Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following documents are filed as part of this Annual Report:

(a)		(1	)		The financial statements are filed as part of this Annual Report.
							Page
					Reports of Independent Registered Public Accounting Firm		F-1
					Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016		F-3
					Consolidated Balance Sheets as of December 31, 2018 and 2017		F-4
					Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016		F-6
					Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016		F-5
					Notes to Consolidated Financial Statements		F-7
		(2	)		Financial statement schedules:
					There are no financial statement schedules filed as part of this Annual Report, since the required information is included in the financial statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.
		(3	)		Exhibits
					Certain of the exhibits to this Annual Report are hereby incorporated by reference, as specified:

Exhibit Number		Description
3.1		Restated Certificate of Incorporation of Tyler Three, as amended through May 14, 1990, and Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.1 to our Form 10-Q for the quarter ended June 30, 1990, and incorporated by reference herein).
3.2		Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to our Form 8-K, dated February 19, 1998, and incorporated by reference herein).
3.3		Amended and Restated By-Laws of Tyler Corporation, dated October 20, 2015 (filed as Exhibit 3.3 to our Form 10-Q for the quarter ended September 30, 2015, and incorporated by reference herein).
3.4		Certificate of Amendment dated May 19, 1999 to the Restated Certificate of Incorporation (filed as Exhibit 3.4 to our Form 10-K for the year ended December 31, 2000, and incorporated by reference herein).
4.1		Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our registration statement no. 33-33505 and incorporated by reference herein).
4.2		Credit Agreement dated November 16, 2015, among Tyler Technologies, Inc. and Wells Fargo Bank, N. A. as Administrative Agent and other lenders party hereto (filed as Exhibit 10.1 to our Form 8-K dated November 16, 2015, and incorporated by reference herein).
10.1		Employee Stock Purchase Plan (filed as Exhibit 10.1 to our registration statement 333-182318 dated June 25, 2012 and incorporated by reference herein).
10.2		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and John S. Marr Jr. effective February 26, 2018 (filed as Exhibit 10.1 to our Form 8-K dated March 9, 2018 and incorporated by reference herein).

Exhibit Number		Description
10.3		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and Brian K. Miller effective February 26, 2018 (filed as Exhibit 10.3 to our Form 8-K dated March 9, 2018 and incorporated by reference herein). .
10.4		Employment and Non-Competition Agreement between Tyler Technologies, Inc. and H. Lynn Moore, Jr effective February 26, 2018 (filed as Exhibit 10.2 to our Form 8-K dated March 9, 2018 and incorporated by reference herein).
10.5		Agreement and plan of merger by and among Tyler Technologies, Inc. and Dedomena Acquisition, Inc., Socrata, Inc (filed as Exhibit 10.4 to our Form 10-Q dated May 10, 2018 and incorporated by reference herein).
10.6		Tyler Technologies, Inc. 2018 Stock Option Plan effective as of May 9, 2018 (filed as Appendix A to the registrant's Proxy Statement filed with the Commission on March 28, 2018 and incorporated by reference herein).
10.7		Agreement and Plan of Merger by and among Tyler Technologies, Inc, TMP, Subsidiary, Inc, MP Holding Parent, Inc.
*23		Consent of Independent Registered Public Accounting Firm.
*31.1		Rule 13a-14(a) Certification by Principal Executive Officer.
*31.2		Rule 13a-14(a) Certification by Principal Financial Officer.
*32		Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
*101		Instance Document
*101		Schema Document
*101		Calculation Linkbase Document
*101		Labels Linkbase Document
*101		Definition Linkbase Document
*101		Presentation Linkbase Document

*	— Filed herewith.

A copy of each exhibit may be obtained at a price of 15 cents per page, with a $10.00 minimum order, by writing Investor Relations, 5101 Tennyson Parkway, Plano, Texas, 75024.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		TYLER TECHNOLOGIES, INC.
Date: February 20, 2019		By:		/s/ H. Lynn Moore
				H. Lynn Moore
				President and Chief Executive Officer
				(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below.

Date: February 20, 2019		By:		/s/ John S. Marr
				John S. Marr
				Executive Chairman of the Board
				Director
Date: February 20, 2019		By:		/s/ H. Lynn Moore
				H. Lynn Moore
				President and Chief Executive Officer
				(principal executive officer)
Date: February 20, 2019		By:		/s/ Brian K. Miller
				Brian K. Miller
				Executive Vice President and Chief Financial Officer
				(principal financial officer)
Date: February 20, 2019		By:		/s/ W. Michael Smith
				W. Michael Smith
				Chief Accounting Officer
				(principal accounting officer)
Date: February 20, 2019		By:		/s/ Donald R. Brattain
				Donald R. Brattain
				Director
Date: February 20, 2019		By:		/s/ Glenn A. Carter
				Glenn A. Carter
				Director
Date: February 20, 2019		By:		/s/ Brenda A. Cline
				Brenda A. Cline
				Director

Date: February 20, 2019		By:		/s/ J. Luther King
				J. Luther King
				Director
Date: February 20, 2019		By:		/s/ Daniel M. Pope
				Daniel M. Pope
				Director
Date: February 20, 2019		By:		/s/ Dustin R.Womble
				Dustin R. Womble
				Director

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Tyler Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Tyler Technologies, Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of comprehensive income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2019 expressed an unqualified opinion thereon.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 1966.

Dallas, Texas

February 20, 2019

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Tyler Technologies, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Tyler Technologies, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Tyler Technologies, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated February 20, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ ERNST & YOUNG LLP

Dallas, Texas

February 20, 2019

F-2

Tyler Technologies, Inc.

Consolidated Statements of Comprehensive Income

For the years ended December 31

(In thousands, except per share amounts)

	2018				2017				2016
					As Adjusted				As Adjusted
Revenues:
Software licenses and royalties	$	93,441			$	86,242			$	83,733
Subscriptions	220,547				172,176				142,657
Software services	191,269				180,460				171,648
Maintenance	384,521				359,319				320,998
Appraisal services	21,846				25,023				26,287
Hardware and other	23,658				17,679				14,557
Total revenues	935,282				840,899				759,880
Cost of revenues:
Software licenses and royalties	3,802				3,321				2,964
Acquired software	22,972				21,686				22,235
Software services, maintenance and subscriptions	438,923				387,634				348,939
Appraisal services	14,299				16,286				16,411
Hardware and other	15,708				12,595				10,143
Total cost of revenues	495,704				441,522				400,692
Gross profit	439,578				399,377				359,188
Selling, general and administrative expenses	207,605				175,914				165,176
Research and development expense	63,264				47,324				43,154
Amortization of customer and trade name intangibles	16,217				13,381				13,202
Operating income	152,492				162,758				137,656
Other income (expense), net	3,378				698				(1,998		)
Income before income taxes	155,870				163,456				135,658
Income tax provision (benefit)	8,408				(6,115		)		21,957
Net income	$	147,462			$	169,571			$	113,701
Earnings per common share:
Basic	$	3.84			$	4.55			$	3.12
Diluted	$	3.68			$	4.32			$	2.92

See accompanying notes.

F-3

Tyler Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except par value and share amounts)

	December 31, 2018				December 31, 2017
					As Adjusted
ASSETS
Current assets:
Cash and cash equivalents	$	134,279			$	185,926
Accounts receivable (less allowance for losses of $4,647 in 2018 and $5,427 in 2017)	298,912				246,188
Short-term investments	44,306				43,159
Prepaid expenses	33,258				32,206
Income tax receivable	4,697				11,339
Other current assets	3,406				1,997
Total current assets	518,858				520,815
Accounts receivable, long-term	16,020				12,107
Property and equipment, net	155,177				152,315
Other assets:
Goodwill	753,718				657,987
Other intangibles, net	276,852				229,617
Non-current investments and other assets	70,338				38,510
	$	1,790,963			$	1,611,351
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,910			$	8,174
Accrued liabilities	66,480				64,675
Deferred revenue	350,512				298,613
Total current liabilities	423,902				371,462
Revolving line of credit	—				—
Deferred revenue, long-term	424				1,274
Deferred income taxes	41,791				46,879
Commitments and contingencies
Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—				—
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued in 2018 and 2017	481				481
Additional paid-in capital	731,435				626,867
Accumulated other comprehensive loss, net of tax	(46		)		(46		)
Retained earnings	771,925				624,463
Treasury stock, at cost; 9,872,505 and 10,262,182 shares in 2018 and 2017, respectively	(178,949		)		(60,029		)
Total shareholders' equity	1,324,846				1,191,736
	$	1,790,963			$	1,611,351

See accompanying notes.

F-4

Tyler Technologies, Inc.

Consolidated Statements of Cash Flows

For the years ended December 31

(In thousands)

	2018				2017				2016
					As Adjusted				As Adjusted
Cash flows from operating activities:
Net income	$	147,462			$	169,571			$	113,701
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	61,759				53,395				49,773
Share-based compensation expense	52,740				37,348				29,747
Provision for losses - accounts receivable	2,286				4,110				4,484
Deferred income tax benefit	(5,069		)		(33,664		)		(26,432		)
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	(53,771		)		(35,170		)		(34,760		)
Income tax receivable	6,642				(8,444		)		18,185
Prepaid expenses and other current assets	(588		)		(6,958		)		246
Accounts payable	(2,416		)		878				387
Accrued liabilities	(2,445		)		6,050				10,717
Deferred revenue	43,603				8,639				25,811
Net cash provided by operating activities	250,203				195,755				191,859
Cash flows from investing activities:
Cost of acquisitions, net of cash acquired	(178,093		)		(11,344		)		(9,394		)
Purchase of marketable security investments	(115,625		)		(59,779		)		(20,316		)
Proceeds from marketable security investments	81,205				28,786				16,837
Additions to property and equipment	(27,424		)		(43,057		)		(37,726		)
Decrease (increase) in other	1,682				(1		)		(121		)
Net cash used by investing activities	(238,255		)		(85,395		)		(50,720		)
Cash flows from financing activities:
Decrease in net borrowings on revolving line of credit	—				(10,000		)		(56,000		)
Purchase of treasury shares	(146,553		)		(7,474		)		(111,838		)
Contributions from employee stock purchase plan	8,051				7,044				6,236
Proceeds from exercise of stock options	74,907				49,845				23,527
Net cash (used) provided by financing activities	(63,595		)		39,415				(138,075		)
Net (decrease) increase in cash and cash equivalents	(51,647		)		149,775				3,064
Cash and cash equivalents at beginning of period	185,926				36,151				33,087
Cash and cash equivalents at end of period	$	134,279			$	185,926			$	36,151

See accompanying notes.

F-5

Tyler Technologies, Inc.

Consolidated Statements of Shareholders’ Equity

For the years ended December 31, 2018, 2017 and 2016

(In thousands)

	Common Stock							Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Treasury Stock							Total Shareholders' Equity
	Shares			Amount							Shares			Amount
Balance at December 31, 2015 (As Adjusted)	48,148			$	481			$	607,755			$	(46	)		$	341,191			(11,374	)		$	(75,352	)		$	874,029
Net income	—			—				—				—				113,701				—			—				113,701
Issuance of shares pursuant to stock compensation plan	—			—				(82,273		)		—				—				827			105,800				23,527
Stock compensation	—			—				29,747				—				—				—			—				29,747
Issuance of shares pursuant to employee stock purchase plan	—			—				1,434				—				—				47			4,802				6,236
Treasury stock purchases	—			—				—				—				—				(882	)		(112,699		)		(112,699		)
Balance at December 31, 2016 (As Adjusted)	48,148			481				556,663				(46		)		454,892				(11,382	)		(77,449		)		934,541
Net income	—			—				—				—				169,571				—			—				169,571
Issuance of shares pursuant to stock compensation plan	—			—				28,174				—				—				1,113			21,671				49,845
Stock compensation	—			—				37,348				—				—				—			—				37,348
Issuance of shares pursuant to employee stock purchase plan	—			—				4,682				—				—				51			2,362				7,044
Treasury stock purchases	—			—				—				—				—				(44	)		(6,613		)		(6,613		)
Balance at December 31, 2017 (As Adjusted)	48,148			481				626,867				(46		)		624,463				(10,262	)		(60,029		)		1,191,736
Net income	—			—				—				—				147,462				—			—				147,462
Issuance of shares pursuant to stock compensation plan	—			—				44,458				—				—				1,126			30,449				74,907
Stock compensation	—			—				52,740				—				—				—			—				52,740
Issuance of shares pursuant to employee stock purchase plan	—			—				7,370				—				—				45			681				8,051
Treasury stock purchases	—			—				—				—				—				(781	)		(150,050		)		(150,050		)
Balance at December 31, 2018	48,148			$	481			$	731,435			$	(46	)		$	771,925			(9,872	)		$	(178,949	)		$	1,324,846

See accompanying notes.

F-6

Tyler Technologies, Inc.

Notes to Consolidated Financial Statements

(Tables in thousands, except per share data)

(1)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include our parent company and two subsidiaries, which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). We had no items of other comprehensive income (loss) during the years ended December 31, 2018, 2017 and 2016.

CASH AND CASH EQUIVALENTS

Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-producing investments. Investments with original maturities of three months or less are classified as cash and cash equivalents, which primarily consist of cash on deposit with several banks and money market funds. Cash and cash equivalents are stated at cost, which approximates market value.

REVENUE RECOGNITION

Nature of Products and Services

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

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

•	Identification of the performance obligations in the contract

•	Determination of the transaction price

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

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

Most of our software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include software services, such as training or installation, are evaluated to determine whether those services are highly interdependent or interrelated to the product’s functionality. The transaction price is allocated to the distinct performance obligations on a relative standalone selling price (“SSP”) basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.

F-7

Software Arrangements:

Software Licenses and Royalties

Many of our software arrangements involve “off-the-shelf” software. We recognize the revenue allocable to "off-the-shelf" software licenses and specified upgrades at a point in time when control of the software license transfers to the customer, unless the software is not considered distinct. 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 interrelated to the product's functionality.

For arrangements that involve significant production, modification or customization of the software, or where software 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. These arrangements are often implemented over an extended period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

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. 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.

We recognize royalty revenue when the sale occurs under the terms of our third-party royalty arrangements. Currently, our third-party royalties are recognized on an estimated basis and are trued up when we receive notice of amounts we are entitled to receive. We typically receive notice of royalty revenues we are entitled to and billed on a quarterly basis in the quarter immediately following the royalty reporting period.

Software Services

As noted above, some of our software arrangements include services considered highly interdependent or highly interrelated or require significant customization to meet the customer's desired functionality. For these software arrangements, both the software licenses and related software services revenue are not distinct and are recognized over time using the progress-to-completion method. 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. Contract fees are typically billed on a milestone basis as defined within contract terms. 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. When software 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 basis.

Post-Contract Customer Support

Our customers generally enter into PCS agreements when they purchase our software licenses. PCS includes telephone support, bug fixes, and rights to upgrades on a when-and-if available basis. PCS is considered distinct when purchased with our software licenses. Our PCS agreements are typically renewable annually. PCS is recognized over time on a straight-line basis over the period the PCS is provided. All significant costs and expenses associated with PCS are expensed as incurred.

Computer Hardware Equipment

Revenue allocable to computer hardware equipment is recognized at a point in time when control of the equipment is transferred to the customer.

Subscription-Based Services:

Subscription-based services consist of revenues derived from SaaS arrangements, which primarily utilize the Tyler private cloud, and electronic filing transactions. Revenue from subscription-based services is generally recognized over time on a ratable basis over the contract term, beginning on the date that our service is made available to the customer. Our subscription contracts are generally three to five years or longer in length, billed annually in advance, and non-cancelable.

F-8

For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software. We allocate contract value to each performance obligation of the arrangement that qualifies for treatment as a distinct element based on estimated SSP. When it is determined that software is distinct, and the customer has the ability to take control of the software, we recognize revenue allocable to the software license fee when access to the software license is made available to the customer. We recognize hosting services ratably over the term of the arrangement, which range from one to ten years but are typically for a period of three to five years. For software services associated with certain SaaS arrangements, we have concluded that the services are not distinct, and we recognize the revenue ratably over the remaining contractual period once we have provided the customer access to the software. 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.

Electronic filing transaction fees primarily pertain to documents filed with the courts by attorneys and other third-parties via our e-filing services and retrieval of filed documents via our access services. For each document filed with a court, the filer generally pays a transaction fee and a court filing fee to us and we remit a portion of the transaction fee and the filing fee to the court. We record as revenue the transaction fee, while the portion of the transaction fee remitted to the courts is recorded as cost of sales as we are acting as a principal in the arrangement. Court filing fees collected on behalf of the courts and remitted to the courts are recorded on a net basis and thus do not affect the statement of comprehensive income. For e-filing transaction fees, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date. Therefore, we recognize revenue for these services over time based on the amount billable to the customer in accordance with the 'as invoiced' practical expedient in ASC 606-10-55-18. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period.

Costs of performing services under subscription-based arrangements are expensed as incurred, except for certain direct and incremental contract origination and set-up costs associated with SaaS arrangements. Such direct and incremental costs are capitalized and amortized ratably over the useful life.

Appraisal Services:

For our property appraisal projects, we recognize revenue using the progress-to-completion method since many of these projects are implemented over one to three-year periods and consist of various unique activities. Appraisal services require a significant level of integration and interdependency with various individual service components; therefore, the service components are not considered distinct. Appraisal services are recognized over time by measuring 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. These arrangements are often implemented over an extended period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent. Contract fees are typically billed on a milestone basis as defined within contract terms. 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.

Significant Judgments:

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

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

F-9

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

Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates additional revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably and its realization is probable.

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

Contract Balances:

Accounts receivable and allowance for doubtful accounts

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

We maintain allowances for doubtful accounts, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for doubtful accounts may require revision include, but are not limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products.

The following table summarizes the changes in the allowances for doubtful accounts and sales adjustments:

	Years Ended December 31,
	2018				2017				2016
Balance at beginning of year	$	5,427			$	3,396			$	1,640
Provisions for losses - accounts receivable	2,286				4,110				4,484
Collection of accounts previously written off	—				—				—
Deductions for accounts charged off or credits issued	(3,066		)		(2,079		)		(2,728		)
Balance at end of year	$	4,647			$	5,427			$	3,396

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.

F-10

In connection with our appraisal services contracts and certain software services contracts, we may perform work prior to when the software and services are billable and/or payable pursuant to the contract. Unbilled revenue is not billable at the balance sheet date but is recoverable over the remaining life of the contract through billings made in accordance with contractual agreements. The termination clauses in most of our contracts provide for the payment for the value of products delivered or services performed in the event of early termination. We have historically recorded such unbilled receivables (costs and estimated profit in excess of billings) in connection with (1) property appraisal services contracts accounted for using progress-to-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing normally occurs subsequently and may span another accounting period; (2) software services contracts accounted for using progress-to-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing for the software element of the arrangement may be based upon the specific phase of the implementation; (3) software revenue for which we have recognized revenue at the point in time when the software is made available to the customer but the billing has not yet been submitted to the customer; (4) some of our contracts which provide for an amount to be withheld from a progress billing (generally between 5% and 20% retention) until final and satisfactory project completion is achieved; and (5) in a limited number of cases, extended payment terms, which may be granted to customers with whom we generally have a long-term relationship and favorable collection history.

The opening balance of current and long-term accounts receivable, net of allowance for doubtful accounts, was $226.8 million (as adjusted) as of January 1, 2017.

As of December 31, 2018, and December 31, 2017, total current and long-term accounts receivable, net of allowance for doubtful accounts, was $314.9 million and $258.3 million (as adjusted), respectively. We have recorded unbilled receivables of $104.2 million and $64.6 million (as adjusted) at December 31, 2018, and December 31, 2017, respectively. Included in unbilled receivables are retention receivables of $12.2 million and $7.2 million at December 31, 2018, and December 31, 2017, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying consolidated balance sheets.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of our invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with revenue recognized ratably over the contract period, and multi-year on-premises term licenses that are invoiced annually with revenue recognized upfront.

Deferred Revenue

The majority of deferred revenue consists of deferred maintenance revenue that has been billed based on contractual terms in the underlying arrangement, with the remaining balance consisting of payments received in advance of revenue being earned under software licensing, subscription-based services, software and appraisal services and hardware installation. Refer to Note 16 - Deferred Revenue and Performance Obligations for further information, including deferred revenue by segment and changes in deferred revenue during the period.

Deferred Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three to seven years. We utilized the 'portfolio approach' practical expedient in ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics because the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts. Using the 'portfolio approach', we determined the period of benefit by taking into consideration our customer contracts, our technology life-cycle and other factors. Sales commissions for renewal contracts are generally not paid in connection with the renewal of a contract. In the small number of instances where a commission is paid on a renewal, it is not commensurate with the commission paid on the initial sale and is recognized over the term of renewal, which is generally one year. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying consolidated statements of income. Refer to Note 17 - Deferred Commissions for further information.

Prepaid expenses and other current assets include direct and incremental costs such as commissions associated with arrangements for which revenue recognition has been deferred. Such costs are expensed at the time the related revenue is recognized.

F-11

USE OF ESTIMATES

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, determining the nature and timing of satisfaction of performance obligations, and determining the SSP of performance obligations, variable consideration, and other obligations such as returns and refunds; loss contingencies; the estimated useful life of deferred commissions; the carrying amount and estimated useful lives of intangible assets; determining share-based compensation expense; the valuation allowance for receivables; and determining the potential outcome of future tax consequences of events that have been recognized on our consolidated financial statements or tax returns. Actual results could differ from estimates.

PROPERTY AND EQUIPMENT, NET

Property, equipment and purchased software are recorded at original cost and increased by the cost of any significant improvements after purchase. We expense maintenance and repairs when incurred. Depreciation and amortization is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in the case of leasehold improvements. For income tax purposes, we use accelerated depreciation methods as allowed by tax laws.

RESEARCH AND DEVELOPMENT COSTS

We expensed research and development costs of $63.3 million in 2018, $47.3 million in 2017, and $43.2 million in 2016.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the income statement). The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be "realized." On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate U.S. federal tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. Under ASC 740 Income Taxes, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. See Note 7 - "Income Tax" for further discussion related to the Tax Act.

SHARE-BASED COMPENSATION

We have a share-based award plan that provides for the grant of stock options, restricted stock units, and performance share units to key employees, directors and non-employee consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. Restricted stock unit grants generally vest ratably over three to five years of continuous service from the date of grant. Each performance share unit represents the right to receive one share of our common stock based on our achievement of certain financial performance targets during applicable performance periods. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation. See Note 9 – “Share-Based Compensation” for further information.

F-12

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identifiable intangible assets, in connection with our business combinations. Upon acquisition, goodwill is assigned to the reporting unit that is expected to benefit from the synergies of the business combination, which is the reporting unit to which the related acquired technology is assigned. A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by executive management.

We assess goodwill for impairment annually as of April 1st, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. 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. If it is determined through the evaluation of events or circumstances that the carrying value may not be recoverable, we perform a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities of that unit. If the sum of the carrying value of the assets and liabilities of a reporting unit exceeds the estimated fair value of that reporting unit, the carrying value of the reporting unit's goodwill is reduced to its fair value through an adjustment to the goodwill balance, resulting in an impairment charge. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization.

We did not record any goodwill impairment charges for the years ended December 31, 2018 and 2017. See Note 4 - Goodwill and Other Intangible Assets, for additional information.

Other Intangible Assets

We make judgments about the recoverability of purchased intangible assets other than goodwill whenever events or changes in circumstances indicate that an impairment may exist. Customer base and acquired software each comprise approximately half of our purchased intangible assets other than goodwill. We review our customer turnover each year for indications of impairment. Our customer turnover has historically been very low. If indications of impairment are determined to exist, we measure the recoverability of assets by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. There have been no significant impairments of intangible assets in any of the periods presented.

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically evaluate whether current facts or circumstances indicate that the carrying value of our property and equipment or other long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, we measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset or appropriate grouping of assets and the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There have been no significant impairments of long-lived assets in any of the periods presented.

COSTS OF COMPUTER SOFTWARE

We capitalize software development costs upon the establishment of technological feasibility and prior to the availability of the product for general release to customers. Software development costs primarily consist of personnel costs and rent for related office space. We begin to amortize capitalized costs when a product is available for general release to customers. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the product’s remaining estimated economic life. We have not capitalized any internal software development costs in any of the periods presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, accounts receivables, accounts payables, short-term obligations and certain other assets at cost approximate fair value because of the short maturity of these instruments. The fair value of our revolving line of credit would approximate book value as of December 31, 2018, because our interest rates reset approximately every 30 days or less. See Note 6 – “Revolving Line of Credit” for further discussion.

F-13

As of December 31, 2018, we have $97.7 million in investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates ranging from 2018 through 2022. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or from other observable market data. These investments are included in short-term investments and non-current investments and other assets.

As of December 31, 2018, we have $15.0 million invested in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in convertible preferred stock is accounted under the cost method because we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values. Our investment is carried at cost less any impairment write-downs. Annually, our cost method investments are assessed for impairment. We do not reassess the fair value of cost method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. There has been no impairment of our cost method investment for the periods presented. This investment is included in non-current investments and other assets in the accompanying consolidated balance sheets.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable from trade customers, and investments in marketable securities. Our cash and cash equivalents primarily consist of operating account balances and money market funds, which are maintained at several major domestic financial institutions and the balances often exceed insured amounts. As of December 31, 2018, we had cash and cash equivalents of $134.3 million. We perform periodic evaluations of the credit standing of these financial institutions.

Concentrations of credit risk with respect to receivables are limited due to the size and geographical diversity of our customer base. Historically, our credit losses have not been significant. As a result, we do not believe we have any significant concentrations of credit risk as of December 31, 2018.

We maintain allowances for doubtful accounts, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for doubtful accounts may require revision include, but are not limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products.

INDEMNIFICATION

Most of our software license agreements indemnify our customers in the event that the software sold infringes upon the intellectual property rights of a third-party. These agreements typically provide that in such event we will either modify or replace the software so that it becomes non-infringing or procure for the customer the right to use the software. We have recorded no liability associated with these indemnifications, as we are not aware of any pending or threatened infringement actions that are possible losses. We believe the estimated fair value of these intellectual property indemnification clauses is minimal.

We have also agreed to indemnify our officers and board members if they are named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity. We maintain directors’ and officers’ liability insurance coverage to protect against any such losses. We have recorded no liability associated with these indemnifications. Because of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal.

RECLASSIFICATIONS

Certain amounts for previous years have been reclassified to conform to the current year presentation.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. Topic 606 also includes Subtopic 340-40 Other Assets and Deferred Costs - Contracts with Customers, which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, we refer to ASU No. 2014-09 and Subtopic 340-40 as the "new standard."

F-14

We adopted the requirements of the new standard as of January 1, 2018, utilizing the full retrospective method of transition. Adoption of the new standard resulted in changes to our accounting policies for revenue recognition, trade and other receivables, and deferred commissions as detailed below. We applied the new standard using a practical expedient where the consideration allocated to the remaining performance obligations or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before the date of the initial application is not disclosed.

The impact of adopting ASU No. 2014-09 on our total revenues for 2017 and 2016 was not material. The impact of adopting the new standard on our retained earnings and deferred commissions is material. The most significant impact of the new standard relates to our accounting for software license revenue. Specifically, under the new standard, software license fees under perpetual agreements are no longer subject to 100% discount allocations from other performance obligations in the contract. Discounts in arrangements are allocated across all performance obligations increasing license revenues and decreasing revenues allocated to other performance obligations. In addition, in most cases, net license fees (total license fees less any allocated discounts) are recognized at the point in time when control of the software license transfers to the customer versus our legacy policy of recognizing revenue upon delivery and only to the extent billable per the contractual terms. Under the new standard, time-based license fees are no longer recognized over the contractual period of the license and are instead recognized at the point in time when the control of the software license transfers to the customer. Revenues related to our PCS renewals, SaaS offerings and appraisal services remain substantially unchanged. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the new standard is dependent on contract-specific terms and may vary in some instances from recognition at the time of billing.

Adoption of the new standard requires that incremental costs directly related to obtaining a contract (typically sales commissions) must be recognized as an asset and expensed on a systematic basis that is consistent with the transfer to the customer of the goods and services to which the asset relates, unless that life is less than one year. Prior to adoption of the new standard, we deferred sales commissions and recognized expense over the relevant initial contractual term, which was generally one to two years. Under the new standard, we amortize these costs over a period of benefit that we have determined to be three to seven years.

We adjusted our consolidated financial statements from amounts previously reported due to the adoption of the new standard. Select unaudited condensed consolidated statement of income line items, which reflect the adoption of the new standard, are as follows (in thousands, except per share data):

		December 31, 2017												December 31, 2016
		As Reported				Adjustments				As Adjusted				As Reported				Adjustments				As Adjusted
Statement of Income:
Software licenses and royalties		$	75,694			$	10,548			$	86,242			$	74,306			$	9,427			$	83,733
Subscriptions		173,510				(1,334		)		172,176				142,704				(47		)		142,657
Software services		187,149				(6,689		)		180,460				174,804				(3,156		)		171,648
Maintenance		361,569				(2,250		)		359,319				322,969				(1,971		)		320,998
Appraisal services		25,023				—				25,023				26,287				—				26,287
Hardware and other		17,717				(38		)		17,679				14,973				(416		)		14,557
Total revenues		840,662				237				840,899				756,043				3,837				759,880
Selling, general and administrative expenses		176,974				(1,060		)		175,914				167,161				(1,985		)		165,176
Amortization of customer and trade name intangibles		13,912				(531		)		13,381				13,731				(529		)		13,202
Operating income		160,930				1,828				162,758				131,305				6,351				137,656
Income tax (benefit) provision		(2,317		)		(3,798		)		(6,115		)		19,450				2,507				21,957
Net income		$	163,945			$	5,626			$	169,571			$	109,857			$	3,844			$	113,701
Earnings per common share:
Basic		$	4.40							$	4.55			$	3.01							$	3.12
Diluted		$	4.18							$	4.32			$	2.87							$	2.92

F-15

Select condensed consolidated balance sheet line items, which reflect the adoption of the new standard, are as follows (in thousands):

	December 31, 2017
	As Reported				Adjustments				As Adjusted
Balance Sheet:
Accounts receivable	$	227,127			$	19,061			$	246,188
Prepaid expenses	27,252				4,954				32,206
Accounts receivable, long-term	7,536				4,571				12,107
Other intangibles, net	236,444				(6,827		)		229,617
Total assets	1,589,592				21,759				1,611,351
Deferred revenue	309,461				(10,848		)		298,613
Deferred income taxes	38,914				7,965				46,879
Retained earnings	599,821				24,642				624,463
Total liabilities and shareholders' equity	$	1,589,592			$	21,759			$	1,611,351

Our adoption of ASU No. 2014-09 had no impact on our net cash provided by or used in operating, investing or financing activities for any of the periods reported.

Recent tax legislation. On December 22, 2017, the Tax Cuts and Jobs Act ("Tax Act") was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for businesses and individuals. For businesses, the Tax Act reduces the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. The Tax Act also adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and a tax on global intangible low-taxed income (GILTI). The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate. Refer to Note 7 - Income Tax Provision for further information.

NEW ACCOUNTING PRONOUNCEMENTS

Recent Accounting Guidance not yet Adopted

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

•	A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

•	A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Topic 842 is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early application is permitted for all business entities upon issuance. Upon adoption, entities will be required to use a modified retrospective approach with an option to use certain practical expedients. We expect to adopt ASU 2016-02 when effective, using the transition method that allows us to initially apply the guidance at the adoption date of January 1, 2019, and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We expect to use the package of practical expedients that allows us to not reassess: (1) lease classification for any expired or existing leases and (2) initial direct costs for any expired or existing leases. We expect ASU 2016-02 will impact our consolidated financial statements and related disclosures. We are currently evaluating the extent of the impact and expect that most of our lease commitments will be subject to the updated guidance and recognized as lease liabilities and right-of-use assets on our consolidated balance sheets upon adoption. Based on our current portfolio of leases, we estimate a range of $15.5 million to $17.8 million of lease assets and liabilities to be recognized on our balance sheet, primarily relating to office facilities.

F-16

(2)	ACQUISITIONS

2018

On December 7, 2018, we acquired certain assets and intellectual property of SceneDoc, Inc.("SceneDoc"), a company that provides mobile-first, SaaS field reporting for law enforcement agencies. The total purchase price was approximately $6.2 million, of which $5.4 million was paid in cash and approximately $759,000 accrued for a working capital holdback, subject to certain post-closing adjustments.

On October 1, 2018, we acquired all of the equity interests of TradeMaster, Inc. dba MobileEyes ("MobileEyes"), a company that develops SaaS software to improve public safety by supporting fire prevention and suppression, emergency response, and structural safety. The total purchase price was approximately $5.3 million in cash.

On August 31, 2018, we acquired all of the assets of CaseloadPRO, L. P., a company that provides a fully featured SaaS probation case management system. The purchase price of $9.3 million was paid in cash.

On April 30, 2018, we acquired all of the capital stock of Socrata, Inc.("Socrata"), a company that provides open data and data-as-a-service solutions including cloud-based data integration, visualization, analysis, and reporting solutions for state and local government agencies. The purchase price, net of cash acquired of $1.7 million, was $147.6 million paid in cash.

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

In thousands
Cash		$	1,724
Accounts receivable		3,616
Other current assets		2,057
Other noncurrent assets		68
Deferred tax assets, net		20
Identifiable intangible assets		75,000
Goodwill		75,657
Accounts payable		(1,254		)
Accrued expenses		(1,604		)
Deferred revenue		(5,915		)
Total consideration		$	149,369

In connection with this transaction, we acquired total tangible assets of $7.5 million and assumed liabilities of approximately $8.8 million. We recorded goodwill of $75.7 million, none of which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately $75.0 million. The $75.0 million of intangible assets are attributable to customer relationships, acquired software, and trade name and will be amortized over a weighted average period of approximately 14 years. We recorded deferred tax assets, net of approximately $20,000 related to estimated fair value allocations. Socrata’s solutions are a direct complement to our current offerings and will provide a new and important additional revenue stream. By offering Socrata within virtually every Tyler product suite, our clients will have the opportunity to make their existing data discoverable, usable and actionable, but more importantly, potentially include data from other agencies and jurisdictions to make analysis even more powerful and meaningful. Therefore, the goodwill of $75.7 million arising from this acquisition is primarily attributed to our ability to integrate Socrata's solutions with our existing portfolio and to generate increased revenues, earnings and cash flow by leveraging our sales resources and client base. Our final valuation of the fair market value of Socrata's assets and liabilities resulted in adjustments to the preliminary opening balance sheet. These adjustments related to a reduction in deferred income taxes and accrued expenses resulting in a net decrease to goodwill of approximately $3.3 million. We also incurred fees of approximately $578,000 for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete the acquisition. These fees were expensed in 2018 and are included in selling, general and administrative expenses.

F-17

The following unaudited pro forma information of the consolidated results of operations have been prepared as if the Socrata acquisition had occurred at January 1, 2017, after giving effect to certain adjustments, including amortization of intangibles, interest, transaction costs and tax effects.

		Twelve Months Ended December 31,
		2018				2017
Revenues		$	943,723			$	865,944
Net income		139,315				150,515
Basic earnings per share		3.62				4.04
Diluted earnings per share		$	3.47			$	3.84

Pro forma information above does not include acquisitions that are not considered material to our results of operations. The pro forma information does not purport to represent what our results of operations actually would have been had such transaction or event occurred on the dates specified, or to project our results of operations for any future period.

On April 30, 2018, we acquired all of the equity interests of Sage Data Security, LLC ("Sage"), a cybersecurity company offering a suite of services that supports an entire cybersecurity lifecycle, including program development, education and training, technical testing, advisory services, and digital forensics. The total purchase price was $11.6 million paid in cash. Tyler has performed a valuation analysis of the fair market value of Sage's assets and liabilities. As a result, we acquired total tangible assets of approximately $1.8 million and assumed liabilities of approximately $730,000. We have recorded total goodwill of approximately $3.5 million, all of which is expected to be deductible for tax purposes, and other intangible assets of approximately $7.0 million. The $7.0 million of intangible assets is attributable to customer relationships, acquired software and trade name and will be amortized over a weighted average period of approximately 14 years.

As of December 31, 2018, the purchase price allocations for Sage, Socrata, CaseloadPro, and MobileEyes are complete. As of December 31, 2018, the purchase price allocation for SceneDoc is not yet complete, therefore the preliminary valuation estimates of fair value assumed at the acquisition date for intangible assets, receivables and deferred revenue and related deferred taxes are subject to change as valuations are finalized.

The operating results of all 2018 acquisitions are included with the operating results of the Enterprise Software segment since their date of acquisition. Revenues from Socrata included in Tyler's results of operations totaled approximately $13.9 million and the net loss was $11.5 million for the twelve months ended December 31, 2018. The impact of the Sage, CaseloadPRO, MobileEyes and SceneDoc acquisitions, individually and in the aggregate, on our operating results, assets and liabilities is not material.

Our balance sheet as of December 31, 2018, reflects the allocation of the purchase price to the assets acquired based on their fair value at the date of each acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

2017

On November 29, 2017, we acquired audio and digital two-way radio communications technology and related assets from Radio 10-33, LLC. The total purchase price was $1.4 million, all of which was paid in cash.

On August 2, 2017, we acquired substantially all of the assets and assumed certain liabilities of Digital Health Department, Inc. ("DHD"), a company that provides environmental health software, offering a SaaS solution for public health compliance and inspections processes. The total purchase price, net of debt assumed, was $3.9 million, all of which was paid in cash.

On May 30, 2017, we acquired all of the capital stock of Modria.com, Inc., a company that specializes in online dispute resolution for government and commercial entities. The total purchase price, net of debt assumed, was $7.0 million, of which $6.1 million was paid in cash and $900,000 was accrued as of December 31, 2017.

The operating results of these acquisition are included in our results of operations of the Enterprise Software segment from their respective dates of acquisition. The impact of these acquisitions, individually and in the aggregate, on our operating results, assets and liabilities is not material.

F-18

2016

On May 31, 2016, we acquired all of the capital stock of ExecuTime Software, LLC, a leading provider of time, attendance, and advanced scheduling software solutions. The total purchase price, net of debt assumed, was $7.4 million. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The operating results of this acquisition are included in our results of operations of the Enterprise Software segment from the date of the acquisition. The impact of this acquisition on our operating results is not material.

(3)PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following at December 31:

	Useful Lives (years)			2018				2017
Land	—			$	9,958			$	9,958
Building and leasehold improvements	5-39			122,241				116,214
Computer equipment and purchased software	3-5			84,649				72,531
Furniture and fixtures	5			27,238				24,834
Transportation equipment	5			438				476
				244,524				224,013
Accumulated depreciation and amortization				(89,347		)		(71,698		)
Property and equipment, net				$	155,177			$	152,315

Depreciation expense was $21.2 million in 2018, $17.3 million in 2017, and $13.4 million in 2016.

In 2018, we paid $2.2 million for the expansion of existing buildings.

In 2017, we purchased an office building in Latham, New York for approximately $2.9 million and paid $2.1 million for improvements to that building. We also paid $19.4 million for construction to expand our office building in Yarmouth, Maine.

We own office buildings in Bangor, Falmouth and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; and Moraine, Ohio. We lease space in some of these buildings to third-party tenants. These leases expire between 2019 and 2025 and are expected to provide rental income of approximately $1.3 million in 2019, $1.3 million in 2020, $1.3 million in 2021, $1.4 million in 2022, $1.4 million in 2023, and $2.4 million thereafter. Rental income from third-party tenants was $1.2 million in 2018, $1.5 million in 2017, and $1.7 million in 2016.

(4)GOODWILL AND OTHER INTANGIBLE ASSETS

Other intangible assets and related accumulated amortization consists of the following at December 31:

	2018				2017
					As Adjusted
Gross carrying amount of acquisition intangibles:
Customer related intangibles	$	238,219			$	179,789
Acquired software	202,416				179,466
Trade names	16,905				11,435
Leases acquired	3,694				3,694
	461,234				374,384
Accumulated amortization	(184,382		)		(144,767		)
Total intangibles, net	$	276,852			$	229,617

Total amortization expense for intangibles was $39.6 million in 2018, $35.5 million (as adjusted) in 2017, and $35.9 million (as adjusted) during 2016.

F-19

The allocation of acquisition intangible assets is summarized in the following table:

	December 31, 2018											December 31, 2017
																As Adjusted
	Gross Carrying Amount				Weighted Average Amortization Period			Accumulated Amortization				Gross Carrying Amount				Weighted Average Amortization Period			Accumulated Amortization
Non-amortizable intangibles:
Goodwill	$	753,718			—			$	—			$	657,987			—			$	—
Amortizable intangibles:
Customer related intangibles	238,219				15 years			78,120				179,789				15 years			63,274
Acquired software	202,416				7 years			99,772				179,466				7 years			76,800
Trade names	16,905				11 years			5,139				11,435				11 years			3,768
Leases acquired	3,694				10 years			1,351				3,694				10 years			925

The changes in the carrying amount of goodwill for the two years ended December 31, 2018 are as follows:

	Enterprise Software				Appraisal and Tax				Total
Balance as of 12/31/2016	$	643,680			$	6,557			$	650,237
Goodwill acquired with acquisitions	7,750				—				7,750
Balance as of 12/31/2017	651,430				6,557				657,987
Goodwill acquired related to the purchase of Socrata	75,657				—				75,657
Goodwill acquired related to other acquisitions	20,074				—				20,074
Balance as of 12/31/2018	$	747,161			$	6,557			$	753,718

Estimated annual amortization expense related to acquired leases will be recorded as a reduction to hardware and other revenue and is expected to be $372,000 in 2019, $313,000 in 2020, $312,000 in 2021, $312,000 in 2022, $312,000 in 2023 and $723,000 thereafter. Estimated annual amortization expense related to acquisition intangibles, including acquired software, for which the amortization expense is recorded as cost of revenues, is as follows:

2019	$	40,222
2020	38,820
2021	38,463
2022	34,987
2023	16,990
Thereafter	105,028

(5)ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31:

	2018				2017
Accrued wages, bonuses and commissions	$	40,100			$	43,688
Other accrued liabilities	26,380				20,987
	$	66,480			$	64,675

F-20

(6)REVOLVING LINE OF CREDIT

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

Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 1.25% to 2.00%. As of December 31, 2018, our interest rate was 5.75% under the prime rate option or approximately 3.77% under the 30-day LIBOR option. The Credit Facility is secured by substantially all our assets. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of December 31, 2018, we were in compliance with those covenants.

As of December 31, 2018, we had no outstanding borrowings and had unused borrowing capacity of $300.0 million under the Credit Facility. In addition, as of December 31, 2018, we had no outstanding letter of credit.

We paid interest of $770,000 in 2018, $804,000 in 2017, and $1.9 million in 2016.

(7)INCOME TAX

The Income tax provision (benefit) on income from operations consists of the following:

	Years Ended December 31,
	2018				2017				2016
					As Adjusted				As Adjusted
Current:
Federal	$	9,110			$	22,883			$	41,366
State	4,367				4,666				7,023
	13,477				27,549				48,389
Deferred	(5,069		)		(33,664		)		(26,432		)
	$	8,408			$	(6,115	)		$	21,957

Reconciliation of the U.S. statutory income tax rate to our effective income tax expense rate for operations follows:

	Years Ended December 31,
	2018				2017				2016
					As Adjusted				As Adjusted
Federal income tax expense at statutory rate	$	32,733			$	57,209			$	47,480
State income tax, net of federal income tax benefit	7,953				4,754				5,091
Domestic production activities deduction	—				(2,617		)		(3,947		)
Excess tax benefits related to stock option exercises	(32,487		)		(40,624		)		(29,582		)
Tax Act adjustments	(1,750		)		(25,992		)		—
Tax credits	(3,715		)		(3,578		)		—
Non-deductible business expenses	5,655				4,573				2,979
Other, net	19				160				(64		)
	$	8,408			$	(6,115	)		$	21,957

F-21

On December 22, 2017, the Tax Act was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act reduces the U.S. corporate federal tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. The Tax Act also adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and a tax on global intangible low-taxed income (GILTI). The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate from 35% to 21%. The impact of the rate reduction on our 2017 income tax provision was a $26.0 million (as adjusted) tax benefit due to the remeasurement of deferred tax assets and liabilities. We recorded an additional $1.8 million tax benefit in 2018 after our 2017 tax returns were finalized. The accounting for the income tax effects of the Tax Act was completed during the fourth quarter of 2018. Overall, the changes due to the Tax Act will favorably affect income tax expense and future U.S. earnings.

The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:

	2018				2017
					As Adjusted
Deferred income tax assets:
Operating expenses not currently deductible	$	8,989			$	9,714
Stock option and other employee benefit plans	19,496				15,932
Loss and credit carryforwards	17,999				—
Total deferred income tax assets	46,484				25,646
Valuation allowance	(1,049		)		—
Total deferred income tax assets, net of valuation allowance	45,435				25,646
Deferred income tax liabilities:
Intangible assets	(70,752		)		(60,189		)
Property and equipment	(8,455		)		(5,699		)
Prepaid expenses	(4,079		)		(190		)
Deferred revenue	(3,940		)		(6,447		)
Total deferred income tax liabilities	(87,226		)		(72,525		)
Net deferred income tax liabilities	$	(41,791	)		$	(46,879	)

The above 2017 balances reflect an $8.0 million deferred tax liability related to the recognition of revenue as part of the adoption of ASU No. 2014-09.

During 2018, we acquired federal and state net operating loss and tax credit carryforwards totaling $18.0 million in connection with the acquisition of Socrata. The federal and state net operating loss and tax credit carryforwards will expire in various years beginning in 2027, if not utilized. The acquired net operating loss and tax credit carryforwards are subject to an annual limitation but are expected to be realized with the exception of certain state net operating loss carryforwards. The valuation allowance disclosed in the table above relates to state net operating losses not likely to be realized. We believe it is more likely than not that all other deferred tax assets will be realized. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of reversing taxable temporary differences are revised.

In connection with the acquisition of Socrata in 2018, we recorded a $1.9 million liability for an uncertain tax position associated with acquired tax credit carryforwards. The unrecognized tax benefits are included in deferred income taxes in our consolidated balance sheets and are reflected in the opening balance sheet of Socrata. The entire amount, if recognized, would affect the effective tax rate.

The aggregate changes in the balance of unrecognized tax benefits were as follows:

	2018
Balance at beginning of year	$	—
Increases for tax positions related to prior years	1,929
Balance at end of year	$	1,929

Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues for the next 12 months.

F-22

We are subject to U.S. federal tax, as well as income tax of multiple state, local and foreign jurisdictions. We are routinely subject to income tax examinations by these taxing jurisdictions, but we do not have a history of, nor do we expect any material adjustments as a result of these examinations. During 2017, the Internal Revenue Service issued a “no change” letter upon completion of their examination of our 2012 tax year. With few exceptions, major U.S. federal, state, local and foreign jurisdictions are no longer subject to examination for years before 2014. As of February 20, 2019, no significant adjustments have been proposed by any taxing jurisdiction.

We paid income taxes, net of refunds received, of $6.8 million in 2018, $36.0 million in 2017, and $30.2 million in 2016.

(8)SHAREHOLDERS’ EQUITY

The following table details activity in our common stock:

	Years Ended December 31,
	2018							2017							2016
	Shares			Amount				Shares			Amount				Shares			Amount
Stock option exercises	1,126			$	74,907			1,113			$	49,845			827			$	23,527
Purchases of common stock	(781	)		(150,050		)		(44	)		(6,613		)		(882	)		(112,699		)
Employee stock plan purchases	45			8,051				51			7,044				47			6,236

As of February 20, 2019, we had authorization from our board of directors to repurchase up to 2.7 million additional shares of our common stock.

(9)SHARE-BASED COMPENSATION

Share-Based Compensation Plan

In May 2018, stockholders approved the Tyler Technologies, Inc. 2018 Stock Incentive Plan ("the 2018 Plan") which amended and restated the existing Tyler Technologies, Inc. 2010 Stock Option Plan ("the 2010 Plan"). Upon stockholder approval of the 2018 Plan, the remaining shares available for grant under the 2010 Plan were added to the shares authorized for grant under the 2018 Plan. Additionally, any awards previously granted under the 2010 Plan that expire unexercised or are forfeited are added to the shares authorized for grant under the 2018 Plan.

During fiscal year 2018, we granted stock awards under the 2018 Plan in the form of stock options, restricted stock units and performance share units. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. Once options become exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option. Restricted stock unit grants generally vest ratably over three to five years of continuous service from the date of grant. Each performance share unit represents the right to receive one share of our common stock based on our achievement of certain financial performance targets during applicable performance periods. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation.

As of December 31, 2018, there were 3.8 million shares available for future grants under the plan from the 22.9 million shares previously approved by the shareholders.

F-23

Determining Fair Value of Stock Compensation

Valuation and Amortization Method. We estimate the fair value of stock option awards granted using the Black-Scholes option valuation model. For restricted stock unit and performance stock unit awards, we amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The expected life represents the weighted-average period the stock options are expected to be outstanding based primarily on the options’ vesting terms, remaining contractual life and the employees’ expected exercise based on historical patterns.

Expected Volatility. Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock.

Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

Expected Dividend Yield. We have not paid any cash dividends on our common stock in more than ten years and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model.

Expected Forfeitures. We use historical data to estimate pre-vesting option forfeitures. We record share-based compensation only for those awards that are expected to vest.

The following weighted average assumptions were used for options granted:

	Years Ended December 31,
	2018			2017			2016
Expected life (in years)	6.0			6.0			6.0
Expected volatility	26.7	%		28.1	%		29.3	%
Risk-free interest rate	2.7	%		2.0	%		1.8	%
Expected forfeiture rate	—	%		—	%		—	%

Share-Based Award Activity

The following table summarizes restricted stock unit and performance stock unit activity during fiscal year 2018 (shares in thousands):

		Number of Shares			Weighted Average Grant Date Fair Value per Share
Unvested at January 1, 2018		—			$	—
Granted		336			$	221.29
Vested		—			$	—
Forfeited		(2	)		$	229.75
Unvested at December 31, 2018		334			$	221.25

F-24

Options granted, exercised, forfeited and expired are summarized as follows:

	Number of Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2015	5,164			$	64.43
Granted	846			147.25
Exercised	(827	)		28.43
Forfeited	(27	)		95.33
Outstanding at December 31, 2016	5,156			83.64
Granted	824			176.26
Exercised	(1,113	)		44.80
Forfeited	(50	)		134.83
Outstanding at December 31, 2017	4,817			107.91
Granted	432			208.21
Exercised	(1,126	)		66.53
Forfeited	(31	)		158.80
Outstanding at December 31, 2018	4,092			129.51				7		$	240,069
Exercisable at December 31, 2018	2,357			100.41				6		$	201,349

We had unvested options to purchase 1.7 million shares with a weighted average grant date exercise price of $169.24 as of December 31, 2018, and unvested options to purchase 2.4 million shares with a weighted average grant date exercise price of $136.51 as of December 31, 2017.

Other information pertaining to option activity was as follows during the twelve months ended December 31:

	2018				2017				2016
Weighted average grant-date fair value of stock options granted	$	66.52			$	55.56			$	46.89
Total intrinsic value of stock options exercised	176,716				137,699				103,703

Share-Based Compensation Expense\

The following table summarizes share-based compensation expense related to share-based awards which is recorded in the statements of comprehensive income:

	Years Ended December 31,
	2018				2017				2016
Cost of software services, maintenance and subscriptions	$	13,588			$	9,415			$	6,548
Selling, general and administrative expenses	39,152				27,933				23,199
Total share-based compensation expenses	52,740				37,348				29,747
Tax benefit	(32,487		)		(40,624		)		(30,059		)
Net decrease (increase) in net income	$	20,253			$	(3,276	)		$	(312	)

As of December 31, 2018, we had $137.6 million of total unrecognized compensation cost related to unvested options and restricted stock units, net of expected forfeitures, which is expected to be amortized over a weighted average amortization period of 3 years.

Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“ESPP”) participants may contribute up to 15% of their annual compensation to purchase common shares of Tyler. The purchase price of the shares is equal to 85% of the closing price of Tyler shares on the last day of each quarterly offering period. As of December 31, 2018, there were 749,000 shares available for future grants under the ESPP from the 2.0 million shares previously approved by the stockholders.

F-25

(10)EARNINGS PER SHARE

Basic earnings and diluted earnings per share data were computed as follows:

	Years Ended December 31,
	2018				2017				2016
					As Adjusted				As adjusted
Numerator for basic and diluted earnings per share:
Net income	$	147,462			$	169,571			$	113,701
Denominator:
Weighted-average basic common shares outstanding	38,445				37,273				36,448
Assumed conversion of dilutive securities:
Stock options	1,678				1,973				2,513
Denominator for diluted earnings per share - Adjusted weighted-average shares	40,123				39,246				38,961
Earnings per common share:
Basic	$	3.84			$	4.55			$	3.12
Diluted	$	3.68			$	4.32			$	2.92

Share-based awards representing the right to purchase common stock of 888,000 shares in 2018, 1,343,000 shares in 2017, and 786,000 shares in 2016 were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

(11)LEASES

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 at various dates through 2026. In addition to rent, the leases generally require us to pay taxes, maintenance, insurance and certain other operating expenses.

Rent expense was approximately $8.0 million in 2018, $6.9 million in 2017, and $6.7 million in 2016, which included rent expense associated with related party lease agreements of $150,000 in 2017, and $330,000 in 2016. We had no related party lease agreements in 2018.

Future minimum lease payments under all non-cancelable leases at December 31, 2018 are as follows:

Years Ending December 31,
2019	$	5,994
2020	5,146
2021	3,976
2022	1,925
2023	1,164
Thereafter	2,132
Total	$	20,337

(12)EMPLOYEE BENEFIT PLANS

We provide a defined contribution plan for the majority of our employees meeting minimum service requirements. Eligible employees can contribute up to 30% of their current compensation to the plan subject to certain statutory limitations. We contribute up to a maximum of 3% of an employee’s compensation to the plan. We made contributions to the plan and charged operating results $9.3 million in 2018, $7.9 million in 2017, and $6.9 million in 2016.

F-26

(13)COMMITMENTS AND CONTINGENCIES

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

(14)SEGMENT AND RELATED INFORMATION

We provide integrated information management solutions and services for the public sector, with a focus on local governments.

We provide our software systems and services and appraisal services through five 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, and land and vital records management software solutions;

•	courts and justice and public safety software solutions;

•	data and insights solutions; and

•	appraisal and tax software solutions and property appraisal services.

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

We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before noncash amortization of intangible assets associated with their acquisition, interest expense and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the contractual arrangement. Segment operating income for corporate primarily consists of compensation costs for the executive management team and certain accounting and administrative staff and share-based compensation expense for the entire company. Corporate segment operating income also includes revenues and expenses related to a company-wide user conference. The accounting policies of the reportable segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.”

Segment assets include net accounts receivable, prepaid expenses and other current assets and net property and equipment. Corporate assets consist of cash and investments, prepaid insurance, intangibles associated with acquisitions, deferred income taxes and net property and equipment mainly related to unallocated information and technology assets.

ES segment capital expenditures included $2.2 million in 2018 and $24.4 million in 2017 for the expansion of existing buildings and purchases of buildings and land.

F-27

For the year ended December 31, 2018	Enterprise Software				Appraisal and Tax				Corporate				Totals
Revenues
Software licenses and royalties	$	83,735			$	9,706			$	—			$	93,441
Subscriptions	210,740				9,807				—				220,547
Software services	166,921				24,348				—				191,269
Maintenance	359,904				24,617				—				384,521
Appraisal services	—				21,846				—				21,846
Hardware and other	18,745				32				4,881				23,658
Intercompany	13,155				—				(13,155		)		—
Total revenues	$	853,200			$	90,356			$	(8,274	)		$	935,282
Depreciation and amortization expense	50,130				914				10,715				61,759
Segment operating income	237,159				23,094				(68,572		)		191,681
Capital expenditures	13,973				782				10,377				25,132
Segment assets	$	556,100			$	63,670			$	1,171,193			$	1,790,963

For the year ended December 31, 2017 (As Adjusted)	Enterprise Software				Appraisal and Tax				Corporate				Totals
Revenues
Software licenses and royalties	$	78,388			$	7,854			$	—			$	86,242
Subscriptions	164,317				7,859				—				172,176
Software services	161,245				19,215				—				180,460
Maintenance	337,701				21,618				—				359,319
Appraisal services	—				25,023				—				25,023
Hardware and other	13,057				10				4,612				17,679
Intercompany	10,425				—				(10,425		)		—
Total revenues	$	765,133			$	81,579			$	(5,813	)		$	840,899
Depreciation and amortization expense	43,987				760				8,648				53,395
Segment operating income	229,001				20,788				(51,964		)		197,825
Capital expenditures	28,096				1,181				16,341				45,618
Segment assets	$	365,736			$	46,279			$	1,199,336			$	1,611,351

For the year ended December 31, 2016 (As Adjusted)	Enterprise Software				Appraisal and Tax				Corporate				Totals
Revenues
Software licenses and royalties	$	78,271			$	5,462			$	—			$	83,733
Subscriptions	135,469				7,188				—				142,657
Software services	155,322				16,326				—				171,648
Maintenance	302,409				18,589				—				320,998
Appraisal services	—				26,287				—				26,287
Hardware and other	11,526				16				3,015				14,557
Intercompany	6,742				—				(6,742		)		—
Total revenues	$	689,739			$	73,868			$	(3,727	)		$	759,880
Depreciation and amortization expense	43,434				984				5,355				49,773
Segment operating income	196,054				18,871				(41,832		)		173,093
Capital expenditures	23,843				1,432				11,448				36,723
Segment assets	$	321,886			$	33,005			$	1,023,612			$	1,378,503

F-28

Reconciliation of reportable segment operating		Years Ended December 31,
income to the Company's consolidated totals:		2018				2017				2016
						As Adjusted				As Adjusted
Total segment operating income		$	191,681			$	197,825			$	173,093
Amortization of acquired software		(22,972		)		(21,686		)		(22,235		)
Amortization of customer and trade name intangibles		(16,217		)		(13,381		)		(13,202		)
Other income (expense), net		3,378				698				(1,998		)
Income before income taxes		$	155,870			$	163,456			$	135,658

(15)	Disaggregation of Revenue

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

Timing of Revenue Recognition

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

For the year ended December 31, 2018
		Products and services transferred at a point in time				Products and services transferred over time				Total
Revenues
Software licenses and royalties		$	75,188			$	18,253			$	93,441
Subscriptions		—				220,547				220,547
Software services		—				191,269				191,269
Maintenance		—				384,521				384,521
Appraisal services		—				21,846				21,846
Hardware and other		23,658				—				23,658
Total		$	98,846			$	836,436			$	935,282

For the year ended December 31, 2017
(As Adjusted)		Products and services transferred at a point in time				Products and services transferred over time				Total
Revenues
Software licenses and royalties		$	69,167			$	17,075			$	86,242
Subscriptions		—				172,176				172,176
Software services		—				180,460				180,460
Maintenance		—				359,319				359,319
Appraisal services		—				25,023				25,023
Hardware and other		17,679				—				17,679
Total		$	86,846			$	754,053			$	840,899

F-29

Recurring Revenue

The majority of our revenue is comprised of recurring revenues from maintenance and subscriptions. Virtually 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. The contract terms for subscription arrangements range from one to 10 years but are typically contracted for initial periods of three to five years, providing a significant source of recurring revenues on an annual basis. Non-recurring revenues are derived for all other revenue categories.

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

For the year ended December 31, 2018
		Enterprise Software				Appraisal and Tax				Corporate				Totals
Recurring revenues		$	570,645			$	34,424			$	—			$	605,069
Non-recurring revenues		269,400				55,932				4,881				330,213
Intercompany		13,155				—				(13,155		)		—
Total revenues		$	853,200			$	90,356			$	(8,274	)		$	935,282

For the year ended December 31, 2017
(As Adjusted)		Enterprise Software				Appraisal and Tax				Corporate				Totals
Recurring revenues		$	502,018			$	29,477			$	—			$	531,495
Non-recurring revenues		252,690				52,102				4,612				309,404
Intercompany		10,425				—				(10,425		)		—
Total revenues		$	765,133			$	81,579			$	(5,813	)		$	840,899

(16)	Deferred Revenue and Performance Obligations

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

		December 31, 2018				December 31, 2017
						As Adjusted
Enterprise Software		$	327,521			$	277,198
Appraisal and Tax		20,018				20,387
Corporate		3,397				2,302
Totals		$	350,936			$	299,887

The opening balance of total deferred revenue, including long-term, was $290.1 million (as adjusted) as of January 1, 2017.

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

		2018
Balance at beginning of year (As Adjusted)		$	299,887
Deferral of revenue		871,498
Recognition of deferred revenue		(820,449		)
Balance at end of year		$	350,936

F-30

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized ("Backlog"), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of December 31, 2018 was $1.25 billion, of which we expect to recognize approximately 50% as revenue over the next 12 months and the remainder thereafter.

(17) Deferred Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of associated revenue over a period of benefit that we have determined to be three to seven years. Deferred commissions were $21.9 million and $19.3 million (as adjusted) as of December 31, 2018, and December 31, 2017, respectively. Amortization expense was $15.6 million for the twelve months ended December 31, 2018 and $11.2 million (as adjusted) for the twelve months ended December 31, 2017, respectively. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses in the accompanying consolidated balance sheets. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying consolidated statements of income.

(18) Subsequent Events

The following events and transactions occurred subsequent to December 31, 2018:

On January 31, 2019, (i) Tyler Technologies, Inc., a Delaware corporation (“Parent”), (ii) TMP Subsidiary, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), (iii) MP Holdings Parent, Inc., dba MicroPact, a Delaware corporation (“Micropact”), and (iv) Arlington Capital Partners II, L.P., a Delaware limited partnership (“Representative”), signed an Agreement and Plan of Merger (the “Merger Agreement”).

The Merger Agreement provides for the merger of Merger Sub with and into MicroPact on the terms and subject to the conditions set forth in the Merger Agreement, with MicroPact as the surviving company and a wholly owned, direct subsidiary of Parent.

Pursuant to the Merger Agreement, Parent will pay MicroPact’s shareholders aggregate merger consideration of approximately $185.0 million in cash, which shall include an amount equal to MicroPact’s closing date working capital and be subject to a post-closing working capital adjustment as described in the Merger Agreement and an additional merger consideration of up to $10.0 million based on certain fiscal 2019 EBITDA thresholds. The merger consideration will be funded from cash on hand and proceeds from the revolving credit facility.

The Merger and the Merger Agreement have been approved by the boards of directors of both MicroPact, Parent and Merger Sub. The Merger Agreement contains customary representations, warranties, and covenants of MicroPact, Parent and Merger Sub. The covenants include, among others, an obligation on behalf of MicroPact to operate its business in the ordinary course until the Merger is consummated, and limitations on the right of MicroPact to solicit or engage in negotiations regarding alternative acquisition proposals during the pre-Closing period.

The completion of the Merger is subject to customary closing conditions, including the expiration or the termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The Federal Trade Commission granted early termination of that waiting period effective February 15, 2019. Customary closing conditions also include each party’s satisfaction of the applicable representations and warranties, and compliance in all material respects with its applicable covenants. Consummation of the Merger is not subject to a financing condition.

The Merger Agreement may be terminated prior to closing under certain enumerated circumstances, including if the Merger is not consummated by May 1, 2019. Termination rights are held by Parent, MicroPact, and Representative, depending on the circumstances giving rise to the termination.

The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which is attached hereto as Exhibit 10.7 and incorporated herein by reference.

F-31

MicroPact is a leading provider of commercial off-the-shelf (COTS) solutions, including entellitrak®, a low-code application development platform for case management and business process management used extensively in the public sector.

On February 1, 2019, we acquired all the assets of Civic, LLC ("MyCivic"), a company that provides software solutions to connect communities. The purchase price is $3.7 million of which $3.6 million was paid in cash and approximately $90,000 was accrued for a working capital holdback.

(19) QUARTERLY FINANCIAL INFORMATION (unaudited)

The following table contains selected financial information from unaudited statements of income for each quarter of 2018 and 2017:

	Quarters Ended
	2018																2017 (As Adjusted)
	Dec. 31				Sept. 30				June 30				Mar. 31				Dec. 31(a)				Sept. 30				June 30				Mar. 31
Revenues	$	241,981			$	236,067			$	236,060			$	221,174			$	217,701			$	214,706			$	208,763			$	199,729
Gross profit	115,871				111,626				109,276				102,805				105,350				103,989				95,503				94,535
Income before income taxes	40,107				38,626				37,700				39,437				45,261				44,357				37,197				36,641
Net income	31,552				38,924				39,161				37,825				66,196				38,836				31,770				32,769
Earnings per diluted share	$	0.79			$	0.96			$	0.97			$	0.95			$	1.68			$	0.99			$	0.81			$	0.84
Shares used in computing diluted earnings per share	39,891				40,528				40,224				39,836				39,499				39,342				39,201				38,932

(a) The fourth quarter of 2017 includes the significant impact of the enactment of the Tax Act. The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate from 35% to 21%. The impact of the rate reduction on our 2017 income tax provision is a $26.0 million tax benefit due to the remeasurement of deferred tax assets and liabilities. Refer to Note 7 - "Income Tax" for further discussion on the impact the Tax Act.

F-32