	$	27,574		$	27,359

	Three months ended March 31, 2016
Revenues:
Software licenses	$	3,508
Subscriptions		1,011
Software services		5,176
Maintenance		13,209
Hardware and other		745
Total revenues	$	23,649

	First Quarter				Change
($ in thousands)	2016		2015		$			%
ESS	$	15,654	$	12,327	$	3,327			27		%
ATSS		1,196		1,973		(777	)		(39	)
Total software licenses and royalties revenue	$	16,850	$	14,300	$	2,550			18		%