Tyler Technologies (TYL) 10-K risk factor changes: FY2020 vs FY2019

[removed: Our] actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report.

They may, for example, develop and deploy malicious software to attack our products and services and/or gain access to our networks and data [removed: centers,] [added: centers] or act in a coordinated manner to launch distributed denial of service or other coordinated attacks.

We face many risks and challenges associated with contracting with governmental entities, [removed: including][added: including:]

[removed: | • |] [added: -] Resource limitations caused by budgetary constraints, which may provide for a termination of executed contracts due to a lack of future funding [removed: |]

[removed: | • |] [added: -] Long and complex sales cycles [removed: |]

[removed: | • |] [added: -] Contract payments at times being subject to achieving implementation milestones, and we may have differences with clients as to whether milestones have been achieved [removed: |]

[removed: | • |] [added: -] Political resistance to the concept of contracting with third parties to provide IT solutions [removed: |]

[removed: | • |] [added: -] Legislative changes affecting a local government’s authority to contract with third parties [removed: |]

[removed: | • |] [added: -] Varying bid procedures and internal processes for bid acceptance [removed: |]

[removed: | • |] [added: -] Various other political factors, including changes in governmental administrations and personnel [removed: |]

We compete based on a number of factors, [removed: including][added: including:]

[removed: | • |] [added: -] The attractiveness of our “evergreen” business strategy [removed: |]

[removed: | • |] [added: -] The breadth, depth, and quality of our product and service offerings [removed: |]

[removed: | • |] [added: -] The ability to modify our offerings to accommodate particular clients’ needs [removed: |]

[removed: | • |] [added: -] Technological innovation [removed: |]

[removed: | • |] [added: -] Name recognition, reputation and references [removed: |]

[removed: | • |] [added: -] Price [removed: |]

[removed: | • |] [added: -] Our financial strength and stability [removed: |]

Some of our contracts are structured on a fixed-price basis, which can lead to various risks, [removed: including][added: including:]

[removed: | • |] [added: -] The failure to accurately estimate the resources and time required for an engagement [removed: |]

[removed: | • |] [added: -] The failure to effectively manage our clients’ expectations regarding the scope of services delivered for a fixed fee [removed: |]

[removed: | • |] [added: -] The failure to timely and satisfactorily complete fixed-price engagements within budget [removed: |]

In addition, the general insurance markets may experience [removed: volatility,] [added: volatility and/or restrictive coverage trends,] which may lead to future increases in our general and administrative expenses and negatively impact our operating results.

Our revenues and operating results are difficult to predict and may fluctuate substantially from quarter to quarter for a variety of reasons, [removed: including][added: including:]

[removed: | • |] [added: -] Prospective clients’ contracting decisions are often made in the last few weeks of a quarter [removed: |]

[removed: | • |] [added: -] The size of license transactions can vary significantly [removed: |]

[removed: | • |] [added: -] Clients may unexpectedly postpone or cancel procurement processes due to changes in strategic priorities, project objectives, budget, or personnel [removed: |]

[removed: | • |] [added: -] Client purchasing processes vary significantly and a client’s internal approval, expenditure authorization, and contract negotiation processes can be difficult and time consuming to complete, even after selection of a vendor [removed: |]

[removed: | • |] [added: -] The number, timing, and significance of software product enhancements and new software product announcements by us and our competitors may affect purchase decisions [removed: |]

[removed: | • |] [added: -] We may have to defer revenues under our revenue recognition policies and GAAP [removed: |]

[removed: | • |] [added: -] Clients may elect subscription-based arrangements, which result in lower software license revenues in the initial year as compared to traditional, on-premise software license arrangements, but generate higher overall subscription-based revenues over the term of the contract [removed: |]

We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive [removed: position.][added: position and research and development expenses could adversely affect operating margins.]

Examples of factors that may significantly impact our stock price [removed: include][added: include:]

[removed: | • |] [added: -] Actual or anticipated fluctuations in our operating results [removed: |]

[removed: | • |] [added: -] Announcements of technological innovations, new products, or new contracts by us or our competitors [removed: |]

[removed: | • |] [added: -] Developments with respect to patents, copyrights, or other proprietary rights [removed: |]

[removed: | • |] [added: -] Conditions and trends in the software and other technology industries [removed: |]

[removed: | • |] [added: -] Adoption of new accounting standards [removed: |]

[removed: | • |] [added: -] Changes in financial estimates by securities analysts [removed: |]

[removed: | • |] [added: -] General market conditions and other factors [removed: |]

Our

Despite the network and application security, internal control measures, and physical security procedures we employ to safeguard our systems, we may still be vulnerable to a security breach, intrusion, loss or theft of confidential client data and transaction data or proprietary company information, which may harm our business, reputation and future financial results.

The lost revenue and containment, remediation, investigation, legal and other costs could be significant and may exceed our insurance policy limits or may not be covered by insurance at all.

Further, we may be subject to regulatory enforcement actions and litigation that could result in financial judgments or the payment of settlement amounts, and disputes with insurance carriers concerning coverage.

On September 29, 2020, we filed a Current Report on Form 8-K reporting a security incident (the "Incident") involving ransomware disrupting access to some of our internal IT systems and telephone systems.

There is no evidence that the environments where we host client applications were affected, and our hosting services to those clients were not interrupted.

There is also no evidence of malicious activity on client networks associated with the Incident.

We contained the Incident and recovered from it, resuming normal operations with our clients.

We will continue to deploy supplemental remediation efforts as necessary.

As part of our immediate response to the Incident, we (1) shut down points of access to external systems and began investigating and remediating the problem; (2) engaged outside IT security and forensics experts to conduct a detailed review and help securely restore affected systems; (3) implemented targeted monitoring systems to supplement the systems we already had in place; and (4) notified law enforcement.

We have cooperated with their investigation throughout.

We promptly notified our clients of the Incident and provided timely updates to our clients through direct communications and updates to our website.

Although we believe we have contained and recovered from the Incident, and that we have taken and will continue to take appropriate remediation steps, we are subject to risk and uncertainties as a result of the Incident.

We believe we are in the final phases of our investigation, but there can be no assurance as to what the ongoing impact of the Incident will be, if any.

The Incident caused an interruption in parts of our business.

We incurred $4.2 million in third party costs associated with the Incident as of December 31, 2020.

It is expected that we will continue to incur costs related to our response, remediation, and investigatory efforts relating to the Incident.

We maintain cybersecurity insurance coverage in an amount that we believe is adequate.

*COVID-19 will adversely affect our business and results of operations.*

We expect that the continued global spread of COVID-19 (novel coronavirus) will negatively impact our business and financial results in fiscal year 2021.

As the virus has spread, it has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and associated compliance, we do expect the pandemic will continue to negatively impact our revenues and other financial results.

Because an increasing portion of our revenues are recurring, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.

We continue to see some impact on our business in the near term with delays in government procurement processes and uncertainty around public sector budgets, as well as delays in implementations caused by travel restrictions, closed offices, or clients shifting focus to more pressing issues.

We expect appraisal and software implementations projects to be delayed as clients put projects on hold or slow projects by extending go-live dates.

While we have the ability to deliver most of our professional services remotely, some of our professional services, including appraisal assessments, are more effective when performed on-site, and certain clients may continue to insist on on-site services in any event.

In addition, some professional services relate to training and require the availability of the client.

We expect a negative impact on our software services and appraisal services revenues.

Also, we expect software licenses and subscriptions revenues to be negatively affected due to delays in procurement processes.

Some clients could request changes to payment terms, negatively impacting the timing of collections of accounts receivables in future periods.

For the twelve months ended December 31, 2020, 73% of our total revenue and earnings are relatively predictable as a result of our subscription and maintenance revenue, which is recurring in nature; thus the effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

We perform our annual goodwill impairment analysis as of the first day of the second quarter of each year.

Subsequent to our annual goodwill impairment analysis, we monitor for any events or changes in circumstances, such as significant adverse changes in business climate or operating results, changes in management’s business strategy, an inability to successfully introduce new products in the

marketplace, an inability to successfully achieve internal forecasts or significant declines in our stock price, which may represent an indicator of impairment.

The occurrence of any of these events, which could be caused or impacted by the COVID-19 pandemic, may require us to record future goodwill impairment charges.

| | |

| --- | --- |

Because we expense the majority of our research and development costs, increased investment could adversely affect operating margins.

This investment may result in an unforeseen increase in general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities, which may harm our operating results.

We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) [added: the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any] changes [added: to federal, state or local government laws, regulations or orders] in [added: connection with] the [added: pandemic; (2) changes in the] budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; [removed: (2)] [added: (3) disruption to] our [added: business and harm to our competitive position resulting from cyber-attacks and security vulnerabilities; (4) our] ability to protect client information from security breaches and provide uninterrupted operations of data centers; [removed: (3)] [added: (5)] our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; [removed: (4)] [added: (6)] material portions of our business require the Internet infrastructure to be adequately maintained; [removed: (5)] [added: (7)] our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; [removed: (6)] [added: (8)] general economic, political and market conditions; [removed: (7)] [added: (9)] technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; [removed: (8)] [added: (10)] competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; [removed: (9)] [added: (11)] the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel; and [removed: (10)] [added: (12)] costs of compliance and any failure to comply with government and stock exchange regulations.

A detailed discussion of these factors and other risks that affect our business are described in Item 1A, “Risk [removed: Factors.” We expressly disclaim any obligation to publicly update or revise our forward-looking statements.][added: Factors”.]

Other [removed: transaction based] [added: transaction-based] fees primary relate to online payment services.

Our products generally automate eight major functional areas: (1) financial management and education, (2) courts and justice, (3) public safety, (4) property appraisal and tax, (5) planning, regulatory and maintenance, (6) land and vital records management, (7) data and insights and (8) [removed: case management and business process management.][added: platform technologies.]

The Enterprise Software ("ES") segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: financial management and education, courts and justice, public safety, planning, regulatory and maintenance, [removed: land and vital records management,] data and insights and [removed: case management and business management processes.][added: platform technologies.]

The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal [removed: property] [added: property, land and vital records management] as well as property appraisal outsourcing services for local governments and taxing authorities.

[removed: Our] [added: As of December 31, 2020, our] total employee count increased to [removed: 5,368 at December 31, 2019,] [added: 5,536] from [removed: 4,525] [added: 5,368] at December 31, [removed: 2018.][added: 2019.]

For the twelve months ended December 31, [removed: 2019,] [added: 2020,] total revenues increased [removed: 16%] [added: 2.8%] compared to the prior year.

Excluding the impact of acquisitions, total revenues increased [removed: 8%] [added: 1.4%] compared to prior year.

Revenues from acquisitions contributed [removed: 8%] [added: 1.4%] of growth for the twelve months ended December 31, [removed: 2019.][added: 2020.]

Subscriptions revenue grew [removed: 34%] [added: 18.3%] for the twelve months ended December 31, [removed: 2019,] [added: 2020,] due to a gradual shift toward cloud-based, software as a service business, as well as continued strong growth in our [removed: e-filing] [added: transaction-based] revenues from [removed: courts] [added: online payments] and [removed: other transaction-based revenues.][added: e-filing revenues from courts.]

Excluding the impact of [added: recent] acquisitions, subscriptions revenue increased [removed: 26%] [added: 17.2%] for the twelve months ended December 31, [removed: 2019.][added: 2020.]

Our backlog at December 31, [removed: 2019] [added: 2020] was [removed: $1.46] [added: $1.59] billion, a [removed: 17%] [added: 9.4%] increase from last year.

Subscriptions and maintenance are considered recurring revenue sources and comprised approximately [removed: 67%] [added: 73.3%] of our revenue in [removed: 2019.][added: 2020.]

The number of new SaaS clients and the number of existing clients who convert from our traditional software arrangements to our SaaS model are a significant driver [removed: to] [added: of] our [removed: business,] [added: revenue growth,] together with new software license sales and maintenance rate increases.

During [removed: 2019,] [added: 2020,] based on our number of customers, turnover was approximately 2%.

[removed: *Adoption] [added: *Recent adoption] of [removed: New Lease Accounting Standard*][added: new accounting pronouncements*]

ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, [added: available for-sale debt securities,] held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of [added: an] allowance for losses.

Entities [removed: will] apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

The local government software market continues to be active, and our backlog at December 31, [removed: 2019] [added: 2020] reached [removed: $1.46] [added: $1.59] billion, a [removed: 17%] [added: 9.4%] increase from [removed: last] [added: the prior] year.

[removed: | • |] [added: -] Identification of the contract, or contracts, with a customer [removed: |]

[removed: | • |] [added: -] Identification of the performance obligations in the contract [removed: |]

[removed: | • |] [added: -] Determination of the transaction price [removed: |]

[removed: | • |] [added: -] Allocation of the transaction price to the performance obligations in the contract [removed: |]

[removed: | • |] [added: -] Recognition of revenue when, or as, we satisfy a performance obligation [removed: |]

We recognize SaaS arrangements ratably over the term of the arrangement, which range from one to ten [added: years,] but are typically for a period of three to five years.

We maintain allowances for [removed: doubtful accounts,] [added: losses and sales adjustments,] which are provided at the time the revenue is recognized.

Events or changes in circumstances that indicate that the carrying amount for the allowances for [removed: doubtful accounts] [added: losses and sales adjustments] 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 allowance for [removed: doubtful accounts] [added: losses and sales adjustments] reflects our best estimate of probable losses inherent in the accounts receivable balance.

[removed: Our annual goodwill impairment analysis, which we performed qualitatively during] [added: During] the second quarter of [removed: 2019,] [added: 2020, we completed our annual assessment of goodwill which] did not result in an impairment charge.

During [removed: 2019,] [added: 2020,] we did not identify any triggering events that would [removed: require an update to] [added: indicate that the carrying amount of] our [removed: annual impairment review.][added: intangible assets may not be recoverable.]

The following discussion compares the historical results of operations on a basis consistent with GAAP for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017.][added: 2018.]

| | [added: | |] Percentage of Total Revenues Years Ended December 31, | | | | | | | | [added: | | | | | | |]

| | [added: | | 2020 | | | | | |] 2019 | | | [removed: 2018] | | | [removed: 2017] [added: 2018] | | [added: |]

| Revenues: | | | | | | | | | [added: | | | | | | | | |]

| Software licenses and royalties | [removed: 9.2] | [added: | 6.5 | |] % | | [removed: 10.0] | [added: | 9.2 | |] % | | [removed: 10.3] | [added: | 10.0 | |] % |

| Subscriptions | [added: | | 31.4 | | | | | |] 27.3 | | | [removed: 23.6] | | | [removed: 20.5] [added: 23.6] | | [added: |]

| Software services | [added: | | 16.7 | | | | | |] 19.6 | | | [removed: 20.5] | | | [removed: 21.5] [added: 20.5] | | [added: |]

| Maintenance | [added: | | 41.9 | | | | | |] 39.6 | | | [removed: 41.1] | | | [removed: 42.6] [added: 41.1] | | [added: |]

| Appraisal services | [added: | | 1.9 | | | | | |] 2.2 | | | [removed: 2.3] | | | [removed: 3.0] [added: 2.3] | | [added: |]

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

For a comparison of our Results of Operations for the years ended December 31, 2019 and 2018 and our Cash Flow discussion for the year ended December 2019, see “Part II, Item 7.

Management's Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the year ended December 2019 as filed with the SEC on February 20, 2020.

We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

As of January 1, 2020, the land and vital records management business unit, which was previously reported in the ES segment, was moved to the A&T segment to reflect changes in the way in which management makes operating decisions, allocates resources, and manages the growth and profitability of the Company.

Prior year amounts for the ES and A&T segments have been adjusted to reflect the segment change.

See Note 14 - "Segment and Related Information" in the notes to the consolidated financial statements for additional information.

*Impact of the COVID-19 Pandemic*

In March 2020, the World Health Organization declared the outbreak of a COVID-19 pandemic, which continues to spread throughout the U.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.

While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and associated compliance, the current environment has negatively impacted our revenues for fiscal year 2020.

Because an increasing portion of our revenues are recurring, the effect of COVID-19 on our results of operations may also not be fully reflected for some time.

We continue to see some impact on our business in the near term with delays in government procurement processes and uncertainty around public sector budgets, as well as delays in implementations caused by travel restrictions, closed offices, or clients shifting focus to more pressing issues.

We have addressed those challenges through adapting the way we do business – encouraging web and video conferencing, conducting virtual sales demonstrations and delivering professional services remotely.

Our priorities during this crisis are protecting the health and safety of our employees and our clients.

Our IT systems and applications support a remote workforce.

Prior to the pandemic, many of our employees worked remotely.

In response to the pandemic, we encouraged all employees who are able to do so to work from home, equipping them with resources necessary to continue uninterrupted.

We were able to transition the vast majority of our employees to this work-from-home posture.

This reduces the number of team members in our offices to those uniquely needed for essential on-site services, such as network operations support staff, and allows for “social distancing” as directed by the Centers for Disease Control ("CDC").

The pandemic has delayed some government procurement processes and is expected to impact our ability to complete certain implementations, negatively impacting our revenue.

It could also negatively impact the timing of client payments to us.

We continue to monitor these trends in order to respond to the ever-changing impact of COVID-19 on our clients and Tyler’s operations.

For the twelve months ended December 31, 2020, the impact of the COVID-19 pandemic resulted in lower revenues from software licenses, software services, appraisal services, and other revenues.

Lower software licenses compared to prior periods are attributed to slower sales cycles as government procurement processes are delayed and contract signings have been pushed to future periods.

Software services and appraisal services revenue declines are attributed to delays in implementations caused by travel restrictions and shelter-in-place orders in effect during the period.

Other revenues were lower compared to prior periods primarily as a result of the cancellation of our 2020 Connect user conference.

Lower revenues compared to prior periods were offset by cost savings attributed to lower spend on travel, user conferences and trade show expenses, health claims and other employee-related expenses.

If and as travel restrictions are relaxed, we expect software services and appraisal services revenues to increase as the limited number of our clients who require that all or a portion of their services be delivered onsite will be able to receive those services.

Also, we are adapting by changing the way we do business, encouraging web and video conferencing, conducting virtual sales demonstrations and delivering professional services remotely, which result in increases in staff utilization rates and billable time.

Recurring revenues from subscriptions and maintenance comprised 73.3% of our total consolidated revenue for the twelve months ended December 31, 2020, and include transaction-based revenue streams such as e-filing and online payments.

As of December 31, 2020, we had $758.5 million in cash and investments and no outstanding borrowings under our credit facility.

We also have substantial additional liquidity available through our undrawn $400 million credit facility, which can be expanded through an accordion feature.

Since our assessment in the second quarter of 2020, we have recorded no impairment to goodwill as no triggering events or changes in circumstances occurred as of period-end.

No impairments of other assets were recorded as of the balance sheet date as no triggering events or changes in circumstances indicating a potential impairment have occurred as of period-end to require such an impairment; however, due to significant uncertainty surrounding the pandemic and market conditions, management’s judgment regarding this could change in the future.

*Security Incident*

On September 29, 2020, we filed a Current Report on Form 8-K reporting a security incident (the "Incident") involving ransomware disrupting access to some of our internal IT systems and telephone systems.

There is no evidence that the environments where we host client applications were affected, and our hosting services to those clients were not interrupted.

There is also no evidence of malicious activity on client networks associated with the Incident.

We contained the Incident and recovered from it, resuming normal operations with our clients.

We will continue to deploy supplemental remediation efforts as necessary.

*Recent Acquisitions*

On October 30, 2019, we acquired certain assets of Courthouse Technologies, Ltd ("CHT"), an industry-leading provider of jury management systems that offers a fully integrated, end-to-end software-as-a-service (SaaS) solution to manage all facets of juror management, from source list generation to juror processing and payment.

The total purchase price was approximately $20.5 million of which $19.1 million was paid in cash and approximately $1.4 million was accrued for working capital and indemnity holdbacks, subject to certain post-closing adjustments.

On February 28, 2019, we acquired all of the capital stock of MP Holdings Parent, Inc. dba MicroPact ("MicroPact"), 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.

The total purchase price, net of cash acquired of $2.0 million, was approximately $202.2 million consisting of $198.2 million paid in cash and accrued contingent consideration of $6.0 million, subject to the achievement of certain financial performance objectives.

On February 1, 2019, we acquired all the assets of Civic, LLC ("MyCivic"), a company that provides software solutions to connect communities.

The total purchase price was $3.7 million in cash.

As of December 31, 2019, the purchase price allocations for MicroPact and MyCivic are complete.

As of December 31, 2019, the purchase price allocation for CHT is not yet complete, therefore the preliminary valuation estimates of fair value assumed at the acquisition date including intangible assets, receivables and deferred revenue are subject to change as the valuation is finalized.

The operating results of all 2019 acquisitions are included with the operating results of the Enterprise Software segment since their date of acquisition.

Revenues from MicroPact included in Tyler's results of operations totaled approximately $63.0 million and the net loss was approximately $98,000 for the twelve months ended December 31, 2019.

The impact of the MyCivic and CHT acquisitions, individually and in the aggregate, on our operating results, assets and liabilities is not material.

Our balance sheet as of December 31, 2019, 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.

As of December 31, 2019, our total employee count increased to 5,368 from 4,525 at December 31, 2018.

We adopted Topic 842 using the transition method that allows us to initially apply the guidance at the adoption date of January 1, 2019, and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

We used 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 did not elect to use the hindsight application for evaluating the life of lease arrangements.

The impact of adoption is reflected in the financial information herein.

For additional details, see Note 1 - Summary of Significant Accounting Policies" to our consolidated financial statements in this report.

The impact of Topic 842 on our consolidated balance sheet beginning January 1, 2019, included the recognition of right-of-use ("ROU") assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

We had no finance leases prior to the adoption of Topic 842 and currently do not have any.

We will adopt the new standard in the first quarter of 2020 and believe the impact on our consolidated financial statements and results of operations will not be material.

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If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure the amount of potential impairment.

In the second step, we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill.

During 2019, we did not identify any triggering events that would indicate that the carrying amount of our intangible assets may not be recoverable.

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| --- | --- | --- | --- | --- | --- | --- | --- | --- |

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| --- | --- | --- | --- | --- |

| Revenues: | | | | |

On October 30, 2019, we acquired certain assets of CHT, an industry-leading provider of jury management systems that offers a fully integrated, end-to-end SaaS solution to manage all facets of juror management, from source list generation to juror processing and payment.

On February 1, 2019, we acquired all the assets of MyCivic, a company that provides software solutions to connect communities.

The impact of the CHT and MyCivic acquisitions on our operating results is not considered material, individually and in the aggregate, and is not included in the table above.

The results of the MicroPact, CHT and MyCivic acquisitions are included with the operating results of the ES segment from their dates of acquisition.

For comparative purposes, we have provided explanations for changes in operations to exclude results of operations for these acquisitions noting the exclusion.

*Software licenses and royalties.*

The following table sets forth a comparison of our software licenses and royalties revenue for the years ended December 31:

As of December 31, [removed: 2019,] [added: 2020,] our interest rate was [removed: 4.88%] [added: 3.38%] under the prime rate option or approximately [removed: 2.89%] [added: 1.27%] under the 30-day LIBOR option.

As of December 31, [removed: 2019,] [added: 2020,] we had no outstanding borrowings under the Credit Facility and therefore are not subject to any interest risk.

In 2019, our effective average interest rate for borrowings was 3.84%.

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The state and local government market is one of the largest and most decentralized IT markets in the country, consisting of all 50 states, approximately 3,000 counties, 36,000 cities and towns and [removed: 13,600] [added: 12,900] school districts.

This market is also comprised of approximately [removed: 37,000] [added: 38,000] special districts and other agencies, each with specialized delegated responsibilities and unique information management requirements.

Gartner, Inc., a leading information technology research and advisory company, estimates that state and local government application and vertical specific software spending will grow from [removed: $17.9] [added: $19.5] billion in [removed: 2020] [added: 2021] to [removed: $21.1] [added: $25.1] billion in [removed: 2023.][added: 2024.]

The professional services and support segments of the market are expected to expand from [removed: $27.5] [added: $29.0] billion in [removed: 2020] [added: 2021] to [removed: $29.9] [added: $33.5] billion in [removed: 2023.][added: 2024.]

Application and vertical specific software sales in the primary and secondary education segments of the market is expected to expand from $3.0 billion in [removed: 2020] [added: 2021] to [removed: $3.7] [added: $4.3] billion in [removed: 2023] [added: 2024] while professional services and support are expected to grow from [removed: $2.5] [added: $3.0] billion in [removed: 2020] [added: 2021] to [removed: $2.8] [added: $3.7] billion in [removed: 2023.][added: 2024.]

[removed: | • |] [added: -] Sales of software licenses and royalties [removed: |]

[removed: | • |] [added: -] Subscription-based arrangements [removed: |]

[removed: | • |] [added: -] Software services [removed: |]

[removed: | • |] [added: -] Maintenance and support [removed: |]

[removed: | • |] [added: -] Appraisal services [removed: |]

[removed: | • |] [added: -] Financial Management and Education [removed: |]

[removed: | • |] [added: -] Courts and Justice [removed: |]

[removed: | • |] [added: -] Public Safety [removed: |]

[removed: | • |] [added: -] Property Appraisal and Tax [removed: |]

[removed: | • |] [added: -] Planning, Regulatory and Maintenance [removed: |]

[removed: | • |] [added: -] Land and Vital Records Management [removed: |]

[removed: | • |] [added: -] Data and Insights [removed: |]

Our financial management systems include modules for general ledger, budget preparation, fixed assets, requisitions, purchase orders, bid management, accounts payable, contract management, accounts receivable, investment management, inventory control, project and grant accounting, work orders, job [added: costing, GASB reporting, payroll and human resources.]

[removed: Tyler’s] [added: Our] 911 / CAD solutions dramatically improve performance, response time and unit safety.

[removed: Tyler’s] [added: Our] public safety records management solutions enable easy access to information and simplify reporting.

Other transaction-based fees [removed: primary] [added: primarily] relate to online payment services, which are offered with the assistance of third-party [removed: vendors.][added: vendors, and online dispute resolution solutions.]

We provide a variety of professional [removed: IT] services to clients who utilize our software products.

These services [removed: include][added: include:]

[removed: | • |] [added: -] The physical inspection of commercial and residential properties [removed: |]

[removed: | • |] [added: -] Data collection and processing [removed: |]

[removed: | • |] [added: -] Sophisticated computer analyses for property valuation [removed: |]

[removed: | • |] [added: -] Preparation of tax rolls [removed: |]

[removed: | • |] [added: -] Community education regarding the assessment process [removed: |]

[removed: | • |] [added: -] Arbitration between taxpayers and the assessing jurisdiction [removed: |]

We have a large recurring revenue base from maintenance and support and subscription-based services, which generated revenues of [removed: $726.7] [added: $818.2] million, or [removed: 67%] [added: 73%] of total revenues, in [removed: 2019.][added: 2020.]

Subscription-based revenues have been our fastest growing revenue category over the past five years, increasing from [removed: $111.9] [added: $142.7] million in [removed: 2015] [added: 2016] to [removed: $296.4] [added: $350.6] million in [removed: 2019.][added: 2020.]

[removed: | • |] [added: -] New products and services to complement our existing offerings [removed: |]

[removed: | • |] [added: -] Entry into new markets related to the public sector [removed: |]

[removed: | • |] [added: -] New clients and/or geographic expansion [removed: |]

SALES, [removed: MARKETING,] [added: MARKETING] AND CLIENTS

At municipal government sites, clients include directors from various departments, including administration, finance, utilities, public works, code enforcement, personnel, purchasing, taxation, municipal [removed: court,] [added: court] and police.

During [removed: 2019,] [added: 2020,] approximately [removed: 40%] [added: 42%] of our revenue was attributable to ongoing support and maintenance agreements.

[removed: Local governmental] [added: Governmental] units often are required to seek competitive proposals through a request for proposal process and some prospective clients use consultants to assist them with the proposal and vendor selection process.

At December 31, [removed: 2019,] [added: 2020,] our revenue backlog was approximately [removed: $1.46] [added: $1.59] billion, compared to [removed: $1.25] [added: $1.46] billion at December 31, [removed: 2018.][added: 2019.]

The backlog [added: generally] represents signed contracts under which the revenue has not been recognized as of year-end.

- Platform Technologies

*Platform Technologies*

HUMAN CAPITAL RESOURCES

*Human Capital*

The strength of our team is one of the most significant contributors to our success in empowering the public sector to create smarter, safer, and stronger communities.

Our effectiveness in attracting, developing, engaging and retaining talented team members, many of whom spend the majority of their careers at Tyler serving our public sector clients, demonstrates our commitment to providing a welcoming and safe workplace, with equitable compensation, benefits and opportunities for our team members to continually grow and develop their careers within Tyler.

As of December 31, 2020, we had approximately 5,500 team members.

Approximately 250 of these team members are located in Canada and the Philippines; the remainder work remotely in the U.S. or are based in one of our nearly 50 U.S. offices.

No Tyler employees are represented by unions.

We believe our efforts in managing and supporting our workforce are effective, as evidenced by current levels of applicants, team member tenure, and high levels of engagement reported through continuous survey feedback from Tyler team members.

The COVID-19 pandemic had a significant impact on our human capital management practices as the majority of our workforce pivoted to work remotely in March 2020.

Our team quickly adjusted to remotely develop for, sell to, implement and support our public sector clients.

At the end of 2020, Tyler’s U.S. workforce was 63% male and 37% female, and women represented 19% of Tyler’s leadership.

In the U.S. our workforce was comprised as follows: 76% White, 8% Asian, 4% Hispanic or Latino, 5% Black or African American, and 7% Other.

For our U.S. leadership, the breakdown was 86% White, 5% Asian, 3% Hispanic or Latino, 3% Black or African American, and 3% Other.

We define leadership as positions which are one or two levels removed from our CEO with management responsibility.

Race and gender reporting are based on information provided by team members.

Voluntary workforce turnover (rolling 12-month attrition) was 6.5% as of December 31, 2020.

The average tenure of our team members is approximately seven years and approximately 27% of our employees have been employed by Tyler for more than ten years.

*Investments in Talent*

We are committed to providing Tyler team members with the training and resources necessary to continually strengthen their skills.

Our talent assessment and development programs provide managers and employees with the resources needed to achieve career goals, build management skills and lead their teams.

Our TylerU online training platform provides team members with opportunities for continuous learning, professional training and development.

*Oversight and Management*

Our Human Resources organization is tasked with leading our organization in managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, talent management and development.

Our executive team is responsible for periodically reviewing team member programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices.

Management periodically reports to the Board and its committees human capital measures and results that guide how we attract, retain and develop a workforce to enable our business strategies.

*Health & Safety*

We invest in the well-being of Tyler team members and their families.

We provide a range of offerings in support of mental and emotional, financial, and physical health and wellness – not only for our team members, but also for the family members who depend on them.

The COVID-19 pandemic created stressful conditions in 2020.

In response to the pandemic, we implemented significant changes that we determined were in the best interest of our employees, including moving the vast majority of our employees to work from home, while implementing additional safety measures for employees continuing critical on-site work.

In addition to safety protocols and the establishment of local site Return-To-Office teams, we:

a.Introduced enhanced mental health benefits and resources for team members and their families through our employee assistance programs in the U.S., Canada and the Philippines

b.Covered telehealth visits for medical and mental health services at 100%

c.Provided coverage of all COVID-19 testing and treatment under all Company medical plans at no cost to employees and dependents

d.Provided unlimited paid time off for any team member who was awaiting or had received a positive COVID-19 test result or was unable to perform their duties from home, whether due to the nature of their work or a client request.

*Diversity and Inclusion*

We believe that a diverse workforce is critical to our success, and we continue to monitor and improve the application of our hiring, retention, compensation and advancement processes for women and underrepresented populations across our workforce, including our team members of color, veterans and those who are LGBTQ.

Our Women’s Leadership Network, Veteran’s Affinity groups, and local office diversity councils, among other programs, serve to enhance our inclusive and diverse culture.

| | |

| --- | --- |

| • | Case Management and Business Process Management |

costing, GASB reporting, payroll and human resources.

*Case Management and Business Process Management*

EMPLOYEES

At December 31, 2019, we had 5,368 employees.

None of our employees are represented by a labor union or are subject to collective bargaining agreements.

We consider our relations with our employees to be positive.

| | |

| --- | --- |

| FORM | [added: | |] 10-K | [added: | |]

| ☒ | [added: | |] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 | [added: | |]

For the Fiscal Year [removed: Ended December] [added: Ended December] 31, [removed: 2019][added: 2020]

| ☐ | [added: | |] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | [added: | |]

Commission File [removed: Number 1-10485][added: Number 1-10485]

| TYLER TECHNOLOGIES, INC. | [added: | |]

| (Exact name of registrant as specified in its charter) | [added: | |]

| Delaware | | [added: | | | |] 75-2303920 | [added: | |]

| (State or other jurisdiction of incorporation or organization) | | [added: | | | |] (I.R.S. [removed: employer identification] [added: employer identification] no.) | [added: | |]

| 5101 Tennyson Parkway | | | [added: | | | | | |]

| Plano, | [added: | |] Texas | [added: | |] 75024 | [added: | |]

| (Address of principal executive offices) | | [added: | | | |] (Zip code) | [added: | |]

Registrant’s telephone number, including area code: [removed: (972) 713-3700][added: (972) 713-3700]

| Title of each class | [added: | |] Trading symbol | [added: | |] Name of each exchange on which registered | [added: | |]

| COMMON STOCK, $0.01 PAR VALUE | [added: | |] TYL | [added: | |] New York Stock Exchange | [added: | |]

| NONE | [added: | |]

See the definitions of “large accelerated [removed: filer,"] [added: filer",] "accelerated [removed: filer,”] [added: filer”,] "smaller reporting [removed: company,"] [added: company",] and "emerging growth company" in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | | [added: | | | |] ☒ | | [added: | | | |] Accelerated Filer | | [added: | | | |] ☐ | [added: | |]

| Non-accelerated Filer (Do not check if smaller reporting company) | | [added: | | | |] ☐ | | [added: | | | |] Smaller Reporting Company | | [added: | | | |] ☐ | [added: | |]

| | | | | [added: | | | | | | | |] Emerging Growth Company | | [added: | | | |] ☐ | [added: | |]

| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | | | | | [added: | | | | | | | | | | | |] ☐ | [added: | |]

The aggregate market value of the voting stock held by non-affiliates of the registrant was [removed: $8,172,267,000] [added: $13,728,101,720] based on the reported last sale price of common stock on June 30, [removed: 2019,] [added: 2020,] which is the last business day of the registrant’s most recently completed second fiscal quarter.

The number of shares of common stock of the registrant outstanding on February [removed: 18, 2020] [added: 17, 2021] was [removed: 39,396,000.][added: 40,576,730]

Certain information required by Part III of this annual report is incorporated by reference from the registrant’s definitive proxy statement for its annual meeting of stockholders to be held on May [removed: 12, 2020.][added: 11, 2021.]

| | | [added: | | | |] PAGE | [added: | |]

| Item 1. | [removed: [Business](#s60A6FF84F4FE5DA5ADC5C26D5A16D2D9)] | [removed: [3](#s60A6FF84F4FE5DA5ADC5C26D5A16D2D9)] | [added: [Business](#i8b7048d9282b49808c9b0dc46622e6f3_13) | | | [3](#i8b7048d9282b49808c9b0dc46622e6f3_13) | | |]

| Item 1A. | [added: | |] [Risk [removed: Factors](#s3AFA22498F03597791F484F540ABC509)] [added: Factors](#i8b7048d9282b49808c9b0dc46622e6f3_16)] | [removed: [11](#s3AFA22498F03597791F484F540ABC509)] | [added: | [11](#i8b7048d9282b49808c9b0dc46622e6f3_16) | | |]

| Item 1B. | [added: | |] [Unresolved Staff [removed: Comments](#s0F196698946359EA940DBF45C4BB18CD)] [added: Comments](#i8b7048d9282b49808c9b0dc46622e6f3_19)] | [removed: [17](#s0F196698946359EA940DBF45C4BB18CD)] | [added: | [18](#i8b7048d9282b49808c9b0dc46622e6f3_19) | | |]

| Item 2. | [removed: [Properties](#sD8121525359555C79D324F8541AE5C5B)] | [removed: [17](#sD8121525359555C79D324F8541AE5C5B)] | [added: [Properties](#i8b7048d9282b49808c9b0dc46622e6f3_22) | | | [18](#i8b7048d9282b49808c9b0dc46622e6f3_22) | | |]

| Item 3. | [added: | |] [Legal [removed: Proceedings](#s40DE5B1255AE5074B10173B7364D1C2D)] [added: Proceedings](#i8b7048d9282b49808c9b0dc46622e6f3_25)] | [removed: [17](#s40DE5B1255AE5074B10173B7364D1C2D)] | [added: | [18](#i8b7048d9282b49808c9b0dc46622e6f3_25) | | |]

| Item 4. | [added: | |] [Submission of Matters to a Vote of Security [removed: Holders](#sB983AC3E580B55EF940653D18516CB00)] [added: Holders](#i8b7048d9282b49808c9b0dc46622e6f3_28)] | [removed: [17](#sB983AC3E580B55EF940653D18516CB00)] | [added: | [18](#i8b7048d9282b49808c9b0dc46622e6f3_28) | | |]

| Item 5. | [added: | |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s133D32118AC75A119C1CC32B44C9A3C2)] [added: Securities](#i8b7048d9282b49808c9b0dc46622e6f3_34)] | [removed: [18](#s133D32118AC75A119C1CC32B44C9A3C2)] | [added: | [19](#i8b7048d9282b49808c9b0dc46622e6f3_34) | | |]

| Item 6. | [added: | |] [Selected Financial [removed: Data](#s924135EBA02151B79E01480848849B0B)] [added: Data](#i8b7048d9282b49808c9b0dc46622e6f3_37)] | [removed: [20](#s924135EBA02151B79E01480848849B0B)] | [added: | [20](#i8b7048d9282b49808c9b0dc46622e6f3_37) | | |]

| Item 7. | [added: | |] [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sE6DB24F27AD15D209DB411C576A02394)] [added: Operations](#i8b7048d9282b49808c9b0dc46622e6f3_40)] | [removed: [21](#sE6DB24F27AD15D209DB411C576A02394)] | [added: | [21](#i8b7048d9282b49808c9b0dc46622e6f3_40) | | |]

| Item 7A. | [added: | |] [Quantitative and Qualitative Disclosures about Market [removed: Risk](#sD0F62C90322D591B96FBA14614F915AF)] [added: Risk](#i8b7048d9282b49808c9b0dc46622e6f3_61)] | [removed: [39](#sD0F62C90322D591B96FBA14614F915AF)] | [added: | [36](#i8b7048d9282b49808c9b0dc46622e6f3_61) | | |]

| Item 8. | [added: | |] [Financial Statements and Supplementary [removed: Data](#s98A5246E125F54C89C717C54ABFE91A1)] [added: Data](#i8b7048d9282b49808c9b0dc46622e6f3_64)] | [removed: [39](#s98A5246E125F54C89C717C54ABFE91A1)] | [added: | [36](#i8b7048d9282b49808c9b0dc46622e6f3_64) | | |]

| Item 9. | [added: | |] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sF77AD57C3D585BCF956C5CA908EDD72E)] [added: Disclosure](#i8b7048d9282b49808c9b0dc46622e6f3_67)] | [removed: [39](#sF77AD57C3D585BCF956C5CA908EDD72E)] | [added: | [36](#i8b7048d9282b49808c9b0dc46622e6f3_67) | | |]

| Item 9A. | [added: | |] [Controls and [removed: Procedures](#s566EB778C6105FDF8F3BA0E5067667A7)] [added: Procedures](#i8b7048d9282b49808c9b0dc46622e6f3_70)] | [removed: [40](#s566EB778C6105FDF8F3BA0E5067667A7)] | [added: | [37](#i8b7048d9282b49808c9b0dc46622e6f3_70) | | |]

| Item 9B. | [added: | |] [Other [removed: Information](#s1A046954C8F25DE5B1554462CB9F5086)] [added: Information](#i8b7048d9282b49808c9b0dc46622e6f3_73)] | [removed: [40](#s1A046954C8F25DE5B1554462CB9F5086)] | [added: | [37](#i8b7048d9282b49808c9b0dc46622e6f3_73) | | |]

| | [removed: [PART III](#s396E1772AB4C551A8D3D42C55BBDCECF)] | | [added: [PART III](#i8b7048d9282b49808c9b0dc46622e6f3_76) | | | | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☒ No ☐

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| | | | [PART I](#i8b7048d9282b49808c9b0dc46622e6f3_10) | | | | | |

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| | | | [PART II](#i8b7048d9282b49808c9b0dc46622e6f3_31) | | | | | |

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| | | | [PART IV](#i8b7048d9282b49808c9b0dc46622e6f3_94) | | | | | |

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| | [PART I](#s63873C3F57085B5581916D5F5EECADF0) | |

| | [PART II](#sC3152210576B5347802809354BB0EE5E) | |

| | [PART IV](#sD991F53E5FB6515A8CC70297FAAD4612) | |

| [Signatures](#sC81EB64D13FC54068976A8651175226E) | | [44](#sC81EB64D13FC54068976A8651175226E) |

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| --- | --- |

We occupy a total of approximately [removed: 1.2] [added: 1.1] million square feet of office space, of which approximately 746,000 square feet is in various office facilities we own.

We own or lease offices for our major operations in the states of Arizona, Arkansas, California, Colorado, [added: Connecticut,] Georgia, [added: Illinois,] Iowa, Maine, Massachusetts, Michigan, Missouri, Montana, New Hampshire, New York, North Carolina, Ohio, Tennessee, Texas, Virginia, Washington, Washington D.C., Wisconsin, Ontario and British Columbia, [removed: Canada] [added: Canada, the Philippines] and the [removed: Philippines.][added: Bahamas.]

| | |

| --- | --- |

| | |

| --- | --- |

Our common stock is traded on the New York Stock Exchange under the symbol [removed: “TYL.” At December 31, 2019, we had approximately 1,215 stockholders of record.][added: “TYL”.]

Most of our stockholders hold their shares in street name; therefore, there are substantially more than [removed: 1,215] [added: 1,143] beneficial owners of our common stock.

We did not pay any cash dividends in [removed: 2019] [added: 2020] or [removed: 2018.][added: 2019.]

There are no warrants or rights related to our equity compensation plans as of December 31, [removed: 2019.][added: 2020.]

| | [added: | |] Number of securities to be issued upon exercise of outstanding options, warrants, purchase rights and vesting of restricted stock units as of December 31, [removed: 2019] [added: 2020] | | | [added: | | |] Weighted average exercise price of outstanding options and unvested restricted stock units | | | | [added: | |] Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in initial column as of December 31, [removed: 2019)] [added: 2020)] | | [added: |]

| Plan Category | | | | | | | | | | [added: | | | | | | | |]

| Equity compensation plans approved by security shareholders: | | | | | | | | | | [added: | | | | | | | |]

| Equity compensation plans not approved by security shareholders | [added: | |] — | | | [added: | | |] — | | | | [added: | |] — | | [added: |]

As of December 31, [removed: 2019,] [added: 2020,] we had authorization to repurchase up to approximately [removed: 2.6] [added: 2.5] million additional shares of Tyler common stock.

During [removed: 2019,] [added: 2020,] we purchased approximately [removed: 72,000] [added: 59,000] shares of our common stock for an aggregate purchase price of [removed: $14.3] [added: $15.5] million.

A summary of the repurchase activity during [removed: 2019] [added: 2020] is as follows:

| Period | | [added: | | | |] Total number of shares repurchased | | | [added: | | |] Additional number of shares authorized that may be repurchased | | | [added: | | |] Average price paid per share | | | | [added: | |] Maximum number of shares that may be repurchased under current authorization | | [added: |]

| Three months ended June 30 | | [added: | | | |] — | | | [added: | | |] — | | | [added: | | |] — | | | | [removed: 2,620,925] | | [added: 2,505,472 | | |]

| Three months ended September 30 | | [removed: —] | | | [removed: —] | [added: 7] | | [added: | | | |] — | | | | [removed: 2,620,925] | | [added: 361.19 | | | | | | 2,505,465 | | |]

The repurchase program, which was approved by our board of directors, was announced in October [removed: 2002] [added: 2002,] and was amended at various times from 2003 through 2019.

As of February 19, [removed: 2020,] [added: 2021,] we had remaining authorization to repurchase up to [removed: 2.6] [added: 2.5] million additional shares of our common stock.

The following table compares total shareholder returns for Tyler over the last five years to the Standard and Poor’s 500 Stock Index and the Standard and Poor’s 600 Information Technology Index assuming a $100 investment made on December 31, [removed: 2014.][added: 2015.]

[removed: ][added: ]

| Company / Index | [removed: 12/31/14] | | [removed: |] 12/31/15 | | | [added: | | |] 12/31/16 | | | [added: | | |] 12/31/17 | | | [added: | | |] 12/31/18 | | | [added: | | |] 12/31/19 | | [added: | | | | 12/31/20 | | |]

At December 31, 2020, we had approximately 1,143 stockholders of record.

| 2018 Incentive Stock Plan | | | 2,763,414 | | | | | | $ | 203.05 | | | | | 2,480,878 | | |

| Employee Stock Purchase Plan | | | 8,186 | | | | | | 371.04 | | | | | | 663,502 | | |

| | | | 2,771,600 | | | | | | $ | 203.55 | | | | | 3,144,380 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Three months ended March 31 | | | | | | 58,804 | | | | | | — | | | | | | $ | 263.26 | | | | | 2,505,472 | | |

| October 1 through October 31 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,505,465 | | |

| November 1 through November 30 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,505,465 | | |

| December 1 through December 31 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,505,465 | | |

| | | | | | | 58,811 | | | | | | — | | | | | | $ | 263.27 | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Tyler Technologies, Inc. | | | 100 | | | | | | 81.90 | | | | | | 101.57 | | | | | | 106.60 | | | | | | 172.11 | | | | | | 250.41 | | |

| S&P 500 Stock Index | | | 100 | | | | | | 111.96 | | | | | | 136.40 | | | | | | 130.42 | | | | | | 171.49 | | | | | | 203.04 | | |

| S&P 600 Information Technology Index | | | 100 | | | | | | 133.85 | | | | | | 147.62 | | | | | | 134.43 | | | | | | 187.65 | | | | | | 239.83 | | |

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2018 Incentive Stock Plan | 4,052,461 | | | $ | 155.92 | | | 3,097,303 | |

| Employee Stock Purchase Plan | 9,681 | | | 255.02 | | | | 701,837 | |

| | 4,062,142 | | | $ | 156.15 | | | 3,799,140 | |

| | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Three months ended March 31 | | 71,793 | | | 1,500,000 | | | $ | 199.03 | | | 2,620,925 | |

| October 1 through October 31 | | — | | | — | | | — | | | | 2,620,925 | |

| November 1 through November 30 | | — | | | — | | | — | | | | 2,620,925 | |

| December 1 through December 31 | | — | | | — | | | — | | | | 2,620,925 | |

| | | 71,793 | | | 1,500,000 | | | $ | 199.03 | | | | |

In February 2019, our board of directors authorized the repurchase of an additional 1.5 million of Tyler common stock.

| | | | | | | | | | | | | | | | | | |

| Tyler Technologies, Inc. | 100 | | | 159.28 | | | 130.46 | | | 161.78 | | | 169.79 | | | 274.14 | |

| S&P 500 Stock Index | 100 | | | 101.38 | | | 113.51 | | | 138.29 | | | 132.23 | | | 173.86 | |

| S&P 600 Information Technology Index | 100 | | | 104.65 | | | 140.08 | | | 154.48 | | | 140.68 | | | 196.38 | |

| | |

| --- | --- |

This section has been eliminated as a result of adopting the November 19, 2020 amendment to Item 301 of Regulation S-K.

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | FOR THE YEARS ENDED DECEMBER 31, | | | | | | | | | | | | | | | | | | |

| | 2019 (a) | | | | 2018 | | | | 2017 (b),(c) | | | | 2016 (b) | | | | 2015 | | |

| STATEMENT OF OPERATIONS DATA: | | | | | | | | | | | | | | | | | | | |

| Revenues | $ | 1,086,427 | | | $ | 935,282 | | | $ | 840,899 | | | $ | 759,880 | | | $ | 591,022 | |

| Cost and expenses: | | | | | | | | | | | | | | | | | | | |

| Cost of revenues | 569,527 | | | | 495,704 | | | | 441,522 | | | | 400,692 | | | | 313,835 | | |

| Selling, general and administrative expenses | 257,746 | | | | 207,605 | | | | 175,914 | | | | 165,176 | | | | 133,317 | | |

| Research and development expense | 81,342 | | | | 63,264 | | | | 47,324 | | | | 43,154 | | | | 29,922 | | |

| Amortization of customer and trade name intangibles | 21,445 | | | | 16,217 | | | | 13,381 | | | | 13,202 | | | | 5,905 | | |

| Operating income | 156,367 | | | | 152,492 | | | | 162,758 | | | | 137,656 | | | | 108,043 | | |

| Other income, net | 3,471 | | | | 3,378 | | | | 698 | | | | (1,998 | | ) | | 381 | | |

| Income before income taxes | 159,838 | | | | 155,870 | | | | 163,456 | | | | 135,658 | | | | 108,424 | | |

| Income tax (benefit) provision (c) | 13,311 | | | | 8,408 | | | | (6,115 | | ) | | 21,957 | | | | 43,555 | | |

| Net income | 146,527 | | | | 147,462 | | | | 169,571 | | | | 113,701 | | | | 64,869 | | |

| Net earnings per diluted share | $ | 3.65 | | | $ | 3.68 | | | $ | 4.32 | | | $ | 2.92 | | | $ | 1.77 | |

| Weighted average diluted shares | 40,105 | | | | 40,123 | | | | 39,246 | | | | 38,961 | | | | 36,552 | | |

| STATEMENT OF CASH FLOWS DATA: | | | | | | | | | | | | | | | | | | | |

| Cash flows provided by operating activities | $ | 254,720 | | | $ | 250,203 | | | $ | 195,755 | | | $ | 191,859 | | | $ | 134,327 | |

| Cash flows used by investing activities | (245,015 | | ) | | (238,255 | | ) | | (85,395 | | ) | | (50,720 | | ) | | (398,459 | | ) |

| Cash flows (used) provided by financing activities | 88,698 | | | | (63,595 | | ) | | 39,415 | | | | 138,075 | | | | 91,052 | | |

| BALANCE SHEET DATA: | | | | | | | | | | | | | | | | | | | |

| Total assets | $ | 2,191,614 | | | $ | 1,790,963 | | | $ | 1,611,351 | | | $ | 1,378,502 | | | $ | 1,356,570 | |

| Revolving line of credit | — | | | | — | | | | — | | | | 10,000 | | | | 66,000 | | |

| Shareholders' equity | 1,617,058 | | | | 1,324,846 | | | | 1,191,736 | | | | 934,540 | | | | 858,857 | | |

(a) Reflects the impact of the adoption of Accounting Standards Update ("ASU") ASU No. 2016-02, *Leases* ("Topic 842") in fiscal year 2019.

Refer to Note - 1 "Summary of Significant Accounting Policies" for further discussion.

(b) Reflects the impact of the adoption of ASU No. 2014-09, *Revenue from Contracts with Customers* in fiscal year 2018.

(c) 2017 includes the significant impact of the enactment of the Tax Cuts and Jobs Act ("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.

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

Management, with the participation of the chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, [removed: 2019.][added: 2020.]

Based on this evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of December 31, [removed: 2019.][added: 2020.]

Management assessed the effectiveness of Tyler’s internal control over financial reporting as of December 31, [removed: 2019.][added: 2020.]

Based on our assessment, we concluded that, as of December 31, [removed: 2019,] [added: 2020,] Tyler’s internal control over financial reporting was effective based on those criteria.

Tyler’s internal control over financial reporting as of December 31, [removed: 2019] [added: 2020] has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited Tyler’s financial statements.

*Changes in Internal Control Over Financial Reporting* — During the quarter ended December 31, [removed: 2019,] [added: 2020,] there were no changes in our internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f), that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of MicroPact, which is included in our 2019 consolidated financial statements and constituted 11.5% of total assets as of December 31, 2019 and 5.8% of revenues for the year then ended.

| | |

| --- | --- |

| | | [added: | | | |] Headings in Proxy Statement | [added: | |]

| ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE. | | [added: | | | |] “Tyler Management” and “Corporate Governance Principles and Board Matters” | [added: | |]

| ITEM 11. EXECUTIVE COMPENSATION. | | [added: | | | |] “Executive Compensation” | [added: | |]

| ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. | | [added: | | | |] “Security Ownership of Certain Beneficial Owners and Management” | [added: | |]

| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. | | [added: | | | |] "Executive Compensation" and “Certain Relationships and Related Transactions” | [added: | |]

| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. | | | [added: | | | | | |]

| The information required under this item may be found under the section captioned “Proposals For Consideration – Proposal Two – Ratification of Our Independent Auditors for Fiscal Year 2020” in our Proxy Statement when filed. | | | [added: | | | | | |]

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| (a) | | [removed: (1] | [removed: )] | | [added: | (1) | | | | | |] The financial statements are filed as part of this Annual Report. | | | [added: | | | | | |]

| | | | | | | | [added: | | | | | | | | | | |] Page | [added: | |]

| | | | | | [added: | | | | | | |] [Reports of Independent Registered Public Accounting [removed: Firm](#s7DB38AA8553456E5A4D9E62213C0144F)] [added: Firm](#i8b7048d9282b49808c9b0dc46622e6f3_103)] | | [removed: [F-1](#s7DB38AA8553456E5A4D9E62213C0144F)] | [added: | | | [F-1](#i8b7048d9282b49808c9b0dc46622e6f3_103) | | |]

| | | | | | [added: | | | | | | |] [Consolidated Statements of Comprehensive Income for the years ended December [removed: 31, 2019, 2018 and 2017](#s5A0E8C2A5F8A511A86B536D298F1078B)] [added: 31,](#i8b7048d9282b49808c9b0dc46622e6f3_106) [2020,](#i8b7048d9282b49808c9b0dc46622e6f3_106) [2019](#i8b7048d9282b49808c9b0dc46622e6f3_106) [](#i8b7048d9282b49808c9b0dc46622e6f3_106)[and](#i8b7048d9282b49808c9b0dc46622e6f3_106) [2018](#i8b7048d9282b49808c9b0dc46622e6f3_106)] | | [removed: [F-4](#s5A0E8C2A5F8A511A86B536D298F1078B)] | [added: | | | [F-4](#i8b7048d9282b49808c9b0dc46622e6f3_106) | | |]

| | | | | | [added: | | | | | | |] [Consolidated Balance Sheets as of December 31, [removed: 2019 and 2018](#s1ECF17EEE8895E19A3183D7891524F96)] [added: 20](#i8b7048d9282b49808c9b0dc46622e6f3_109)[20](#i8b7048d9282b49808c9b0dc46622e6f3_109) [and 201](#i8b7048d9282b49808c9b0dc46622e6f3_109)[9](#i8b7048d9282b49808c9b0dc46622e6f3_109)] | | [removed: [F-5](#s1ECF17EEE8895E19A3183D7891524F96)] | [added: | | | [F-5](#i8b7048d9282b49808c9b0dc46622e6f3_109) | | |]

| | | | | | [added: | | | | | | |] [Consolidated Statements of Shareholders’ Equity for the years ended December [removed: 31, 2019, 2018 and 2017](#s6A78663706FC50C5A2F605419CAFA780)] [added: 31,](#i8b7048d9282b49808c9b0dc46622e6f3_118) [2020,](#i8b7048d9282b49808c9b0dc46622e6f3_118) [2019](#i8b7048d9282b49808c9b0dc46622e6f3_118) [and](#i8b7048d9282b49808c9b0dc46622e6f3_118) [2018](#i8b7048d9282b49808c9b0dc46622e6f3_118)] | | [removed: [F-7](#s6A78663706FC50C5A2F605419CAFA780)] | [added: | | | [F-7](#i8b7048d9282b49808c9b0dc46622e6f3_118) | | |]

| | | | | | [added: | | | | | | |] [Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#sECEB9A33042450A898D7678E5B457523)] [added: 2018](#i8b7048d9282b49808c9b0dc46622e6f3_115)] | | [removed: [F-6](#sECEB9A33042450A898D7678E5B457523)] | [added: | | | [F-6](#i8b7048d9282b49808c9b0dc46622e6f3_115) | | |]

| | | | | | [added: | | | | | | |] [Notes to Consolidated Financial [removed: Statements](#s10D664457D565EB38922339B293669BF)] [added: Statements](#i8b7048d9282b49808c9b0dc46622e6f3_121)] | | [removed: [F-8](#s10D664457D565EB38922339B293669BF)] | [added: | | | [F-8](#i8b7048d9282b49808c9b0dc46622e6f3_121) | | |]

| | | [removed: (2] | [removed: )] | | [added: | (2) | | | | | |] Financial statement schedules: | | | [added: | | | | | |]

| | | | | | [added: | | | | | | |] 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. | | | [added: | | | | | |]

| | | [removed: (3] | [removed: )] | | [added: | (3) | | | | | |] Exhibits | | | [added: | | | | | |]

| | | | | | [added: | | | | | | |] Certain of the exhibits to this Annual Report are hereby incorporated by reference, as specified: | | | [added: | | | | | |]

| Exhibit Number | | [added: | | | |] Description | [added: | |]

| 3.1 | | [added: | | | |] 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). | [added: | |]

| 3.2 | | [added: | | | |] 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). | [added: | |]

| [3.3](http://www.sec.gov/Archives/edgar/data/860731/000156459015008522/tyl-ex33_112.htm) | | [added: | | | |] [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).](http://www.sec.gov/Archives/edgar/data/860731/000156459015008522/tyl-ex33_112.htm) | [added: | |]

| [3.4](http://www.sec.gov/Archives/edgar/data/860731/000095013401002412/d84862ex3-4.txt) | | [added: | | | |] [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).](http://www.sec.gov/Archives/edgar/data/860731/000095013401002412/d84862ex3-4.txt) | [added: | |]

| 4.1 | | [added: | | | |] Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our registration statement no. 33-33505 and incorporated by reference herein). | [added: | |]

| [4.2](http://www.sec.gov/Archives/edgar/data/860731/000119312515378245/d57735dex101.htm) | | [added: | | | |] [Credit Agreement dated September 30, 2019, 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 October 02, 2019, and incorporated by reference herein).](http://www.sec.gov/Archives/edgar/data/860731/000086073119000039/exhibit101creditagreem.htm) | [added: | |]

| [10.1](http://www.sec.gov/Archives/edgar/data/860731/000119312512282212/d371277ds8.htm) | | [added: | | | |] [Employee Stock Purchase Plan (filed as Exhibit 10.1 to our registration statement 333-182318 dated June 25, 2012 and incorporated by reference herein).](http://www.sec.gov/Archives/edgar/data/860731/000119312512282212/d371277ds8.htm) | [added: | |]

| [10.2](http://www.sec.gov/Archives/edgar/data/860731/000119312513067262/d487966dex103.htm) | | [added: | | | |] [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).](http://www.sec.gov/Archives/edgar/data/860731/000086073118000013/a101exhibit2018execemplagm.htm) | [added: | |]

| [10.3](http://www.sec.gov/Archives/edgar/data/860731/000119312513067262/d487966dex105.htm) | | [added: | | | |] [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).](http://www.sec.gov/Archives/edgar/data/860731/000086073118000013/a103exhibit2018execemplagm.htm) . | [added: | |]

| [10.4](http://www.sec.gov/Archives/edgar/data/860731/000119312513067262/d487966dex106.htm) | | [added: | | | |] [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).](http://www.sec.gov/Archives/edgar/data/860731/000086073118000013/a102exhibit2018execemplagm.htm) | [added: | |]

| [removed: [10.5](#s08A784510D5A5D3CB764C712B16B3FB7)] [added: [10.5](#i8b7048d9282b49808c9b0dc46622e6f3_1)] | | [added: | | | |] [Agreement and plan of merger by and among Tyler Technologies, Inc. TMP Subsidiary, Inc., MP Holding Parent, Inc. (filed as Exhibit 10.7 to our Form 10-K dated February 20, 2019 and incorporated by reference herein).](http://www.sec.gov/Archives/edgar/data/860731/000086073119000009/plan_ofxmergermicropactexh.htm) | [added: | |]

| [10.6](http://www.sec.gov/Archives/edgar/data/860731/000086073118000016/tylproxy2018.htm#sb3775a337bee452f876ac4e4a6e1c03e) | | [added: | | | |] [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).](http://www.sec.gov/Archives/edgar/data/860731/000086073118000016/tylproxy2018.htm#sb3775a337bee452f876ac4e4a6e1c03e) | [added: | |]

| [removed: [*23](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit-23.htm)] [added: [*23](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit-23.htm)] | | [added: | | | |] [Consent of Independent Registered Public Accounting [removed: Firm.](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit-23.htm)] [added: Firm.](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit-23.htm)] | [added: | |]

| [removed: [*31.1](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit311.htm)] [added: [](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit311.htm)[*31.1](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit311.htm)] | | [added: | | | |] [Rule 13a-14(a) Certification by Principal Executive [removed: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit311.htm)] [added: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit311.htm)[(a) Certification by Principal Executive Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit311.htm)] | [added: | |]

| [removed: [*31.2](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit312.htm)] [added: [*31.2](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit312.htm)] | | [added: | | | |] [Rule 13a-14(a) Certification by Principal Financial [removed: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit312.htm)] [added: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit312.htm)] | [added: | |]

| [removed: [*32](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit321.htm)] [added: [*32.1](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit321.htm)] | | [added: | | | |] [Section 1350 Certification of Principal Executive Officer and Principal Financial [removed: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073120000008/tyl12312019exhibit321.htm)] [added: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073121000014/tyl12312020exhibit321.htm)] | [added: | |]

| *101.INS | | [added: | | | |] Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags, including Cover Page XBRL tags, are embedded within the Inline XBRL Document. | [added: | |]

| *101.SCH | | [added: | | | |] Inline XBRL Taxonomy Extension Schema Document. | [added: | |]

| *101.CAL | | [added: | | | |] Inline XBRL Taxonomy Extension Calculation Linkbase Document. | [added: | |]

| *101.LAB | | [added: | | | |] Inline XBRL [removed: Extenstion] [added: Extension] Labels Linkbase Document. | [added: | |]

| *101.DEF | | [added: | | | |] Inline XBRL Taxonomy Extension Definition Linkbase Document. | [added: | |]

| *101.PRE | | [added: | | | |] Inline XBRL Taxonomy Extension Presentation Linkbase Document. | [added: | |]

| 104 | | [added: | | | |] Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | [added: | |]

| * | [added: | |] — Filed herewith. | [added: | |]

| | | [added: | | | |] TYLER TECHNOLOGIES, INC. | | | [added: | | | | | |]

| Date: February 19, [removed: 2020] [added: 2021] | | [added: | | | |] By: | | [added: | | | |] /s/ H. Lynn Moore, Jr. | [added: | |]

| | | | | [added: | | | | | | | |] H. Lynn Moore, Jr. | [added: | |]

| [4.3](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm) | | | | | | [Agreement and Plan of Merger, dated February 9, 2021 by and among Tyler Technologies, Inc., Topos Acquisition, Inc., and NIC, Inc.(file](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm)[d](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm) [as Exhibit 2.1 to our Form 8-K, dated February 10, 2021, and incorporated by reference herein).](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm) | | |

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| Date: February 19, 2021 | | | | | | By: | | | | | | /s/ H. Lynn Moore, Jr. | | |

| | | | | | | | | | | | | H. Lynn Moore, Jr. | | |

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| Date: February 19, 2021 | | | | | | By: | | | | | | /s/ Mary Landrieu | | |

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February 19, 2021

February 19, 2021

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| Date: February 19, 2020 | | By: | | /s/ J. Luther King |

| | | | | J. Luther King |

| | Accounting for the acquisition of MP Holdings Parent, Inc. |

| *Description of* *the Matter* | As described in Note 2 "Acquisitions" to the consolidated financial statements, the Company completed three acquisitions during 2019 for net consideration of $226.5 million. The most significant of these was the acquisition of MP Holdings Parent, Inc. (MicroPact) for net consideration of $202.2 million. The transactions were accounted for as business combinations. Auditing the Company’s accounting for the MicroPact acquisition was more complex due to the significant estimations used by management in determining the fair values of assets acquired and liabilities assumed, in particular the fair values of identified intangible assets of $136.1 million, the most significant of which consisted of customer relationships and developed technology, both of which utilize prospective financial information. The Company valued customer relationships using the multi-period excess earnings model. The significant assumptions used in this model included the attrition rate, weighted average cost of capital and existing customer growth. The Company valued the developed technology using the relief-from-royalty method. The significant assumptions used in this method included the obsolescence rate and weighted average cost of capital. The significant assumptions used in the valuation of the intangible assets are forward-looking and could be affected by future economic and market conditions. |

| *How We Addressed the Matter in Our Audit* | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for the MicroPact acquisition. For example, we tested controls over the recognition and measurement of consideration transferred, as well as management’s review of the valuation methods and significant underlying assumptions for each identified intangible asset. To test the estimated fair values of the acquired customer relationships and developed technology, we performed audit procedures that included, among others, evaluating the Company’s selection of the valuation methodology, evaluating the significant assumptions used in the Company’s valuation calculations and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. Additionally, we performed sensitivity analyses and compared significant assumptions to forecasts, the assumptions used to value similar assets in other acquisitions and to historical financial results of both the Company and the acquiree, among other procedures. We also evaluated the Company’s acquisition and related purchase accounting disclosures included in Note 2 "Acquisitions". |

February 19, 2020

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of MP Holdings Parent, Inc. (MicroPact), which is included in the 2019 consolidated financial statements of the Company and constituted 11.5% of total assets as of December 31, 2019 and 5.8% of total revenue for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of MicroPact.

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| | $ | 2,191,614 | | | $ | 1,790,963 | |

| Cash and cash equivalents at end of period | $ | 232,682 | | | $ | 134,279 | | | $ | 185,926 | |

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| Balance at December 31, 2016 | 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 | — | | | — | | | | 44,458 | | | | — | | | | — | | | | 1,126 | | | 30,449 | | | | 74,907 | | |

The allowance for doubtful accounts and sales adjustments 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.

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.

We believe cost approximates fair value.

Leases.

We adopted ASU No. 2016-02, *Leases* ("Topic 842") using the transition method that allows us to initially apply the guidance at the adoption date of January 1, 2019, and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

We used 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 did not elect to use the hindsight application for evaluating the life of the lease arrangement.

The impact of adoption is reflected in the financial information herein.

For additional details, see Note 11 to our consolidated financial statements.

We had no finance leases prior to the adoption of Topic 842 and continue to have none as of December 31, 2019.

Amounts recognized at January 1, 2019, for operating leases were as follow (in thousands):

| Operating lease liabilities, long-term | | (12,405 | | ) |