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What changed in Tyler Technologies's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Tyler Technologies's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+331 added−387 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-22)

Top changes in Tyler Technologies's 2023 10-K

331 paragraphs added · 387 removed · 244 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

49 edited+29 added−67 removed35 unchanged
Biggest changeWe believe our efforts in managing and supporting our workforce are effective, as evidenced by current levels of applicants, team member tenure, and high levels of engagement reported through continuous survey feedback from Tyler team members. Before we returned to office in January, the vast majority of team members worked remotely.
Biggest changeThe tables below represent our workforce demographics as of December 31, 2023: Race: White Asian Black or African American Hispanic or Latino Two or more races Native Americans and Other Pacific Islanders Not specified Overall 70.5% 7.6% 4.7% 4.7% 2.1% 0.5% 9.9% Leadership 96.4% 1.8% —% —% —% 1.8% —% Gender: Male Female Non-Binary Not specified Overall 61.8% 37.2% 0.2% 0.8% Leadership 60.0% 40.0% —% —% We believe our efforts in managing and supporting our workforce are effective, as evidenced by current levels of applicants, team member tenure, high levels of engagement reported through continuous survey feedback from Tyler team members, and our low turnover.
We selectively pursue strategic acquisitions that provide us with one or more of the following: ◦ New products and services to complement our existing offerings ◦ Entry into new markets related to the public sector ◦ New clients and/or geographic expansion 9 • Establish strategic alliances .
We selectively pursue strategic acquisitions that provide us with one or more of the following: ◦ New products and services to complement our existing offerings ◦ Entry into new markets related to the public sector ◦ New clients and/or geographic expansion • Establish strategic alliances .
ARR increased 8% compared to the prior period due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements. • Maximize economies of scale and take advantage of financial leverage in our business .
ARR increased 8% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements. • Maximize economies of scale and take advantage of financial leverage in our business .
We believe that our stable management team, financial strength and growth opportunities, as well as our leadership position in the public sector market, enhance our attractiveness as an employer for highly skilled employees. • Pursue strategic acquisitions .
We believe that our stable management team, financial strength and growth opportunities, as well as our leadership position in the public sector market, enhance our attractiveness as an employer for highly skilled employees. 7 • Pursue strategic acquisitions .
For arrangements that involve significant production, modification or customization of the software, or where professional services are otherwise not considered distinct, we recognize revenue over time by measuring progress-to-completion. We measure progress-to-completion primarily using labor hours incurred as it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.
For arrangements that involve significant production, modification or customization of the software, or where professional services are otherwise not considered distinct, we recognize revenue over time by measuring progress-to-completion using labor hours incurred as it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts.
Management periodically reports to the Board and its committees human capital measures and results that guide how we attract, retain and develop a workforce to enable our business strategies. Health & Safety We invest in the well-being of Tyler team members and their families.
Management periodically reports to the Board of Directors and its committees regarding human capital measures and results that guide how we attract, retain and develop a workforce to enable our business strategies. Health & Safety We invest in the well-being of Tyler team members and their families.
The average tenure of our team members continues to be approximately seven years and approximately 27% of our employees have been employed by Tyler for more than ten years. The most frequent factor cited by team members leaving Tyler in 2022 was career opportunities with compensation also cited as a factor.
The average tenure of our team members continues to be approximately seven years and approximately 28% of our employees have been employed by Tyler for more than ten years. The most frequent factor cited by team members leaving Tyler in 2023 was career opportunities, with compensation also cited as a factor.
In addition, the acquisition of new technology typically enables local governments to operate more efficiently, more securely, and often provides a measurable return on investment that justifies the purchase of software and related services.
In addition, the acquisition of modern technology typically enables governments to operate more efficiently and securely and often provides a measurable return on investment that justifies the purchase of software and related services.
These initiatives will bring the most advanced cloud-native services to Tyler clients, improving the flow of information and providing a better experience for state, local, and federal governments. SALES, MARKETING AND CLIENTS We market our products and services primarily through direct sales and marketing personnel located throughout the United States.
These initiatives will bring the most advanced cloud-native services to Tyler clients, to help improve the flow of information and provide a better experience for state, local, and federal governments. SALES, MARKETING AND CLIENTS We market our products and services primarily through direct sales and marketing personnel located throughout the United States.
We have a large recurring revenue base from maintenance and support and subscription-based services, which generated revenues of $1.5 billion, or 80% of total revenues, in 2022. We have historically experienced very low customer turnover (approximately 2% annually) and recurring revenues continue to grow as the installed customer base increases.
We have a large recurring revenue base from subscription-based services and maintenance and support, which generated revenues of $1.6 billion, or 83% of total revenues, in 2023. We have historically experienced very low customer turnover (approximately 2% annually) and recurring revenues continue to grow as the installed customer base increases.
We generally do not rely on patents. We believe that, due to the rapid rate of technological change in the computer software industry, trade secrets and copyright protection are less significant than factors such as knowledge, ability and experience of our employees, frequent product enhancements, and timeliness and quality of support services.
We believe that, due to the rapid rate of technological change in the computer software industry, trade secrets and copyright protection are less significant than factors such as the knowledge, ability and experience of our employees, frequent product enhancements, and timeliness and quality of support services.
While we already have what we believe to be the broadest line of software products for local governments, we continually upgrade our core software applications and expand our complementary product and service offerings to respond to technological advancements and the changing needs of our clients.
While we already have what we believe to be the broadest line of software products for the public sector, we continually strive to upgrade our core software applications and expand our complementary product and service offerings to respond to technological advancements and the changing needs of our clients.
SUPPLIERS Substantially all of the computers, peripherals, printers, scanners, operating system software, office automation software, and other equipment necessary for the implementation and provision of our software systems and services are presently available from several third-party sources. Hardware is purchased on original equipment manufacturer or distributor terms at discounts from retail. We have not experienced any significant supply problems.
SUPPLIERS Substantially all of the computers, peripherals, printers, scanners, operating system software, office automation software, and other equipment necessary for the implementation and provision of our software systems and services are presently available from several third-party sources. Hardware is purchased on original equipment manufacturer or distributor terms at discounts from retail.
There were 352 AWS accreditations and 228 certifications completed, as we continue to invest in developing cloud skills across the Tyler workforce. • Again this year, over 200 Tyler managers participated in our 9-month Tyler Manager Development program which includes more than 50 hours of interactive, experiential learning, focused on developing skills managers need to lead a high performing team, plus multiple leadership assessments, including 360-degree feedback, and a dedicated mentor to support their development.
There were 324 AWS accreditations and 102 certifications completed, as we continue to invest in developing cloud skills across the Tyler workforce. • Nearly 200 Tyler managers participated in our nine-month Tyler Manager Development program which includes more than 50 hours of interactive, experiential learning, focused on developing skills managers need to lead a high performing team, plus multiple leadership assessments, including 360-degree feedback, and a dedicated mentor to support their development.
Revenues We derive our revenues from five primary sources: • Subscription-based services • Maintenance and support • Professional services • Software licenses and royalties • Appraisal services Subscription-Based Services Subscriptions revenue primarily consists of revenues derived from our SaaS arrangements. We are able to provide the majority of our software products through our SaaS model.
Revenues We derive our revenues from four primary sources: • Subscription-based services • Maintenance and support • Professional services • Software licenses and royalties 5 Subscription-Based Services Subscriptions revenue consists of revenues derived from our SaaS arrangements and transactions-based fees. We are able to provide the majority of our software products through our SaaS model.
Subscription-based revenues have been our fastest growing revenue category over the past five years, increasing from $220.5 million in 2018 to $1.0 billion in 2022. We monitor Annualized Recurring Revenue (“ARR”), which is calculated based on quarter-to-date end total recurring revenues multiplied by four. ARR was $1.50 billion and $1.39 billion as of December 31, 2022, and 2021, respectively.
Subscription-based revenues have been our fastest growing revenue category over the past five years, increasing from $296.4 million in 2019 to $1.2 billion in 2023. We monitor Annualized Recurring Revenue (“ARR”), which is calculated based on quarter-to-date end total recurring revenues multiplied by four. ARR was $1.61 billion and $1.50 billion as of December 31, 2023, and 2022, respectively.
Typically, a majority of the fee is due when access to the software license is made available to the customer and the remainder of the fee due over a passage of time stipulated by the contract.
Software license fees are billed in accordance with the contract terms. Typically, a majority of the fee is due when access to the software license is made available to the customer and the remainder of the fee due over a passage of time stipulated by the contract.
Our talent assessment and development programs provide managers and employees with the resources needed to achieve career goals, build management skills and lead their teams. For example, in 2022: • 974 Tyler team members participated in close to 11,000 hours of AWS cloud certification training.
Our talent assessment and development programs are designed to provide managers and employees with the resources needed to achieve career goals, strengthen management skills and effectively lead their teams. For example, in 2023: • 823 Tyler team members participated in approximately 11,000 hours of AWS cloud certification training.
Virtually all of our clients contract with us for installation, training, and data conversion services in connection with their implementation of Tyler’s software solutions. The complete implementation process for a typical system includes planning, design, data conversion, set-up and testing.
Our clients contract with us for installation, training, and data conversion services in connection with their implementation of Tyler’s software solutions, whether through a SaaS arrangement or on-premise software license. The complete implementation process for a typical system includes planning, design, data conversion, set-up and testing.
Our effectiveness in attracting and developing talented team members, many of whom spend the majority of their careers at Tyler serving our public sector clients, demonstrates our commitment to providing a welcoming and safe workplace, with a culture, benefits, and opportunities for our team members to continually grow and develop their careers within Tyler.
Our effectiveness in attracting and developing talented team members, many of whom spend the majority of their careers at Tyler serving our public sector clients, demonstrates our commitment to providing a welcoming and safe workplace, with a culture, benefits, and continual growth opportunities for our team members. As of December 31, 2023, we had approximately 7,300 team members.
Most maintenance contracts automatically renew unless the client or Tyler gives notice of termination prior to expiration. Similar support is provided to our SaaS clients and is included in their subscription fees, which are classified as subscription-based revenue. Professional Services We provide a variety of professional services to clients who utilize our software products.
Similar support is provided to our SaaS clients and is included in their subscription fees, which are classified as subscription-based revenue. Professional Services We provide a variety of professional services to clients who utilize our software products.
In addition, constituents of local governments are increasingly demanding improved service and better access to information from public entities. As a result, local governments recognize the increasing value of information management systems and services to, among other things, improve revenue collection, provide increased access to information, and streamline delivery of services to their constituents.
In an increasingly digital world, constituents expect more transparency, frictionless service, and better online experiences from public entities. As a result, government entities recognize the increasing value of information management systems and services to, among other things, improve transactional revenue collection, provide transparency and increased access to information, and streamline the delivery of services to their constituents.
At the culmination of the implementation process, a data implementation team is generally onsite at the client’s facility or available via remote video conferencing to ensure the smooth go-live with the new system.
At the culmination of the implementation process, a data implementation team is generally onsite at the client’s facility or available via remote video conferencing to help ensure the smooth go-live with the new system. Implementation fees are charged separately to clients on either a fixed-fee or hourly charge basis, depending on the contract.
Approximately $886 million, or 47%, of the backlog is expected to be recognized during 2023. 10 INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES We regard certain features of our internal operations, software, and documentation as confidential and proprietary and rely on a combination of contractual restrictions, trade secret laws and other measures to protect our proprietary intellectual property.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES We regard certain features of our internal operations, software, and documentation as confidential and proprietary and rely on a combination of contractual restrictions, trade secret laws and other measures to protect our proprietary intellectual property. We generally do not rely on patents.
Gartner, Inc., a leading information technology research and advisory company, estimates that state and local government application and vertical specific software spending will grow from $27.8 billion in 2023 to $40.0 billion in 2026. The professional services and support segments of the market are expected to expand from $33.5 billion in 2023 to $41.9 billion in 2026.
Gartner, Inc., a leading information technology research and advisory company, estimates that: state and local government application and vertical specific software spending are expected to grow from $31.8 billion in 2024 to $46.9 billion in 2027; professional services and support segments of that market are expected to expand from $36.4 billion in 2024 to $46.8 billion in 2027; application and vertical specific software sales in the primary and secondary education segments of the market are expected to expand from $6.2 billion in 2024 to $8.6 billion in 2027 while related professional services and support are expected to grow from $5.7 billion in 2024 to $7.5 billion in 2027.
Training services are generally billed on an hourly or daily basis, along with travel and other expenses. Software Licenses and Royalties Many of our software arrangements involve “off-the-shelf” software.
The vast majority of our clients contract with us for training services, both to improve their employees’ proficiency and productivity and to fully utilize the functionality of our systems. Training services are generally billed on an hourly or daily basis, along with travel and other expenses. Software Licenses and Royalties Many of our software arrangements involve “off-the-shelf” software.
To date, 42% of our management leads have participated in the program. • Division Presidents and Corporate Function Executives conducted annual leadership assessment and talent reviews with their HR leaders and leadership teams to plan for succession and identify development priorities within their teams. • Our TylerU online training platform was utilized by over 8,100 team members who completed almost 35,000 hours of Tyler-sponsored AWS, management and compliance training to support continuous learning, professional training and development. 11 Oversight and Management Our Human Resources team is tasked with leading and supporting our organization in managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, talent management and development.
To date, 53% of our management leads have participated in the program. • Division presidents and corporate function executives conducted annual leadership assessment and talent reviews with their HR leaders and leadership teams to plan for succession and identify development priorities within their teams. • Tyler team members and managers completed over 30,000 hours of Tyler-sponsored AWS, management and compliance training to support continuous learning, professional training and development.
MARKET OVERVIEW The state and local government market is one of the largest and most decentralized IT markets in the country, consisting of all 50 states, approximately 3,000 counties, 36,000 cities and towns and 12,900 school districts. This market is also comprised of approximately 38,000 special districts and other agencies, each with specialized delegated responsibilities and unique information management requirements.
MARKET OVERVIEW The federal, state, and local public sector market is one of the largest and most decentralized IT markets in the country, consisting of hundreds of federal agencies, all 50 states, approximately 3,000 counties, 36,000 cities and towns, and 12,600 school districts.
Currently, our third-party royalties are recognized on an estimated basis and adjusted if needed, when we receive notice of amounts we are entitled to receive. We typically receive notice of royalty revenue we are entitled to and billed on a quarterly basis in the quarter immediately following the royalty reporting period and adjustments have not been significant.
Currently, our third-party royalties are recognized on an estimated basis and adjusted if needed, when we receive notice of amounts we are entitled to receive.
In particular, we believe that the acquisition of NIC in April 2021 provides us with significant opportunities to sell Tyler software products into NIC’s client base and to provide NIC’s payment services to Tyler’s client base. • Grow recurring revenues .
In particular, since the acquisition of NIC, Inc.( “NIC”) in April 2021, we have been successfully selling Tyler software products into NIC’s client base and in turn providing NIC’s payment services to Tyler’s client base. We expect those opportunities to continue. • Grow recurring revenues .
We provide a range of offerings in support of mental and emotional, financial, and physical health and wellness not only for our team members, but also for the family members who depend on the m.
We provide a range of offerings in support of mental and emotional, financial, and physical health and wellness not only for our team members, but also for their family members. Our team members continued to demonstrate elevated levels of mental, physical and financial stress in 2023. These levels increased during the pandemic and have been slow to moderate.
We generally provide maintenance and support for our on-premises clients under annual, or in some cases, multi-year contracts, with a typical fee based on a percentage of the software product’s license fee. These fees can generally be increased on renewal and may also increase as new license fees increase. Maintenance and support fees are generally paid annually in advance.
Nearly all of our on-premises software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenue. We generally provide maintenance and support for our on-premises clients under annual, or in some cases, multi-year contracts, with a typical fee based on a percentage of the software product’s license fee.
We also provide continuing client support services to ensure product performance and reliability, which provides us with long-term client relationships and a significant base of recurring maintenance revenue. We provide digital government services and payment solutions. In addition, we provide electronic document filing (“e-filing”) solutions, which simplify the filing and management of court documents.
We also provide continuing client support services to ensure product performance and reliability, providing us with long-term client relationships and a significant base of recurring revenue.
Local government bodies are now recognizing that “e-government” is an additional responsibility for community development. From integrated tax systems to integrated civil and criminal justice information systems, many counties and cities have benefited significantly from the implementation of jurisdiction-wide systems that allow different agencies or government offices to share data and provide a more comprehensive approach to information management.
From integrated public safety and justice information systems to systems that integrate tax, finance, infrastructure, and land use processes, many jurisdictions have benefited significantly from the implementation of jurisdiction-wide systems that allow different agencies or government offices to share data and provide a more comprehensive approach to information management.
We design, develop, market and support a broad range of software solutions to serve mission-critical “back-office” functions of the public sector. Many of our software applications include Internet-accessible solutions that allow for real-time public access to a variety of information or that allow the public to transact business with governments online.
We design, develop, market, and support a broad range of software solutions to serve mission-critical “back-office” functions of the public sector.
BACKLOG At December 31, 2022, our revenue backlog was approximately $1.89 billion, compared to $1.80 billion at December 31, 2021. The backlog generally represents signed contracts under which the revenue has not been recognized.
We have not experienced any significant supply problems. 8 BACKLOG At December 31, 2023, our revenue backlog was approximately $2.03 billion compared to $1.89 billion at December 31, 2022. The backlog generally represents signed contracts under which the revenue has not been recognized. Approximately $937 million, or 46%, of the backlog is expected to be recognized during 2024.
We compete on the basis of, among other things, delivering to clients our deep domain expertise in government operations through the highest value products and services in the market. We believe we have achieved a reputation as a premium product and service provider to the government market. 8 • Continue to expand our product and service offerings .
The key components of our business strategy are to: • Provide high quality, value–added products and services to our clients . We compete on the basis of, among other things, delivering to clients our deep domain expertise in government operations through the high value products and services in the market.
We maintain our clients’ software largely through releases that contain improvements and incremental additions of features and functionality, along with updates necessary because of legislative or regulatory changes. Virtually all of our software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenue.
For more complicated issues, our staff, with the clients' permission, can log on to clients’ systems remotely. We maintain our clients’ software largely through releases that contain improvements and incremental additions of features and functionality, along with updates necessary because of legislative or regulatory changes.
Training can be provided in our training centers, onsite at clients’ locations, at meetings and conferences, or remotely, and can be customized to meet clients’ requirements. The vast majority of our clients contract with us for training services, both to improve their employees’ proficiency and productivity and to fully utilize the functionality of our systems.
Both in connection with the installation of new systems and on an ongoing basis, we provide extensive training services and programs related to our products and services. Training can be provided in our training centers, onsite at clients’ locations, at meetings and conferences, or remotely, and can be customized to meet clients’ requirements.
After the return, 39% of team members became either partially or fully office based. Our team continues to work collaboratively with and for our clients and partners across multiple work arrangements: fully office-based, fully remote and a blended approach of office-based and remote work, which we refer to as flex-work.
Our team continues to work collaboratively with and for our clients and partners across multiple work arrangements: fully office-based, fully remote and a blended approach of office-based and remote work. Prior to COVID, 40% of team members worked remotely, primarily in sales and professional services roles.
Other sources of subscriptions revenue are derived from transaction-based fees primarily related to digital government services, online payment solutions, which are sometimes offered with the assistance of third-party vendors, and online dispute resolution solutions. We also provide electronic document filing solutions (“e-filing”) that simplify the filing and management of court related documents for courts and law offices.
Other sources of subscriptions revenue are derived from transaction-based fees primarily related to digital government services, online payment solutions, which are sometimes offered with the assistance of third-party vendors, and online dispute resolution solutions. Maintenance and Support Support is provided to clients over the phone or via the Web through help desks staffed by our client support representatives.
In some of the product areas, such as financial management and education and property appraisal and tax, we offer multiple solutions designed to meet the needs of different sized governments. We also offer SaaS arrangements for clients who do not wish to maintain, update and operate these systems or to make up-front capital expenditures to implement these advanced technologies.
Each of our core software solutions consists of several fully integrated applications. In some of the product areas, such as financial management and education and property appraisal and tax, we offer multiple solutions designed to meet the needs of different sized governments.
Our workforce was comprised as follows: 71% White, 7% Asian, 4% Hispanic or Latino, 5% Black or African American, and 13% Other. For our leadership, the breakdown was 93% White, 5% Asian, 2% Hispanic or Latino. We define leadership as positions which are one or two levels removed from our CEO with management responsibility.
We define leadership as positions which are one or two levels removed from our CEO with management responsibility.
Job offer compensation levels for roles in the tech sector continued to increase in 2022 at levels we have not experienced in well over a decade. Investments in Talent We are committed to providing Tyler team members with career growth opportunities and the training and resources necessary to continually strengthen their skills.
We continue to invest in talent development and making career opportunities clear to team members and our 2023 efforts are discussed in further detail below. Investments in Talent We are committed to providing Tyler team members with career growth opportunities and the training and resources necessary to continually strengthen their skills.
For the national and international government markets, application and vertical specific software sales is expected to expand from $42.2 billion in 2023 to $61.5 billion in 2026 while professional services and support are expected to grow from $65.6 billion in 2023 to $82.1 billion in 2026. 3 PRODUCTS AND SERVICES We provide a comprehensive and flexible suite of products and services that addresses the information technology needs of cities, counties, states, schools, federal agencies, and other government entities.
For the national and international government markets, Gartner estimates that application and vertical specific software sales are expected to expand from $48.0 billion in 2024 to $71.9 billion in 2027, while related professional services and support are expected to grow from $71.6 billion in 2024 to $93.5 billion in 2027. 3 Tyler is a leading provider of integrated solutions for the public sector.
As a result, they seek to establish long-term relationships with reliable providers of high quality IT products and services such as Tyler. Although local governments often face budgetary constraints in their operations, their primary revenue sources are usually property taxes, and to a lesser extent, utility billings and other fees, which historically tend to be relatively stable.
Agencies at all levels of government face challenges in attracting and retaining the staff necessary to support their IT operations. As a result, they seek to establish long-term relationships with reliable providers of high-quality IT products and services such as Tyler.
As of December 31, 2022, we had approximately 7,200 team members. Approximately 335 of these team members are located in Canada and the Philippines; the remainder work remotely in the U.S. or are based in one of our nearly 80 U.S. offices. No Tyler employees are represented by unions.
Approximately 95% of our team members work in one of our 66 U.S. offices or remotely in the U.S. Approximately 388 of our team members are in Canada, the Philippines, or India. Race and gender reporting are based on information provided by team members.
ITEM 1. BUSINESS. DESCRIPTION OF BUSINESS Tyler Technologies, Inc. (“Tyler”) is a major provider of integrated information management solutions and services for the public sector. We partner with clients to make government more accessible to the public, more responsive to the needs of citizens and more efficient in its operations.
ITEM 1. BUSINESS. DESCRIPTION OF BUSINESS Tyler Technologies, Inc. (“Tyler”) is a leading provider of integrated software and technology management solutions for the public sector. Our solutions empower local, state, and federal government entities to create smarter, safer, and stronger communities. We offer the broadest range of software solutions and services designed for every level of public sector government agency.
Race and gender reporting are based on information provided by team members. Voluntary workforce turnover (rolling 12-month attrition) was 10% as of December 31, 2022, a decrease from 2021 turnover of 12.5%.
As of December 31, 2023, 63% of team members work remotely and 37% of team members are either partially or fully office based. 9 Voluntary workforce turnover (rolling 12-month attrition) was 8% as of December 31, 2023, a decrease from 2022 turnover of 10% and a return to pre-COVID levels of turnover at Tyler which consistently outperforms our industry peers.
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We have a broad line of software solutions and services to address the information technology (“IT”) needs of major areas of operations for cities, counties, schools and other government entities. We offer clients delivery of our software applications through software as a service (“SaaS”) and on-premise solutions.
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Our solutions deliver mission-critical technology to support the essential functions of government, including public safety, justice, public health, taxation and budgeting, infrastructure and land use, outdoor recreation, utility and civic services, regulation, K-12 education, and social services.
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In recent years, substantially all of the Tyler’s products are sold through subscriptions delivered as SaaS. We provide professional IT services to our clients, including software and hardware installation, data conversion, training and, at times, product modifications. In addition, we are the nation’s largest provider of outsourced property appraisal services for taxing jurisdictions.
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We provide both the back-office systems-of-record that serve the operational needs of specific government agencies, as well as platform technology solutions that are designed to integrate with our back-office solutions and be deployed and connected across many agencies. Examples of transformative platform technologies include our market-leading payments platform, data platform, low-code application development platform, and digital resident experience solutions.
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Traditionally, local government bodies and agencies performed state-mandated duties, including property assessment, record keeping, road maintenance, law enforcement, administration of election and judicial functions, and the provision of welfare assistance. Today, a host of emerging and urgent issues are confronting local governments, each of which demands a service response.
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We maintain deep, long-term relationships with state and local government agencies, including dedicated state-level offices in the 28 states in which we have enterprise contracts. Our professional information technology (“IT”) services include cloud-based software deployment, data conversion, and training.
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These areas include criminal justice and corrections, administration and finance, public safety, health and human services, planning, regulatory and maintenance and records and document management. Transfers of responsibility from the federal and state governments to county and municipal governments and agencies in these and other areas also place additional service and financial requirements on these local government units.
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This market is also comprised of approximately 40,000 special districts and other agencies, each with specialized delegated responsibilities and unique information management requirements. Today, government agencies play an essential role in all aspects of society, including providing protection and security, delivering public services, ensuring public health, effectively administrating public resources, developing and enforcing regulations, and maintaining engagement with the public.
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Many city and county governmental agencies also have unique individual information management requirements, which must be tailored to the specific functions of each particular office. Many local governments also have difficulties attracting and retaining the staff necessary to support their IT functions.
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Government bodies recognize “digital government” is not just a modern convenience, but a requirement for good governance.
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Application and vertical specific software sales in the primary and secondary education segments of the market is expected to expand from $5.4 billion in 2023 to $6.6 billion in 2026 while professional services and support are expected to grow from $5.1 billion in 2023 to $6.1 billion in 2026.
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Although governments often face budgetary constraints in their operations, their primary revenue sources are usually property, business, and sales tax revenue, as well as transactional fees and service charges, which historically tend to be relatively stable. Government agencies increasingly rely on digital payment solutions to streamline the collection and distribution of government funds.
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Our software solutions and services are provided through seven 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; • data and insights solutions; • appraisal and tax software solutions, land and vital records management software solutions, and property appraisal services; • development platform solutions including case management and business process management; and • digital government and payments solutions.
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Tyler management believes we compete based on several key factors, including: • The breadth, depth, and quality of our product and service offerings • Deep industry expertise with proven implementation success • Technological innovation • Name recognition, reputation, and references • Value and return-on-investment • Financial strength and stability PRODUCTS AND SERVICES We provide a comprehensive and flexible suite of products and services that addresses the information technology needs of cities, counties, states, schools, federal agencies, and other government entities.
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Each of our core software solutions consists of several fully integrated applications. For clients who acquire software for use on premises, we generally license our solutions under standard perpetual license agreements that provide the client with a fully paid, nonexclusive, nontransferable right to use the software.
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Many of our back-office software applications integrate with our transformative platform solutions, such as our unified payments platform, data and insights platform, and digital public engagement solutions that allow for real-time public access to a variety of information or that allow the public to transact business with governments online.
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For these clients, the software and client data are hosted at our data centers or at third-party locations, and clients typically sign multi-year contracts for these subscription-based services.
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A description of our primary suites of products and services follows: Platform & Transformative Technology Solutions Our platform and transformative technology solutions create the foundation for government innovation and enhance our clients’ ability to connect with constituents, conduct business, collect and disburse funds, safeguard systems, and leverage data to its fullest.
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A description of our suites of products and services follows: Financial Management and Education Our financial management and education solutions are enterprise resource planning systems for the public sector, which integrate information across all facets of a client organization.
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Many of these solutions are integrated into our products, while others can be leveraged as add-on solutions.
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Our financial management solutions include modular fund accounting systems that can be tailored to meet the needs of virtually any government agency or not-for-profit entity.
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Our platform & transformative technology solutions include: • Cybersecurity: Augments government agencies’ resources with access to advanced expertise for program design, 24/7 threat detection and response, customized employee training, vulnerability testing, and more. • Data & Insights: Allows agencies to transform data into insights about financial, operational, and strategic outcomes by making it easier to surface meaningful data for informing government decisions and citizens. • Digital Solutions: Provides a seamless cross-department experience so that agencies can deliver a unified citizen experience and achieve better outcomes while helping workers and policymakers share, communicate, and leverage data more effectively. • Payments: As the leading platform for public sector payment processes nearly half a billion transactions annually and covers the entire payments life cycle, including billing, presentment, merchant onboarding, collections, reconciliation, and disbursements. • Platform Technologies: A low-code application development platform purpose-built for the public sector.
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Our financial management systems include modules for general ledger, budget preparation, fixed assets, requisitions, purchase orders, bid management, accounts payable, contract management, accounts receivable, investment management, inventory control, project and grant accounting, work orders, job costing, GASB reporting, payroll and human resources.
Added
Enables government workers to quickly build solutions and applications that suit their needs. • Outdoor Recreation: Designed specifically for local, state, and federal outdoor agencies, our solutions encompass campsite reservations, activity registrations, licensing sales and renewals, and real-time data for conservation and park management. 4 Public Administration Solutions Our public administration solutions connect the dots between departments, agencies, municipalities, and states to deliver the core business functions of the public sector.
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All of our financial management systems are intended to conform to government auditing and financial reporting requirements and generally accepted accounting principles. We sell utility billing systems that support the billing and collection of metered and non-metered services, along with multiple billing cycles.
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By making it easier to manage the business side of the public sector, agencies can focus on delivering the resources and services required to make their community a place where people want to live.
Removed
Our Web-enabled utility billing solutions allow clients to access information online such as average consumption and transaction history. In addition, our systems can accept secured Internet payments via credit cards and checks.
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Our public administration solutions include: • Civic Services: Business management and community development solutions manage permitting, enforcement, health and safety inspections, compliance, maintenance and work orders, 311 requests, and more. • ERP: Integrates core financial applications with human resources, revenue management, tax billing, utilities, asset management, and payment processing. • Property & Recording: Manages all aspects of the property tax life cycle, including appraisal services, valuation, tax billing and collections, assessment administration, and land and official records. • Regulatory: Permitting, licensing and regulatory management help local, state, and federal government agencies and departments of any size simplify every aspect of regulatory compliance.
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We also offer specialized products that automate numerous city and county functions, including municipal courts, parking tickets, equipment and project costing, animal licenses, business licenses, permits and inspections, code enforcement, citizen complaint tracking, ambulance billing, fleet maintenance, and cemetery records management.
Added
Courts & Public Safety Solutions Our integrated courts and public safety solutions are used at the municipal, county, state, and federal levels to help courts, prosecutors, defenders, jails, sheriff’s offices, police departments, and probation officers keep their communities safe.
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In addition to providing financial management systems to K-12 schools, we sell student information systems for K-12 schools, which manage such activities as scheduling, grades and attendance. We also offer student transportation solutions to manage school bus routing optimization, fleet management, field trips and other related functions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe do not foresee paying dividends on our common stock. We have not declared nor paid a cash dividend since we entered the business of providing software solutions and services to the public sector in 1998. We intend to retain earnings for use in the operation and expansion of our business.
Biggest changeThis investment may result in an unforeseen increase in general and administrative expense and a diversion of management’s time and attention from revenue-generating activities, which may harm our operating results. 20 We do not foresee paying dividends on our common stock. We have not declared nor paid a cash dividend since we entered the software business in 1998.
If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our business, operating results or financial condition could be adversely affected. In addition, we may act as subcontractor to a third-party prime contractor to secure new projects.
If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our business, operating results or financial condition could be adversely affected. In addition, we may act as a subcontractor to a third-party prime contractor to secure new projects.
Appraisal and software implementations projects may be delayed if clients put projects on hold or slow projects by extending go-live dates.
Appraisal projects and software implementations may be delayed if clients put projects on hold or slow projects by extending go-live dates.
The Indenture governing the Convertible Senior Notes and the 2021 Credit Agreement do, and our future indebtedness agreements may, contain covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities.
The Indenture governing the Convertible Senior Notes and the 2021 Credit Agreement do contain, and our future indebtedness agreements may contain covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities.
In addition, there can be no assurance that these third parties will continue to make their software or tools available to us on acceptable terms, or at all, not make their products available to our competitors on more favorable terms, invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software, or remain in business.
There can be no assurance that these third parties will continue to make their software or tools available to us on acceptable terms, or at all, not make their products available to our competitors on more favorable terms, invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software, or remain in business.
Should the lenders proceed against the guarantees, we cannot give assurance that we would have sufficient assets to pay amounts due on the 2021 Credit Agreement and the Convertible Senior Notes. Variable rate indebtedness subjects the Company to interest rate risk, which could cause our debt service obligations to increase significantly.
Should the lenders proceed against the guarantees, we cannot give assurance that we would have sufficient assets to pay amounts due on the 2021 Credit Agreement and the Convertible Senior Notes. 17 Variable rate indebtedness subjects the Company to interest rate risk, which could cause our debt service obligations to increase significantly.
We face many risks and challenges associated with contracting with governmental entities, including: • Resource limitations caused by budgetary constraints, which may provide for a termination of executed contracts due to a lack of future funding • Long and complex sales cycles • Contract payments at times being subject to achieving implementation milestones, and we may have differences with clients as to whether milestones have been achieved • Political resistance to the concept of contracting with third parties to provide IT solutions • Legislative changes affecting a local government’s authority to contract with third parties • Varying bid procedures and internal processes for bid acceptance • Various other political factors, including changes in governmental administrations and personnel Each of these risks is outside our control.
We face many risks and challenges associated with contracting with governmental entities, including: • Resource limitations caused by budgetary constraints, which may provide for a termination of executed contracts due to a lack of future funding • Long and complex sales cycles • Contract payments at times are subject to achieving implementation milestones, and we may have differences with clients as to whether milestones have been achieved • Political resistance to the concept of contracting with third parties to provide IT solutions • Legislative changes affecting a local government’s authority to contract with third parties • Varying bid procedures and internal processes for bid acceptance • Various other political factors, including changes in governmental administrations and personnel Each of these risks is outside our control.
In addition, our clients and prospective clients could elect to provide information management services internally through new or existing departments, which could reduce the market for our services. We could face additional competition as other established and emerging companies enter the public sector software market and new products and technologies are introduced.
In addition, our clients and prospective clients could elect to provide information management services internally through new or existing departments, which could reduce the market for our services. 15 We could face additional competition as other established and emerging companies enter the public sector software market and new products and technologies are introduced.
If we incur additional indebtedness, the risks related to our business would increase and our ability to service or repay our indebtedness may be adversely impacted. Pursuant to their terms, holders may convert their Convertible Senior Notes at their option prior to the scheduled maturities of their Convertible Senior Notes under certain circumstances.
If we incur additional indebtedness, the risks related to our business would increase and our ability to service or repay our indebtedness may be adversely impacted. 16 Pursuant to their terms, holders may convert their Convertible Senior Notes at their option prior to the scheduled maturities of their Convertible Senior Notes under certain circumstances.
In addition, some provisions of our Certificate of Incorporation, Bylaws, and the Delaware General Corporation Law could also delay, prevent, or make more difficult a merger, tender offer, or proxy contest involving us. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable. 21
In addition, some provisions of our Certificate of Incorporation, Bylaws, and the Delaware General Corporation Law could also delay, prevent, or make more difficult a merger, tender offer, or proxy contest involving us. ITEM 1B. UNRESOLVED STAFF COMMENTS. Not applicable.
In addition, the general insurance markets may experience volatility and/or restrictive coverage trends, which may lead to future increases in our general and administrative expense and negatively impact our operating results. 17 Risks Related to Our Indebtedness Servicing our indebtedness requires a significant amount of cash.
In addition, the general insurance markets may experience volatility and/or restrictive coverage trends, which may lead to future increases in our general and administrative expense and negatively impact our operating results. Risks Related to Our Indebtedness Servicing our indebtedness requires a significant amount of cash.
To respond successfully to these requests for proposals, we must accurately estimate our cost structure for servicing a proposed contract, the time required to establish operations for the proposed client, and the likely terms of any other third-party proposals submitted.
To respond successfully to these requests for proposals, we must accurately estimate our cost structure for servicing a proposed contract, the time required to establish operations for the prospective client, and the likely terms of any other third-party proposals submitted.
Current and potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information regarding us, our products and services, and the software industry when evaluating our prospective results of operations. 20 Risks Associated with Our Growth Strategy and Other General Corporate Risks We may experience difficulties in executing our acquisition strategy.
Current and potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information regarding us, our products and services, and the software industry when evaluating our prospective results of operations. 19 Risks Associated with Our Growth Strategy and Other General Corporate Risks We may experience difficulties in executing our acquisition strategy.
A material portion of our historical growth has resulted from strategic acquisitions. Although our focus is on organic internal growth, we will continue to identify and pursue strategic acquisitions with suitable candidates.
A material portion of our historical growth has resulted from strategic acquisitions. Although our current focus is on organic internal growth, we will continue to identify and pursue strategic acquisitions with suitable candidates.
Revolving credit facility loans and Term A-1 Loans under the 2021 Credit Agreement bear interest at a per annum rate equal to, at our option, 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%.
Revolving credit facility loans and Term A-1 Loans under the 2021 Credit Agreement bear interest at a per annum rate equal to, at our option, 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%.
There has also been an apparent evolution in the legal standards and regulations courts and the U.S. patent office may apply in favorably evaluating software patent rights.
There has also been an apparent evolution in the legal standards and regulations that courts and the U.S. patent office may apply in favorably evaluating software patent rights.
Examples of factors that may significantly impact our stock price include: • Actual or anticipated fluctuations in our operating results • Announcements of technological innovations, new products, or new contracts by us or our competitors • Developments with respect to patents, copyrights, or other proprietary rights • Conditions and trends in the software and other technology industries • Changes in financial estimates by securities analysts • General market conditions and other factors In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices of technology company stocks and may in the future adversely affect the market price of our stock.
Examples of factors that may significantly impact our stock price include: • Actual or anticipated fluctuations in our operating results • Announcements of technological innovations, new products, or new contracts by us or our competitors • Developments with respect to patents, copyrights, or other proprietary rights • Conditions and trends in the software and other technology industries • Changes in financial estimates by securities analysts • Changes in interest rates • General economic and market conditions and other factors In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices of technology company stocks and may in the future adversely affect the market price of our stock.
Our borrowings under the 2021 Credit Agreement are, and are expected to continue to be, at variable rates of interest and expose Tyler to interest rate risk. If interest rates continue to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.
Our borrowings under the 2021 Credit Agreement are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates continue to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.
If our actual revenues fall below expectations, we could experience a reduction in operating results. Also, if actual revenues or earnings for any given quarter fall below expectations, it may lead to a decline in our stock price. Increases in investment in research and development could decrease overall margins.
If our actual revenues fall below expectations, we could experience a reduction in earnings. Also, if actual revenues or earnings for any given quarter fall below expectations, it may lead to a decline in our stock price. Increases in our investment in research and development could decrease overall margins.
Our Term A-2 Loans bear interest, at our 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%.
Our Term A-2 Loans bear interest, at our 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%.
A global economic slowdown, the COVID-19 pandemic, or similar circumstances could also adversely affect the businesses of our third-party providers, hindering their ability to provide the services on which we rely. Our agreements with third parties typically are non-exclusive and do not prohibit them from working with our competitors.
A global economic slowdown, the lingering of a pandemic, or similar circumstances could also adversely affect the businesses of our third-party providers, hindering their ability to provide the services on which we rely. Our agreements with third parties typically are non-exclusive and do not prohibit them from working with our competitors.
Breaches of our network or data security could disrupt the security of our internal systems and business applications, impair our ability to provide services to our 12 clients and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our competitive position, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improve technologies, or otherwise adversely affect our business.
Breaches of our internal network have disrupted and could in the future disrupt the security of our internal systems and business applications, and could impair our ability to provide services to our clients and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our competitive position, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improve technologies, or otherwise adversely affect our business.
Although we maintain errors and omissions and general liability insurance, and we try to structure contracts to limit liability, we cannot assure you that a successful claim could not be made or would not have a material adverse effect on our future operating results. We must timely respond to technological changes to be competitive.
Although we maintain errors and omissions and general liability insurance, and we try to structure contracts to limit liability, we cannot guarantee that a successful claim could not be made or would not have a material adverse effect on our future operating results. 13 We must timely respond to technological changes to be competitive.
The occurrence of any of these events, which could be caused or impacted by the COVID-19 pandemic, may require us to record future goodwill impairment charges. A prolonged economic slowdown could harm our operations. A prolonged economic slowdown or recession could reduce demand for our software products and services.
The occurrence of any of these events, which could be caused or impacted by a public health crisis similar to the COVID-19 pandemic, may require us to record future goodwill impairment charges. A prolonged economic slowdown could harm our operations. A prolonged economic slowdown or recession could reduce demand for our software products and services.
Certain of our solutions include software covered by open source licenses. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions.
The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions.
Subject to customary carve-outs, thresholds and baskets, the 2021 Credit Agreement (and the Indenture by means of a cross-default) restricts, absent consent of the agent and lenders under the 2021 Credit Agreement, our ability and the ability of our restricted subsidiaries to, among other things: • Incur additional indebtedness, • Permit liens on our assets, • Make certain investments, acquisitions and dispositions, • Make certain specified fundamental changes, and • Make certain restricted payments. 18 In addition, the 2021 Credit Agreement (and the Indenture by means of a cross-default) contains other customary affirmative and negative covenants, and events of default.
Subject to customary carve-outs, thresholds and baskets, the 2021 Credit Agreement (and the Indenture by means of a cross-default) restricts, absent consent of the agent and lenders under the 2021 Credit Agreement, our ability and the ability of our restricted subsidiaries to, among other things: • Incur additional indebtedness, • Permit liens on our assets, • Make certain investments, acquisitions and dispositions, • Make certain specified fundamental changes, and • Make certain restricted payments.
Threats to IT security can take a variety of forms. Individuals and groups of hackers, and sophisticated organizations including state-sponsored organizations, may take steps that pose threats to our clients and our IT.
Threats to IT security can take, and have in the past taken, a variety of forms. Individuals and groups of hackers, and sophisticated organizations including state-sponsored organizations, may take steps that pose threats to our clients and our IT.
Based on the debt under the 2021 Credit Agreement, the aggregate principal outstanding balance as of December 31, 2022 is $395.0 million, and each quarter point change in interest rates would result in a $1.0 million change in annual interest expense.
Based on the debt under the 2021 Credit Agreement, the aggregate principal outstanding balance as of December 31, 2023 is $50.0 million, and each quarter of a point change in interest rates would result in a $125,000 change in annual interest expense.
Our revenues and operating results are difficult to predict and may fluctuate substantially from quarter to quarter for a variety of reasons, including: • The size of license transactions can vary significantly • Clients may unexpectedly postpone or cancel procurement processes due to changes in strategic priorities, project objectives, budget, or personnel • Client purchasing processes vary significantly and a client’s internal approval, expenditure authorization, and contract negotiation processes can be difficult and time consuming to complete, even after selection of a vendor • The number, timing, and significance of software product enhancements and new software product announcements by us and our competitors may affect purchase decisions • We may have to defer revenues under our revenue recognition policies and GAAP • Clients may elect subscription-based arrangements, which result in lower software license revenues in the initial year as compared to traditional, on-premise software license arrangements, but generate higher recurring revenues over the term of the contract In each fiscal quarter, our expense levels, operating costs, and hiring plans are based to some extent on projections of future revenues and are relatively fixed.
Our revenues and operating results can be difficult to predict and may fluctuate substantially from quarter to quarter for a variety of reasons, including: • The size of license transactions can vary significantly • Clients may unexpectedly postpone or cancel procurement processes due to changes in strategic priorities, project objectives, budget, or personnel • Client purchasing processes vary significantly and a client’s internal approval, expenditure authorization, and contract negotiation processes can be difficult and time consuming to complete, even after selection of a vendor • The number, timing, and significance of software product enhancements and new software product announcements by us and our competitors may affect purchase decisions • We may have to defer revenues under our revenue recognition policies and GAAP In each fiscal quarter, our expense levels, operating costs, and staffing levels are based to some extent on projections of future revenues and are relatively fixed.
While we are unable to accurately predict the full impact that COVID-19 will continue to have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and associated compliance, the pandemic may negatively impact our revenues and other financial results.
While we are unable to accurately predict the full impact that a health crisis or pandemic would have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and associated compliance, a pandemic may negatively impact our revenues and other financial results.
Because an increasing portion of our revenues are recurring, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.
Because an increasing portion of our revenues are recurring, the effect of public health-related shutdown on our results of operations may also not be fully reflected for some time.
It is possible that our clients may elect to not renew maintenance contracts for our software, trying instead to maintain and operate the software themselves using their perpetual license rights (excluding software applications that we provide on a hosted or cloud basis). Alternatively, clients may elect to drop maintenance on certain modules that they ultimately decide not to use.
It is possible that our clients may elect to not renew maintenance contracts for our software, trying instead to maintain and operate the software themselves using their perpetual license rights (excluding software applications that we provide on a hosted or software as a service basis).
Material portions of our business require the Internet infrastructure to be reliable. Part of our future success continues to depend on the use of the Internet as a means to access public information and perform transactions electronically, including, for example, electronic filing of court documents.
Part of our future success continues to depend on the use of the Internet as a means to access public information and perform transactions electronically, including, for example, electronic filing of court documents and electronic payment processing.
Many of the risks associated with the use of open source software cannot be eliminated and could adversely affect our business. We run the risk of errors or defects with new products or enhancements to existing products. Our software products are complex and may contain errors or defects, especially when first introduced or when new versions or enhancements are released.
Many of the risks associated with the use of open source software cannot be eliminated and could adversely affect our business. We run the risk of errors or defects with new products or enhancements to existing products.
The conditional conversion feature of the Convertible Senior Notes, if triggered, may adversely affect our financial condition and results of operations. In the event the conditional conversion feature of the notes is triggered, holders of our Convertible Senior Notes will be entitled to convert the Convertible Senior Notes at any time during specified periods at their option.
In the event the conditional conversion feature of the notes is triggered, holders of our Convertible Senior Notes will be entitled to convert the Convertible Senior Notes at any time during specified periods at their option.
In September 2020, we filed a Current Report on Form 8-K reporting a security incident (the "Incident") involving ransomware disrupting access to some of our internal IT systems and telephone systems. We promptly notified our clients of the Incident and provided timely updates to our clients through direct communications and updates to our website.
In September 2020, we filed a Current Report on Form 8-K reporting a security incident (the "Incident") involving ransomware disrupting access to some of our internal IT systems and telephone systems.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Provisions in our certificate of incorporation, bylaws, and Delaware law could deter takeover attempts.
We intend to retain earnings for use in the operation and expansion of our business. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Provisions in our certificate of incorporation, bylaws, and Delaware law could deter takeover attempts.
We deployed supplemental remediation efforts as necessary and cooperated with law enforcement’s investigation. Although we completed our investigation into the Incident and believe we contained and recovered from the Incident, we are subject to risk and uncertainties as a result of the Incident.
Although we completed our investigation into the Incident and believe we contained and recovered from the Incident, we are subject to risk and uncertainties as a result of the Incident.
We may be unable to hire, integrate, and retain qualified personnel. Our continued success will depend upon the availability and performance of our key management, sales, marketing, client support, and product development personnel. The loss of key management or technical personnel could adversely affect us.
Our continued success will depend upon the availability and performance of our key management, sales, marketing, client support, and product development personnel. The loss of key management or technical personnel could adversely affect us. We believe that our continued success will depend in large part upon our ability to attract, integrate, and retain such personnel.
In addition, although we maintain a supplier security evaluation process, if the third-party software or tools we use has or have errors, security vulnerabilities, or otherwise malfunctions, the functionality of our solutions may be negatively impacted, our customers may experience reduced service levels, and our business may suffer. 14 Certain of our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business.
In addition, although we maintain a supplier security evaluation process, if the third-party software or tools we use has or have errors, security vulnerabilities, or otherwise malfunctions, the functionality of our solutions may be negatively impacted, our customers may experience reduced service levels, and our business may suffer.
The 2021 Credit Agreement is unsecured but requires us to maintain certain financial ratios regarding our total leverage and interest coverage and other financial conditions in addition to the restrictions described above.
In addition, the 2021 Credit Agreement (and the Indenture by means of a cross-default) contains other customary affirmative and negative covenants, and events of default. The 2021 Credit Agreement is unsecured but requires us to maintain certain financial ratios regarding our total leverage and interest coverage and other financial conditions in addition to the restrictions described above.
Disclosure of personally identifiable information and/or other sensitive client data could result in liability and harm our reputation. We depend on third parties with whom we engage or collaborate for certain projects, deliverables, and/or financial transaction processes.
Disclosure of personally identifiable information and/or other sensitive client data has resulted in obligations to send “data breach” notifications under applicable state laws, or to assist our clients in doing so, and/or could result in liability and harm our reputation. We depend on third parties with whom we engage or collaborate for certain projects, deliverables, and/or financial transaction processes.
If this infrastructure fails to be sufficiently developed or be adequately maintained, our business would be harmed because users may not be able to access our government portals.
If this infrastructure fails to be sufficiently developed or be adequately maintained, our business would be harmed because users may not be able to access our government portals. To date, any such outages have been temporary, and any business interruptions were contained and immaterial.
Cyber threats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and clients.
Cyber threats are constantly evolving, thereby increasing the difficulty of detecting and successfully defending against them. Cyber threats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and clients.
Upon a termination of the prime contract, our subcontract would similarly terminate, and the resulting contract loss could have an adverse effect on our business prospects, results of operations, cash flows, and financial condition and our ability to compete for future contracts and orders. 13 We rely on third-party providers—including Amazon Web Services—for hosting services and other technology-related services needed to deliver certain of our cloud solutions.
Upon a termination of the prime contract, our subcontract would similarly terminate, and the resulting contract loss could have an adverse effect on our business prospects, results of operations, cash flows, and financial condition and our ability to compete for future contracts and orders.
There can be no assurance as to what the ongoing impact of the Incident will be, if any. We maintain cybersecurity insurance coverage in an amount that we believe is adequate. Disclosure of personally identifiable information and/or other sensitive client data could result in liability and harm our reputation.
There can be no assurance as to what the ongoing impact of the Incident will be, if any. 11 Disclosure of personally identifiable information and/or other sensitive client data could result in liability and harm our reputation. We store and process increasingly large amounts of personally identifiable information and other confidential information of our clients.
Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability. A material portion of our business is provided through software hosting services, which are sometimes hosted from and use computing infrastructure provided by third parties, including Amazon Web Services.
A material portion of our business is provided through software hosting services, which are sometimes hosted from and use computing infrastructure provided by third parties, including Amazon Web Services (AWS).
If holders of our Convertible Senior Notes elect to convert their notes, we may settle our conversion obligation by delivering to them a significant number of shares of our common stock, which would cause dilution to our existing shareholders. 19 Risks Associated with Our Periodic Results and Stock Price Fluctuations in quarterly revenues could adversely impact our operating results and stock price.
If holders of our Convertible Senior Notes elect to convert their notes, we may settle our conversion obligation by delivering to them a significant number of shares of our common stock, which would cause dilution to our existing shareholders. Inflation and interest rates.
As the virus continues to persist, increased infection rates (generally or as the result of new strains of the virus) may result in government authorities returning to stricter measures to contain the virus, including travel bans and restrictions, quarantines, and business limitations and shutdowns.
As seen with a pandemic, certain infection rates or virus strains may result in government authorities imposing measures to contain the virus, including travel bans and restrictions, quarantines, and business limitations and shutdowns.
If we fail to adequately adapt to these risks and uncertainties, our financial performance could be adversely affected. COVID-19 may adversely affect our business and results of operations. We expect that the continued global presence of COVID-19 may negatively impact our business and financial results in fiscal year 2023.
If we fail to adequately adapt to these risks and uncertainties, our financial performance could be adversely affected. 14 Global health crises, such as a pandemic, may adversely affect our business and results of operations. We expect that a public health crisis, such as a pandemic, may negatively impact our business and financial results.
We store and process increasingly large amounts of personally identifiable information and other confidential information of our clients. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security.
The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security.
Changing laws, regulations, and standards relating to corporate governance, compliance, and public disclosure can create uncertainty for public companies. The costs required to comply with such evolving laws across the various states and at the federal level are difficult to predict and/or harmonize.
The costs required to comply with such evolving laws across the various states and at the federal level are difficult to predict and/or harmonize. To maintain high standards of corporate governance, compliance, and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards.
There is no assurance that government spending levels will be unaffected by declining or stagnant general economic conditions, and if budget shortfalls occur, they may negatively impact government IT spending and could adversely affect our business. 16 The open bidding process creates uncertainty in predicting future contract awards. Many governmental agencies purchase products and services through an open bidding process.
Governments may face financial pressures that could in turn affect our growth rate and profitability in the future. There is no assurance that government spending levels will be unaffected by declining or stagnant general economic conditions, and if budget shortfalls occur, they may negatively impact government IT spending and could adversely affect our business.
The 2021 Credit Agreement also has an option to increase the amount available up to an additional $500 million subject to our leverage and other factors. The proceeds from the issuance of our Convertible Senior Notes and from loans under the 2021 Credit Agreement were used as sources of funding for the acquisition of NIC.
The proceeds from the issuance of our Convertible Senior Notes and from loans under the 2021 Credit Agreement were used as sources of funding for the acquisition of NIC.
Any such defects could result in a loss of revenues or delay market acceptance. Our license agreements typically contain provisions designed to limit our exposure to potential liability.
Our software products are complex and have in the past, and may in the future, contain errors or defects, especially when first introduced or when new versions or enhancements are released. Any such defects could result in a loss of revenues or delay market acceptance. Our license agreements typically contain provisions designed to limit our exposure to potential liability.
We derive substantially all of our revenues from sales of software and services to state, county, and city governments, other federal or municipal agencies, and other public entities. We expect that sales to public sector clients will continue to account for substantially all of our revenues in the future.
Risks Associated with Selling Products and Services into the Public Sector Marketplace Selling products and services into the public sector poses unique challenges. We derive substantially all of our revenues from sales of software and services to state, county, and city governments, other federal or municipal agencies, and other public entities.
In April 2021, we entered into the 2021 Credit Agreement with significantly increased borrowing capacity of up to $1.4 billion and on the closing of the acquisition of NIC on April 21, 2021, we borrowed initial loans in the aggregate principal amount of $1.15 billion.
As of December 31, 2023, we had outstanding an aggregate principal amount of $600 million of our Convertible Senior Notes and $50 million under our 2021 Credit Agreement. In April 2021, we entered into the 2021 Credit Agreement with significantly increased borrowing capacity of up to $1.4 billion, and on the closing of the acquisition of NIC Inc.
They may, for example, develop and deploy malicious software to attack our products and services and/or gain access to our networks and data centers or act in a coordinated manner to launch distributed denial of service or other coordinated attacks. Cyber threats are constantly evolving, thereby increasing the difficulty of detecting and successfully defending against them.
They have in the past and may in the future develop and deploy malicious software to gain access to our internal networks, and/or to attack our products and services, gain access to data centers we use to host client deployments, or act in a coordinated manner to launch distributed denial of service or other coordinated attacks.
This could adversely affect our revenues and profits. Additionally, they may inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors, which could adversely affect our business. 15 Risks Associated with Selling Products and Services into the Public Sector Marketplace Selling products and services into the public sector poses unique challenges.
Alternatively, clients may elect to drop maintenance on certain modules that they ultimately decide not to use. This could adversely affect our revenues and profits. Additionally, they may inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors, which could adversely affect our business.
Generally, a governmental entity will publish an established list of requirements requesting potential vendors to propose solutions for the established requirements.
The open bidding process creates uncertainty in predicting future contract awards. Many governmental agencies purchase products and services through an open bidding process. Generally, a governmental entity will publish an established list of requirements requesting potential vendors to propose solutions for the established requirements.
Competition for qualified software development, sales, and other personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. In addition, competitive job markets may increase our costs relating to compensation packages due to higher salary expectations and pressures. Compliance with changing regulation of corporate governance may result in additional expenses.
In addition, competitive job markets may increase our costs relating to compensation packages due to higher salary expectations and pressures. Compliance with changing regulation of corporate governance may result in additional expenses. Changing laws, regulations, and standards relating to corporate governance, compliance, and public disclosure can create uncertainty for public companies.
We face significant competition from other vendors and potential new entrants into our markets. We believe we are a leading provider of integrated solutions for the public sector. However, we face competition from a variety of software vendors that offer products and services similar to those offered by us, as well as from companies offering to develop custom software.
We face significant competition from other vendors and potential new entrants into our markets. We believe we are a leading provider of integrated software solutions for the public sector. Our market is highly fragmented with a large number of competitors that vary in size, product platform, and product scope.
For example, Amazon Web Services has experienced significant service outages in the past and may do so again in the future. In addition, the ongoing COVID-19 pandemic has disrupted and may continue to disrupt the supply chain of hardware needed to maintain these third-party systems or to run our business.
For example, AWS has experienced significant service outages in the past and may do so again in the future. 12 Material portions of our business require the Internet infrastructure to be reliable.
We believe that our continued success will depend in large part upon our ability to attract, integrate, and retain such personnel. We have at times experienced and continue to experience challenges in recruiting qualified personnel.
We have at times experienced and continue to experience challenges in recruiting qualified personnel. Competition for qualified software development, sales, and other personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel.
In January 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the SOFR reference rate. Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.
In January 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the SOFR reference rate. The conditional conversion feature of the Convertible Senior Notes, if triggered, may adversely affect our financial condition and results of operations.
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There is no evidence that the environments where we host client applications were affected, and our hosting services to those clients were not interrupted. There was also no evidence of malicious activity on client networks associated with the Incident. We contained the Incident and recovered from it, resuming normal operations with our clients.
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We rely on third-party providers—including Amazon Web Services—for hosting services and other technology-related services needed to deliver certain of our cloud solutions. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.
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For the twelve months ended December 31, 2022, 80% of our total revenues and earnings are relatively predictable as a result of our subscription and maintenance revenue, which is recurring in nature; thus the effect of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods.
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Certain of our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business. Certain of our solutions include software covered by open source licenses.
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Governments may face financial pressures that could in turn affect our growth rate and profitability in the future.
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We expect that sales to public sector clients will continue to account for substantially all of our revenues in the future.
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We compete based on a number of factors, including: • The attractiveness of our “evergreen” business model • The breadth, depth, and quality of our product and service offerings • The ability to modify our offerings to accommodate particular clients’ needs • Technological innovation • Name recognition, reputation and references • Price • Our financial strength and stability Our market is highly fragmented with a large number of competitors that vary in size, product platform, and product scope.
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(“NIC”) on April 21, 2021, we borrowed initial loans in the aggregate principal amount of $1.15 billion. The 2021 Credit Agreement also has an option to increase the amount available up to an additional $500 million subject to our leverage and other factors.
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As of December 31, 2022, we had outstanding an aggregate principal amount of $600 million of our Convertible Senior Notes and $395 million under our 2021 Credit Agreement.
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Our liquidity and ongoing access to capital could be materially and negatively affected by increased volatility in the financial and securities markets, including increased inflation and interest rates. ∙ Our continued access to sources of liquidity depends on multiple factors, including global macroeconomic conditions, the condition of global financial markets, the availability of sufficient amounts of financing and our operating performance.
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LIBOR, the London Inter-Bank Offered Rate, is currently anticipated to be phased out in June 2023 and is expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets.
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There has been increased volatility in the financial and securities markets, as well as increased inflation and interest rates, which generally has made access to capital less certain and has increased the cost of obtaining new capital.
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To maintain high standards of corporate governance, compliance, and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. This investment may result in an unforeseen increase in general and administrative expense and a diversion of management’s time and attention from revenue-generating activities, which may harm our operating results.
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We may need to obtain equity, equity-linked, or debt financing in the future to fund our operations, including our acquisition strategy, and there is no guarantee that such debt financing will be available in the future, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding. 18 Risks Associated with Our Periodic Results and Stock Price Fluctuations in quarterly revenues could adversely impact our operating results and stock price.
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Increases in labor costs, including wages, and an overall tightening of the labor market, could adversely affect our business, results of operations or financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe own or lease offices for our major operations in the states of Arkansas, Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Massachusetts, Maine, Michigan, Missouri, Montana, North Carolina, New York, Ohio, Tennessee, Texas, Virginia, Washington, Washington D.C., Wisconsin, Ontario and British Columbia, Canada and the Philippines.
Biggest changeWe own or lease offices for our major operations in the states of Arkansas, Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Massachusetts, Maine, Michigan, Missouri, Montana, North Carolina, New York, Ohio, Tennessee, Texas, Virginia, Washington, Washington D.C., Wisconsin, Ontario and British Columbia, Canada, the Philippines and India.
ITEM 2. PROPERTIES. We occupy a total of approximately 1.3 million square feet of office space, of which approximately 746,000 square feet is in various office facilities we own.
ITEM 2. PROPERTIES. We occupy a total of approximately 1.3 million square feet of office space, of which approximately 762,000 square feet is in various office facilities we own.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeOn August 23, 2022, the Company filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. The client has not filed responsive pleadings and no other significant activity has occurred in the lawsuit.
Biggest changeThe client was unresponsive to our outreach for several months. On August 23, 2022, we filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement, and since then have been engaged directly with the client on payment resolution.
Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time the matter remains unresolved.
Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time the matter remains unresolved. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.
Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.
ITEM 3. LEGAL PROCEEDINGS. During the first quarter of 2022, we received a notice of termination for convenience under a contractual arrangement with a state government client. Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.
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ITEM 3. LEGAL PROCEEDINGS. During the first quarter 2022, the Company received a notice of termination for convenience for professional services under a contractual arrangement with a state client.
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ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 24 PART II
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As of December 31, the total exposure in our financial statements included the remaining balance of net billed accounts receivable for licenses and services rendered under the contract of approximately $12 million. The client was unresponsive to company outreach for several months.
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We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract. ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 22 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Submission of Matters to a Vote of Security Holders 22 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 6. Selected Financial Data 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A.
Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 40 Item 8.
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Quantitative and Qualitative Disclosures about Market Risk 41 Item 8. Financial Statements and Supplementary Data 42

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stock performance shown on the graph below is not necessarily indicative of future price performance. Company / Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Tyler Technologies, Inc. 100 104.95 169.45 246.55 303.84 182.10 S&P 500 Stock Index 100 95.62 125.72 148.85 191.58 156.88 S&P 600 Information Technology Index 100 91.07 127.12 162.47 206.09 160.00
Biggest changeThe stock performance shown on the graph below is not necessarily indicative of future price performance. Company / Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Tyler Technologies, Inc. 100 161.46 234.92 289.50 173.51 225.01 S&P 500 Stock Index 100 131.49 155.68 200.37 164.08 207.21 S&P 600 Information Technology Index 100 139.59 178.41 226.31 175.70 212.50
The following table compares total shareholder returns for Tyler over the last five years to the Standard and Poor’s 500 Stock Index and the Standard and Poor’s 600 Information Technology Index assuming a $100 investment made on December 31, 2017. Each of the three measures of cumulative total return assumes reinvestment of dividends.
The following table compares total shareholder returns for Tyler over the last five years to the Standard and Poor’s 500 Stock Index and the Standard and Poor’s 600 Information Technology Index assuming a $100 investment made on December 31, 2018. Each of the three measures of cumulative total return assumes reinvestment of dividends.
A summary of the repurchase activity during 2022 is as follows: Period Total number of shares repurchased Additional number of shares authorized that may be repurchased Average price paid per share Maximum number of shares that may be repurchased under current authorization Three months ended March 31 — — — 2,344,200 Three months ended June 30 — — — 2,344,200 Three months ended September 30 — — — 2,344,200 October 1 through October 31 — — — 2,344,200 November 1 through November 30 — — — 2,344,200 December 1 through December 31 — — — 2,344,200 — — — The repurchase program, which was approved by our board of directors, was announced in October 2002, and was amended at various times from 2003 through 2019.
A summary of the repurchase activity during 2023 is as follows: Period Total number of shares repurchased Additional number of shares authorized that may be repurchased Average price paid per share Maximum number of shares that may be repurchased under current authorization Three months ended March 31 — — — 2,270,091 Three months ended June 30 — — — 2,270,091 Three months ended September 30 — — — 2,270,091 October 1 through October 31 — — — 2,270,091 November 1 through November 30 — — — 2,270,091 December 1 through December 31 — — — 2,270,091 — — — The repurchase program, which was approved by our Board of Directors, was announced in October 2002, and was amended at various times from 2003 through 2019.
As of February 22, 2023, we had remaining authorization to repurchase up to 2.3 million additional shares of our common stock. 23 Performance Graph The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
As of February 21, 2024, we had remaining authorization to repurchase up to 2.3 million additional shares of our common stock. 25 Performance Graph The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
Most of our stockholders hold their shares in street name; therefore, there are substantially more than 1,065 beneficial owners of our common stock. We did not pay any cash dividends in 2022 or 2021. Our bank credit agreement contains restrictions on the payment of cash dividends.
Most of our stockholders hold their shares in street name; therefore, there are substantially more than 1,039 beneficial owners of our common stock. We did not pay any cash dividends in 2023 or 2022. Our bank credit agreement contains restrictions on the payment of cash dividends.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is traded on the New York Stock Exchange under the symbol “TYL”. At December 31, 2022, we had approximately 1,065 stockholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is traded on the New York Stock Exchange under the symbol “TYL”. At December 31, 2023, we had approximately 1,039 stockholders of record.
There is no expiration date specified for the authorization, and we intend to repurchase stock under the program from time to time.
There is no expiration date specified for the authorization, and we may repurchase stock under the program from time to time.
There are no warrants or rights related to our equity compensation plans as of December 31, 2022.
There are no warrants or rights related to our equity compensation plans as of December 31, 2023.
Number of securities to be issued upon exercise of outstanding options, warrants, purchase rights and vesting of restricted stock units as of December 31, 2022 Weighted average exercise price of outstanding options and unvested restricted stock units Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in initial column as of December 31, 2022) Plan Category Equity compensation plans approved by security shareholders: 2018 Incentive Stock Plan 2,078,261 263.59 1,254,531 Employee Stock Purchase Plan 11,092 274.05 576,343 Equity compensation plans not approved by security shareholders — — — 2,089,353 $ 263.64 1,830,874 As of December 31, 2022, we had authorization to repurchase up to approximately 2.3 million additional shares of Tyler common stock.
Number of securities to be issued upon exercise of outstanding options, warrants, purchase rights and vesting of restricted stock units as of December 31, 2023 Weighted average exercise price of outstanding options and unvested restricted stock units Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in initial column as of December 31, 2023) Plan Category Equity compensation plans approved by security shareholders: 2018 Incentive Stock Plan 1,870,812 283.09 456,556 Employee Stock Purchase Plan 9,997 355.4 525,881 Equity compensation plans not approved by security shareholders — — — 1,880,809 $ 283.47 982,437 As of December 31, 2023, we had authorization to repurchase up to approximately 2.3 million additional shares of Tyler common stock.
During 2022, we purchased no shares of our common stock.
During 2023, we did not purchase any shares of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCost of revenues and gross margins The following table sets forth a comparison of the key components of our cost of revenues for the years ended December 31 ($ in thousands): Change 2022 2021 $ % Subscriptions, maintenance, and professional services $ 953,897 $ 799,158 $ 154,739 19 % Software licenses and royalties 6,083 3,552 2,531 71 Amortization of software development 6,507 2,325 4,182 180 Amortization of acquired software 52,192 45,601 6,591 14 Appraisal services 23,988 19,061 4,927 26 Hardware and other 23,674 12,946 10,728 83 Total cost of revenues $ 1,066,341 $ 882,643 $ 183,698 21 % 35 The following table sets forth a comparison of gross margin percentage by revenue type for the years ended December 31: 2022 2021 Change Subscriptions, maintenance, and professional services 44.7 % 45.6 % (0.9) % Software licenses, royalties, software development, and acquired software (9.0) 30.9 (39.9) Appraisal services 30.5 31.4 (0.9) Hardware and other 27.0 41.0 (14.0) Overall gross margin 42.4 % 44.6 % (2.2) % Gross margin percentage by revenue type, excluding the incremental impact of recent acquisitions 2 , for the years ended December 31: 2022 2021 Change Subscriptions, maintenance, and professional services 45.8 % 45.6 % 0.2 % Software licenses, royalties, software development, and acquired software 7.1 30.9 (23.8) Appraisal services 30.5 31.4 (0.9) Hardware and other 27.9 41.0 (13.1) Overall gross margin 43.8 % 44.6 % (0.8) % Subscriptions, maintenance, and professional services .
Biggest changeCost of revenues and overall gross margins The following table sets forth a comparison of the key components of our cost of revenues for the years ended December 31 ($ in thousands): Change 2023 2022 $ % Subscriptions, maintenance, and professional services $ 1,001,221 $ 977,885 $ 23,336 2 % Software licenses and royalties 10,821 6,083 4,738 78 Amortization of software development 12,625 6,507 6,118 94 Amortization of acquired software 36,062 52,192 (16,130) (31) Hardware and other 29,923 23,674 6,249 26 Total cost of revenues $ 1,090,652 $ 1,066,341 $ 24,311 2 % Subscriptions, maintenance, and professional services .
We consider off-the-shelf software to be distinct when it can be added to an arrangement with minor changes in the underlying code, it can be used by the customer for the customer’s purpose upon installation, and remaining services such as training are not considered highly interdependent or highly interrelated to the product's functionality. 28 For arrangements that involve significant production, modification or customization of the software, or where professional services are otherwise not considered distinct, we recognize revenue over time by measuring progress-to-completion.
We consider off-the-shelf software to be distinct when it can be added to an arrangement with minor changes in the underlying code, it can be used by the customer for the customer’s purpose upon installation, and remaining services such as training are not considered highly interdependent or highly interrelated to the product's functionality. 30 For arrangements that involve significant production, modification or customization of the software, or where professional services are otherwise not considered distinct, we recognize revenue over time by measuring progress-to-completion.
We believe our cash on hand, cash from operating activities, availability under our revolving line of credit, and access to the credit markets provide us with sufficient flexibility to meet our long-term financial needs.
We believe our cash on hand, cash from operating activities, availability under our revolving line of credit, and access to the capital markets provide us with sufficient flexibility to meet our long-term financial needs.
Cost of Revenues and Gross Margins – Our primary cost component is personnel expenses in connection with providing software implementation, subscription-based services, maintenance and support, and appraisal services to our clients.
Cost of Revenues and Gross Margins – Our primary cost component is personnel expenses in connection with providing software implementation, subscription-based services and maintenance and support to our clients.
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 Our software arrangements with customers contain multiple performance obligations that range from software licenses and SaaS arrangements, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS.
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 Our software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting related to software modification and customization to meet specific customer needs (services), hosting, and PCS.
Other costs included are interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.
Other costs included are merchant and interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.
We also have deferred revenue for those contracts in which we receive a deposit and the conditions in which to record revenue for the service or product have not been met. On a periodic basis, we review by customer the detail components of our deferred revenue to ensure our accounting remains appropriate. 29 Business Combinations.
We also have deferred revenue for those contracts in which we receive a deposit and the conditions in which to record revenue for the service or product have not been met. On a periodic basis, we review by customer the detail components of our deferred revenue to ensure our accounting remains appropriate. 31 Business Combinations.
The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 21% primarily due to excess tax benefits from share-based compensation and the tax benefits of research tax credits, offset by an increase in liabilities for uncertain tax positions, state income taxes, and non-deductible business expenses.
The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 21% primarily due to the tax benefits of research tax credits and excess tax benefits from share-based compensation, offset by liabilities for uncertain tax positions, state income taxes, and non-deductible business expenses.
For a comparison of our Results of Operations for the years ended December 31, 2021, and 2020, and our Cash Flow discussion for the year ended December 2021, see “Part II, Item 7.
For a comparison of our Results of Operations for the years ended December 31, 2022, and 2021, and our Cash Flow discussion for the year ended December 2022, see “Part II, Item 7.
We can improve gross margins by controlling headcount and related costs and by expanding our revenue base, especially from those products and services that produce incremental revenue with minimal incremental cost, such as software licenses and royalties, subscription-based services, and maintenance and support.
We can improve gross margins by controlling headcount and related costs and by expanding our revenue base, especially from those products and services that produce incremental revenue with relatively low incremental cost, such as software licenses and royalties, subscription-based services, and maintenance and support.
If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions (Level 3 inputs).
If the carrying amount of a reporting unit exceeds the fair value of that reporting unit, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions (Level 3 inputs).
There is no expiration date specified for the authorization and we intend to repurchase stock under the plan from time to time. 40 As of December 31, 2022, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026.
There is no expiration date specified for the authorization and we intend to repurchase stock under the plan from time to time. As of December 31, 2023, we had $600 million in outstanding principal for the Convertible Senior Notes due 2026.
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. OVERVIEW General We provide integrated information management solutions and services for the public sector.
These factors and other risks that affect our business are described in Item 1A, “Risk Factors”. We expressly disclaim any obligation to publicly update or revise our forward-looking statements. OVERVIEW General We provide integrated information management solutions and services for the public sector.
When professional services are distinct, the fee allocable to the service element is recognized over the time we perform the services and is billed on a time and material or milestones basis. Subscription-based services consist of revenues derived from SaaS arrangements, transaction and payment processing, electronic filing transactions, and digital government services.
When professional services are distinct, the fee allocable to the service element is recognized over the time we perform the services and is billed on a time and material or milestones basis. Subscription-based services consist primarily of revenues derived from SaaS arrangements and transactions from digital government services; payment processing; and electronic filing (‘‘e-filing”).
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) the continuing effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; (2) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (3) disruption to our business and harm to our competitive position resulting from cyber-attacks and security vulnerabilities; (4) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (5) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (6) material portions of our business require the internet infrastructure to be adequately maintained; (7) 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; (8) general economic, political and market conditions, including inflation and changes in interest rates; (9) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (10) 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; (11) 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 (12) costs of compliance and any failure to comply with government and stock exchange regulations.
We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (2) disruption to our business and harm to our competitive position resulting from cyber-attacks and security vulnerabilities; (3) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (4) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (5) material portions of our business require the Internet infrastructure to be adequately maintained; (6) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (7) general economic, political and market conditions, including continued inflation and rising interest rates; (8) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (9) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (10) the ability to attract and retain qualified personnel and dealing with rising labor costs, the loss or retirement of key members of management or other key personnel; and (11) costs of compliance and any failure to comply with government and stock exchange regulations.
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. Appraisal services.
Subscription-based arrangements generally result in lower revenue in the initial year as compared to perpetual software license arrangements but generate higher overall revenue over the term of the contract.
We believe the following critical accounting policies require significant judgments and estimates used in the preparation of our financial statements. Revenue Recognition. We earn revenues from software licenses, royalties, subscription-based services, professional services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services.
We believe the following critical accounting policies require significant judgments and estimates used in the preparation of our financial statements. Revenue Recognition. We earn the majority of our revenues from subscription-based services and post-contract customer support (“PCS” or “maintenance”). Other sources of revenue are professional services, software licenses and royalties, and hardware and other.
We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. For transaction and payments revenue 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.
We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. For transaction-based revenues, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date.
Management's Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 23, 2022.
Management's Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 21, 2023.
Sales commissions typically fluctuate with revenues and share-based compensation expense generally increases based increased level of awards issues during the period and as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues.
Sales commissions typically fluctuate with revenues and share-based compensation expense generally increases based on increased levels of awards issued during the period and as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues.
The tax benefits related to research tax credits totaled $31.3 million in 2022 compared to $5.0 million in 2021, as a result of completing a multiyear research and development tax credit study during 2022.
The tax benefits related to research tax credits totaled $20.5 million in 2023 compared to $31.3 million in 2022, as a result of completing a multiyear research and development tax credit study during 2022.
During 2022, we have recorded no impairment to goodwill as no triggering events or change in circumstances indicating a potential impairment has occurred as of period-end. Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment.
During 2023, we recorded no impairment to goodwill because no triggering events or change in circumstances indicating a potential impairment had occurred as of period-end. Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment.
We currently believe that our cash on hand, cash provided by operating activities, and available credit are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, and share repurchases for at least the next twelve months. In 2022, operating activities provided cash of $381.5 million compared to $371.8 million in 2021.
We currently believe that our cash on hand, cash provided by operating activities, and available credit are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, and share repurchases for at least the next twelve months. 38 In 2023, operating activities provided cash of $380.4 million, compared to $381.5 million in 2022.
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.
We use a range of amounts to estimate stand- alone selling price (“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 order to pursue such opportunities, which could require significant commitments of capital, we may be required to incur debt or to issue additional potentially dilutive securities in the future. No assurance can be given as to our future acquisition opportunities and how such opportunities will be financed.
From time to time we engage in discussions with potential acquisition candidates. In order to pursue such opportunities, which could require significant commitments of capital, we may be required to incur debt or to issue additional potentially dilutive securities in the future. No assurance can be given as to our future acquisition opportunities and how such opportunities will be financed.
ARR was $1.50 billion and $1.39 billion as of December 31, 2022, and 2021, respectively. ARR increased 8% compared to the prior period, due to an increase in subscriptions revenue due to an ongoing shift toward SaaS arrangements.
ARR was $1.61 billion and $1.50 billion as of December 31, 2023, and 2022, respectively. ARR increased 8% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements.
As of December 31, 2022, our total employee count included in cost of revenues increased to 5,021 from 4,746 at December 31, 2021, including 56 employees who joined us through acquisitions completed since December 31, 2021.
As of December 31, 2023, our total employee count included in cost of revenues increased to 5,129 from 5,021 at December 31, 2022, including 61 employees who joined us through acquisitions completed since December 31, 2022.
Financing activities used cash of $344.2 million in 2022 compared to cash provided of $1.4 billion in 2021, primarily attributable to repayment of $360.0 million of term debt, partially offset by payments received from stock option exercises, net of withheld shares for taxes upon equity award and employee stock purchase plan activity.
Financing activities used cash of $311.8 million in 2023 compared to $344.2 million in 2022, primarily attributable to repayment of $345.0 million of term debt, partially offset by payments received from stock option exercises, net of withheld shares for taxes upon equity award and employee stock purchase plan activity.
With our strong financial position and cash flow, we plan to continue to make significant investments in product development and accelerating our move to the cloud to better position us to continue to expand our addressable market and strengthen our competitive position over the long term.
We expect to continue to achieve solid growth in revenues and earnings. With our strong financial position and cash flow, we plan to continue to make significant investments in product development and continue to accelerate our move to the cloud to better position us to continue to expand our addressable market and strengthen our competitive position over the long term.
The share-based exercise and vesting activity in 2022 generated $7.8 million of excess tax benefits, while exercise and vesting activity in 2021 generated $47.7 million of excess tax benefits.
The share-based exercise and vesting activity in 2023 generated $9.3 million of excess tax benefits, while exercise and vesting activity in 2022 generated $7.8 million of excess tax benefits.
Under our 2021 Credit Agreement, we had $395 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 December 31, 2022. As of December 31, 2022, we had one outstanding letter of credit totaling $1.5 million.
Under our amended 2021 Credit Agreement, we had $50 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 December 31, 2023. As of December 31, 2023, we had one outstanding letter of credit totaling $750,000.
We paid income taxes, net of refunds received, of $38.5 million in 2022, $2.2 million in 2021, and $3.3 million in 2020. In 2022, stock option exercise activity generated net tax benefits of $7.8 million and reduced tax payments accordingly, as compared to $47.7 million and $60.2 million in 2021 and 2020, respectively.
We paid income taxes, net of refunds received, of $142.8 million in 2023, $38.5 million in 2022. In 2023, stock option exercise activity generated net tax benefits of $9.3 million and reduced tax payments accordingly, as compared to $7.8 million in 2022.
The following table sets forth a summary of cash flows for the years ended December 31 (in thousands): 2022 2021 2020 Cash flows provided (used) by: Operating activities $ 381,455 $ 371,753 $ 355,089 Investing activities (172,530) (2,090,935) (98,320) Financing activities (344,239) 1,424,730 114,172 Net (decrease) increase in cash and cash equivalents $ (135,314) $ (294,452) $ 370,941 Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and capital expenditures.
The following table sets forth a summary of cash flows for the years ended December 31 (in thousands): 2023 2022 2021 Cash flows provided (used) by: Operating activities $ 380,440 $ 381,455 $ 371,753 Investing activities (76,960) (172,530) (2,090,935) Financing activities (311,844) (344,239) 1,424,730 Net decrease in cash and cash equivalents $ (8,364) $ (135,314) $ (294,452) Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and capital expenditures.
In addition, we have a sizable amount of deferred revenue, which represents billings in excess of revenue earned. The majority of this liability consists of subscriptions and maintenance billings for which payments are made in advance and the revenue is ratably earned over the subscription or maintenance billing period, generally one year.
The majority of this liability consists of subscriptions and maintenance billings for which payments are made in advance and the revenue is ratably earned over the subscription or maintenance billing period, generally one year.
We develop and market a broad line of software products and services to address the IT needs of public sector entities. We provide subscription-based services such as software as a service (“SaaS”), transaction-based fees primarily related to digital government services and online payment processing, and electronic document filing solutions (“e-filing”), which simplify the filing and management of court related documents.
We develop and market a broad line of software products and services to address the IT needs of public sector entities. We provide subscription-based services such as software as a service (“SaaS”) and transaction-based fees primarily related to digital government services and online payment processing.
The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer and trade name intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years.
Amortization expense related to acquired software is included with cost of revenues while amortization expense of customer related, trade name, and leases acquired intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years.
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 income also includes revenues and expenses related to a company-wide user conference.
Corporate segment operating loss primarily consists of compensation costs for the executive management team, certain shared services staff, and share-based compensation expense for the entire company. Corporate segment operating loss also includes revenues and expenses related to a company-wide user conference. Certain amounts for previous years have been reclassified to conform to the current year presentation.
The following table sets forth a comparison of our S&M expenses for the years ended December 31 ($ in thousands): Change 2022 2021 $ % Sales and marketing expense $ 135,743 $ 118,624 $ 17,119 14 % S&M as a percentage of revenue was 7.3% in 2022 compared to 7.4% in 2021.
The following table sets forth a comparison of our S&M expense for the years ended December 31 ($ in thousands): Change 2023 2022 $ % Sales and marketing expense $ 149,770 $ 135,743 $ 14,027 10 % S&M as a percentage of revenue was 7.7% in 2023 compared to 7.3% in 2022.
Cost of subscriptions, maintenance and professional services primarily consists of personnel costs related to installation of our software, conversion of client data, training client personnel and support activities and various other services such as custom client development, on-going operation of SaaS, digital government, and other transaction-based services such as e-filing.
Cost of subscriptions, maintenance and professional services primarily consists of personnel costs related to installation of our software, conversion of client data, training client personnel and support activities and various other services such as custom development; costs related to our SaaS operations, including hosting costs; and costs related to providing digital government services.
Recoverability of other intangible assets is measured by comparison of the carrying amount to estimated undiscounted future cash flows. The assessment of recoverability or of the estimated useful life for amortization purposes will be affected if the timing or the amount of estimated future operating cash flows is not achieved.
The assessment of recoverability or of the estimated useful life for amortization purposes will be affected if the timing or the amount of estimated future operating cash flows is not achieved.
The following table sets forth a comparison of our G&A expense for the years ended December 31 ($ in thousands): Change 2022 2021 $ % General and administrative expense $ 267,324 $ 271,955 $ (4,631) (2) % G&A as a percentage of revenue was 14.4% in 2022 compared to 17.1% in 2021.
The following table sets forth a comparison of our G&A expense for the years ended December 31 ($ in thousands): Change 2023 2022 $ % General and administrative expense $ 308,575 $ 267,324 $ 41,251 15 % G&A as a percentage of revenue was 15.8% in 2023 compared to 14.4% in 2022.
Our estimated future obligations consist of debt, uncertain tax positions, leases, and purchase commitments as of December 31, 2022. Refer to Note 6, “Debt,” Note 10, “Income Tax,” Note 14, “Leases,” and Note 16, “Commitment and Contingencies,” to the consolidated financial statements for related discussions.
Some of these leases include options to extend for up to six years. 39 Our estimated future obligations consist of debt, uncertain tax positions, leases, and purchase commitments as of December 31, 2023. Refer to Note 10, “Debt,” Note 14, “Income Tax,” Note 18, “Leases,” and Note 21, “Commitment and Contingencies,” to the consolidated financial statements for related discussions.
The expenses associated with the cloud transition are expected to pressure operating margins in 2023 and 2024. CRITICAL ACCOUNTING ESTIMATES Our discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
The repurchase program, which was approved by our board of directors, was originally announced in October 2002 and was amended at various times from 2003 through 2019. As of February 22, 2023, we have authorization from our board of directors to repurchase up to 2.3 million additional shares of our common stock.
In February 2019, our Board of Directors authorized the repurchase of an additional 1.5 million shares of our common stock. The repurchase program, which was approved by our Board of Directors, was originally announced in October 2002 and was amended at various times from 2003 through 2019.
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 the decline in software license revenues will accelerate as we continue to shift our model away from perpetual licenses to SaaS.
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 software license revenues will decline over the next several years as we continue to focus our sales efforts on SaaS arrangements.
Estimated annual amortization expense relating to customer related, trade name, and acquired lease intangibles, excluding acquired software for which the amortization expense is recorded as cost of revenues, for the next five years and thereafter is as follows (in thousands): 2023 $ 70,233 2024 54,141 2025 53,404 2026 52,586 2027 52,143 Thereafter 524,162 Interest expense The following table sets forth a comparison of our interest expense for the years ended December 31 ($ in thousands): Change 2022 2021 $ % Interest expense $ (28,379) $ (23,298) $ (5,081) 22% Interest expense is comprised of interest expense and non-usage and other fees associated with our borrowings .
Estimated annual amortization expense relating to customer related, trade name, and leases acquired intangibles, excluding acquired software for which the amortization expense is recorded as cost of revenues, for the next five years and thereafter is as follows (in thousands): 2024 $ 59,278 2025 55,672 2026 55,044 2027 54,429 2028 53,766 Thereafter 481,132 Interest expense The following table sets forth a comparison of our interest expense for the years ended December 31 ($ in thousands): Change 2023 2022 $ % Interest expense $ (23,629) $ (28,379) $ 4,750 (17)% Interest expense is comprised of interest expense and non-usage and other fees associated with our borrowings .
Operating activities that provided cash were primarily comprised of net income of $164.2 million, non-cash depreciation and amortization charges of $159.1 million, non-cash share-based compensation expense of $103.0 million and non-cash amortization of operating lease right-of-use assets of $13.0 million.
Operating activities that provided cash were primarily comprised of net income of $165.9 million, non-cash depreciation and amortization charges of $154.1 million, non-cash share-based compensation expense of $108.3 million and non-cash amortization of operating lease right-of-use assets of $16.7 million.
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; data and insights; appraisal and tax software solutions; land and vital records management software solutions; and property appraisal services.
The Enterprise Software ("ES") reportable segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: public administration solutions; courts and public safety solutions; education solutions, and property and recording solutions.
Share repurchases are generally funded using our existing cash balances and borrowings under our credit facility and may occur through open market purchases and transactions structured through investment banking institutions, privately negotiated transactions and/or other mechanisms.
Market conditions, as well as the volume of employee stock option exercises, influence the timing of the buybacks and the number of shares repurchased. Share repurchases are generally funded using our existing cash balances and borrowings under our credit facility and may occur through open market purchases and transactions structured through investment banking institutions, privately negotiated transactions and/or other mechanisms.
Share-based compensation expense generally increases as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues. Liquidity and Cash Flows – The primary driver of our cash flows is net income. Uses of cash include acquisitions, capital investments in property and equipment and discretionary purchases of treasury stock.
Share-based compensation expense generally increases based on increased level of awards issued during the period and as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues. Liquidity and Cash Flows – The primary driver of our cash flows is net income.
Working capital, excluding cash, decreased approximately $60.6 million mainly due to timing of payments to and receipts from our government partners, timing of payments of payroll related taxes and vendor invoices, and deferred taxes associated with tax research credits and stock option activity during the period.
Working capital, excluding cash, decreased approximately $73.3 million mainly due to timing of higher tax payments and deferred taxes associated with IRC Section 174, timing of payments to and receipts from our government partners, timing of prepaid expenses and deferred taxes associated with stock option activity during the period.
CAPITALIZATION At December 31, 2022, our capitalization consisted of $987.4 million of outstanding debt and $2.6 billion of shareholders’ equity.
CAPITALIZATION At December 31, 2023, our capitalization consisted of $646.0 million of outstanding debt and $2.9 billion of shareholders’ equity.
The change in other income, net, compared to the prior period is due to increased interest income generated from invested cash as a result of higher interest rates in 2022 compared to 2021. 38 Income tax provision The following table sets forth a comparison of our income tax provision for the years ended December 31 ($ in thousands): Change 2022 2021 $ % Income tax provision (benefit) $ 23,353 $ (2,477) $ 25,830 (1,043) % Effective income tax rate 12.4 % (1.6) % The increase in the income tax provision and the effective income tax rate in 2022 compared to the prior period is principally driven by a decrease in excess tax benefits from share-based compensation and an increase in liabilities for uncertain tax positions, offset by an increase in research tax credit benefits.
Income tax provision The following table sets forth a comparison of our income tax provision for the years ended December 31 ($ in thousands): Change 2023 2022 $ % Income tax provision (benefit) $ 32,317 $ 23,353 $ 8,964 38 % Effective income tax rate 16.3 % 12.4 % The increase in the income tax provision and the effective income tax rate in 2023, compared to the prior period, is principally driven by a decrease in research tax credit benefits, offset by a decrease in liabilities for uncertain tax positions and state taxes and an increase in excess tax benefits from share-based compensation.
We begin with the qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value before applying the quantitative assessment described below. When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its carrying amount.
If the conclusion of this assessment is that it is more likely than not that a reporting unit's fair value is more than its carrying value, we are not required to perform a quantitative impairment test. When testing goodwill for impairment quantitatively, we first compare the estimated fair value of each reporting unit with its carrying amount.
In 2022, G&A expense also included $2.8 million related to lease restructuring and other asset write-offs. Research and development expense Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development.
Our G&A headcount grew by 34 employees since December 31, 2022. In 2023, G&A expense also included $6.4 million related to lease restructuring and other asset write-offs. 36 Research and development expense Research and development (“R&D”) expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development.
New clients who purchase our proprietary software licenses or subscriptions generally also contract with us to provide the related professional services. Existing clients also periodically purchase additional training, consulting and minor programming services. Professional services revenue increased 16% compared to the prior year, primarily due to the inclusion of revenues from recent acquisitions from the date of acquisition.
New clients who purchase our proprietary software licenses or subscriptions generally also contract with us to provide the related professional services. Existing clients also periodically purchase additional training, consulting and minor programming services.
Recent Acquisitions 2022 On October 31, 2022, we acquired Rapid Financial Solutions, LLC, a principal provider of reliable, scalable, and secure payments with best-in-class card issuance and digital disbursement capabilities.
The operating results of ARInspect are included in the operating results of the PT segment since the date of acquisition. 2022 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.
We lease office facilities for use in our operations, as well as transportation and other equipment. Most of our leases are non-cancelable operating lease agreements and they expire from one to 12 years. Some of these leases include options to extend for up to six years.
We lease office facilities for use in our operations, as well as transportation and other equipment. Most of our leases are non-cancelable operating lease agreements with remaining terms of one to 11 years.
The following table sets forth a comparison of our amortization of other intangibles for the years ended December 31 ($ in thousands): Change 2022 2021 $ % Amortization of other intangibles $ 61,363 $ 44,849 $ 16,514 37 % Amortization of other intangibles increased due to the impact of intangibles added with several acquisitions completed in 2022 and 2021.
The following table sets forth a comparison of our amortization of other intangibles for the years ended December 31 ($ in thousands): Change 2023 2022 $ % Amortization of other intangibles $ 74,632 $ 61,363 $ 13,269 22 % Amortization of other intangibles increased 22% primarily due to the accelerated amortization of certain trade name intangibles due to branding changes in 2023 and the impact of intangibles added with several acquisitions completed in 2023 and late 2022.
We currently have no intangible assets with indefinite lives other than goodwill. We assess goodwill for impairment annually, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable.
Goodwill and Other Intangible Assets . We assess goodwill for impairment annually, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. We begin with the qualitative assessment of the likelihood of impairment of each reporting unit.
We maintain allowances for losses and sales adjustments, which losses are recorded against revenues 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.
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.
Percentage of Total Revenues Years Ended December 31, 2022 2021 2020 Revenues: Subscriptions 54.7 % 49.3 % 31.4 % Maintenance 25.3 29.8 41.9 Professional services 13.1 13.2 16.7 Software licenses and royalties 3.2 4.6 6.5 Appraisal services 1.9 1.7 1.9 Hardware and other 1.8 1.4 1.6 Total revenues 100.0 100.0 100.0 Cost of revenues: Subscriptions, maintenance, and professional services 51.6 50.3 45.8 Software licenses, royalties, and amortization of acquired software 3.1 3.1 3.2 Amortization of software development 0.4 0.1 — Appraisal services 1.3 1.2 1.4 Hardware and other 1.3 0.8 1.1 Sales and marketing expense 7.3 7.4 8.8 General and administrative expense 14.4 17.1 14.4 Research and development expense 5.7 5.9 7.9 Amortization of customer and trade name intangibles 3.3 2.8 1.9 Operating income 11.6 11.3 15.5 Interest expense (1.5) (1.5) (0.1) Other income, net 0.1 0.1 0.3 Income before income taxes 10.2 9.9 15.7 Income tax provision (benefit) 1.3 (0.2) (1.8) Net income 8.9 % 10.1 % 17.5 % 2022 Compared to 2021 Revenues Recent 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.
Percentage of Total Revenues Years Ended December 31, 2023 2022 2021 Revenues: Subscriptions 59.4 % 54.7 % 49.3 % Maintenance 23.9 25.3 29.8 Professional services 12.8 15.0 14.9 Software licenses and royalties 2.0 3.2 4.6 Hardware and other 1.9 1.8 1.4 Total revenues 100.0 100.0 100.0 Cost of revenues: Subscriptions, maintenance, and professional services 51.3 52.9 51.5 Software licenses, royalties, and amortization of acquired software 2.4 3.1 3.1 Amortization of software development 0.6 0.4 0.1 Hardware and other 1.5 1.3 0.8 Sales and marketing expense 7.7 7.3 7.4 General and administrative expense 15.8 14.4 17.1 Research and development expense 5.6 5.7 5.9 Amortization of other intangibles 3.8 3.3 2.8 Operating income 11.3 11.6 11.3 Interest expense (1.2) (1.5) (1.5) Other income, net 0.2 0.1 0.1 Income before income taxes 10.3 10.2 9.9 Income tax provision (benefit) 1.7 1.3 (0.2) Net income 8.6 % 8.9 % 10.1 % 33 2023 Compared to 2022 Revenues Subscriptions.
Many of the contracts which give rise to unbilled receivables at a given balance sheet date are subject to billings in the subsequent accounting period. We review unbilled receivables and related contract provisions to ensure we are justified in recognizing revenue prior to billing the customer and that we have objective evidence which allows us to recognize such revenue.
We review unbilled receivables and related contract provisions to ensure we are justified in recognizing revenue prior to billing the customer and that we have objective evidence which allows us to recognize such revenue. In addition, we have a sizable amount of deferred revenue, which represents billings in excess of revenue earned.
The total purchase price, net of cash acquired of $2.2 million, was approximately $67.7 million, consisting of $51.2 million paid in cash, $18.2 million of common stock, and $500,000 related to working capital holdbacks, subject to certain post-closing adjustments. On February 8, 2022, we acquired US eDirect Inc.
The total purchase price, net of cash acquired of $48,000, was approximately $16.3 million, consisting of $9.1 million paid in cash, $5.7 million of common stock and $1.5 million related to working capital and indemnity holdbacks, subject to certain post-closing adjustments. On October 31, 2023, we acquired ARInspect, Inc.
Maintenance revenue decreased 1% compared to the prior period. Maintenance revenue declined mainly due to attrition related to a legacy case management solution and clients converting from on-premises license arrangements to SaaS, partially offset by annual maintenance rate increases and maintenance associated with new software license sales. Annualized Recurring Revenues Subscriptions and maintenance are considered recurring revenue sources.
Maintenance revenue declined slightly compared to the prior period, mainly due to clients converting from on-premises license arrangements to SaaS. The decline was partially offset by annual maintenance rate increases and maintenance associated with new software license sales. Professional services.
The decreases are offset by inclusion of G&A expense from acquisitions of $21.5 million, higher bonus expense due to improved operating results, increases in amortization of software development for internal use, increases in travel-related expenses and other administrative costs, and higher personnel costs from increased employee headcount.
G&A expense increased approximately 15% compared to the prior period. The increase in G&A is primarily attributed to increases in amortization of software development for internal use, travel-related expenses and other administrative costs; higher personnel costs from increased employee headcount and increased costs of health benefits; higher bonus expense due to improved operating results; and increased share-based compensation expense.
These decreases were offset by the timing of tax payments, prepaid expenses, and increase in deferred revenue during the period. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance renewal billings. Our renewal dates occur throughout the year, but our largest renewal billing cycles occur in the second and fourth quarters.
These decreases were offset by the timing of payments of payroll expense and vendor invoices and an increase in deferred revenue during the period. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance renewal billings.
In recent years, 1 Excludes the 2022 incremental impact as a result of not having the recent acquisition for a full fiscal year. 27 we have also received significant amounts of cash from employees exercising stock options and contributing to our Employee Stock Purchase Plan.
In recent years, we have also received significant amounts of cash from employees exercising stock options and contributing to our Employee Stock Purchase Plan.
FINANCIAL CONDITION AND LIQUIDITY As of December 31, 2022, we had cash and cash equivalents of $173.9 million compared to $309.2 million at December 31, 2021. We also had $55.5 million invested in investment grade corporate bonds, municipal bonds and asset-backed securities as of December 31, 2022, compared to $98.7 million at December 31, 2021.
FINANCIAL CONDITION AND LIQUIDITY As of December 31, 2023, we had cash and cash equivalents of $165.5 million compared to $173.9 million at December 31, 2022. We also had $17.4 million invested in investment grade corporate bonds, municipal bonds and asset-backed securities as of December 31, 2023. These investments have varying maturity dates through 2027 and are held as available-for-sale.
Because we rarely experience credit losses with our clients, we have not recorded a material reserve for credit losses. In connection with certain of our contracts, we have recorded retentions receivable or unbilled receivables consisting of costs and estimated profit in excess of billings as of the balance sheet date.
In connection with certain of our contracts, we have recorded retentions receivable or unbilled receivables consisting of costs and estimated profit in excess of billings as of the balance sheet date. Many of the contracts which give rise to unbilled receivables at a given balance sheet date are subject to billings in the subsequent accounting period.
Higher S&M expense is due to higher bonus and commission expense relating to improved operating results, increase in road show and user conference expenses, increase in travel-related expenses, and higher sales and marketing personnel costs from increased employee headcount.
S&M expense increased approximately 10% compared to the prior period. Higher S&M expense is due to higher bonus and commission expense relating to sales growth and improved operating results, an increase in trade show and user conference expenses, travel-related expenses, and share-based compensation expense.
We performed qualitative assessments for the remaining reporting units in which we determined that it not more likely than not that the fair value exceeded the carrying value; therefore, we did not perform a Step 1 quantitative impairment test. Our annual goodwill impairment analysis did not result in an impairment charge.
As a result of these qualitative assessments, we determined that it was more likely than not that the fair value exceeded the carrying value; therefore, we did not perform a Step 1 quantitative impairment test. However, we did perform a quantitative assessment for the platform technologies reporting unit and concluded no impairment existed as of our annual assessment date.
Subscriptions and maintenance are considered recurring revenue sources and comprised approximately 80% of our revenues in 2022. The number of new SaaS clients and the number of existing clients who convert from our traditional software arrangements to our SaaS model are a significant driver of our revenue growth, together with new software license sales and maintenance rate increases.
The number of new SaaS clients and the number of existing clients who convert from our traditional software arrangements to our SaaS model are a significant driver of our revenue growth, together with transaction-based revenues and maintenance rate increases. In addition, we also monitor our client base and attrition, which historically is very low.
(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 $116.5 million, consisting of $118.8 million paid in cash and approximately $4.1 million related to indemnity holdbacks. 2021 On September 9, 2021, we acquired all the equity interest of Ultimate Information Systems, Inc.
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. On February 8, 2022, we acquired US eDirect Inc. (“US eDirect”), a leading provider of technology solutions for campground and outdoor recreation management.
Our mix of new software contracts in 2022 was approximately 23% perpetual software license arrangements and approximately 77% subscription-based arrangements compared to total new client mix in 2021 of approximately 33% perpetual software license arrangements and approximately 67% subscription-based arrangements.
In 2023, we added 632 new SaaS clients and 338 on-premises existing clients elected to convert to our SaaS model. Our mix of new software contracts in 2023 was approximately 83% subscription-based arrangements and 17% perpetual software license arrangements compared to total new client mix in 2022 of approximately 77% subscription-based arrangements and 23% perpetual software license arrangements.
Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results.
Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge.
Any adverse change in these factors could have a significant impact on the recoverability of goodwill or other intangible assets. During 2022, we did not identify any triggering events that would indicate that the carrying amount of our intangible assets may not be recoverable.
Any adverse change in these factors could have a significant impact on the recoverability of goodwill or other intangible assets.
We also expect cash tax payments to be higher as a result of IRC Section 174. Capital spending and cash tax payments are expected to be funded from existing cash balances and cash flows from operations. From time to time we engage in discussions with potential acquisition candidates.
We expect the majority of the other capital spending will consist of computer equipment and software for infrastructure replacements and expansion. We also expect cash tax payments continue to be impacted as a result of IRC Section 174. Capital spending and cash tax payments are expected to be funded from existing cash balances and cash flows from operations.
These investments have varying maturity dates through 2027 and are held as available-for-sale. As of December 31, 2022, we had $395.0 million outstanding borrowings under our 2021 Credit Agreement and one outstanding letter of credit totaling $1.5 million in favor of a client contract.
As of December 31, 2023, we had $50.0 million outstanding borrowings under our amended 2021 Credit Agreement and one outstanding letter of credit totaling $750,000 in favor of a client contract.
Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge. 30 All intangible assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
All intangible assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of other intangible assets is measured by comparison of the carrying amount to estimated undiscounted future cash flows.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and interest rates. As of December 31, 2022, we had $395.0 million of outstanding borrowings under our 2021 Credit Agreement and available borrowing capacity under the 2021 Credit Agreement was $500.0 million.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and interest rates.
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%.
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%.
Based on the aggregate outstanding principal balance under the 2021 Credit Agreement as of December 31, 2022, of $395.0 million, each quarter point change in interest rates would result in a $1.0 million change in annual interest expense. 41 In January 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the SOFR reference rate.
Based on the aggregate outstanding principal balance under the amended 2021 Credit Agreement as of December 31, 2023, of $50.0 million, each quarter of a point change in interest rates would result in a $125,000 change in annual interest expense.
During the twelve months ended December 31, 2022, the effective interest rate for our borrowings was 3.79%.
As of December 31, 2023, we have fully repaid amounts due under Term Loan A-2. For the twelve months ended December 31, 2023, the effective interest rate for our borrowings was 7.63%.
Removed
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%.
Added
As of December 31, 2023, we had $50.0 million of outstanding borrowings under our amended 2021 Credit Agreement and available borrowing capacity under the amended 2021 Credit Agreement was $500.0 million.
Removed
Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.

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