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, 2020, 2019 and 2018						F-4
												Consolidated Balance Sheets as of December 31, 2020 and 2019						F-5
												Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018						F-6
												Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018						F-7
												Notes to Consolidated Financial Statements						F-8
						(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 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).
4.3						Agreement and Plan of Merger, dated February 9, 2021 by and among Tyler Technologies, Inc., Topos Acquisition, Inc., and NIC, Inc.(filed as Exhibit 2.1 to our Form 8-K, dated February 10, 2021, 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. 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).
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).
*23						Consent of Independent Registered Public Accounting Firm.
*31.1						Rule 13a-14(a) Certification by Principal Executive Officer.(a) Certification by Principal Executive Officer.
*31.2						Rule 13a-14(a) Certification by Principal Financial Officer.
*32.1						Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
*101.INS						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.
*101.SCH						Inline XBRL Taxonomy Extension Schema Document.
*101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
*101.LAB						Inline XBRL Extension Labels Linkbase Document.
*101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
*101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*			— 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 19, 2021						By:						/s/ H. Lynn Moore, Jr.
												H. Lynn Moore, Jr.
												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 19, 2021						By:						/s/ John S. Marr, Jr.
												John S. Marr, Jr.
												Executive Chairman of the Board
												Director
Date: February 19, 2021						By:						/s/ H. Lynn Moore, Jr.
												H. Lynn Moore, Jr.
												President and Chief Executive Officer
												(principal executive officer)
Date: February 19, 2021						By:						/s/ Brian K. Miller
												Brian K. Miller
												Executive Vice President and Chief Financial Officer
												(principal financial officer)
Date: February 19, 2021						By:						/s/ W. Michael Smith
												W. Michael Smith
												Chief Accounting Officer
												(principal accounting officer)
Date: February 19, 2021						By:						/s/ Donald R. Brattain
												Donald R. Brattain
												Director
Date: February 19, 2021						By:						/s/ Glenn A. Carter
												Glenn A. Carter
												Director
Date: February 19, 2021						By:						/s/ Brenda A. Cline
												Brenda A. Cline
												Director

Date: February 19, 2021						By:						/s/ Mary Landrieu
												Mary Landrieu
												Director
Date: February 19, 2021						By:						/s/ Daniel M. Pope
												Daniel M. Pope
												Director
Date: February 19, 2021						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, 2020 and 2019, the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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 19, 2021 expressed an unqualified opinion thereon.

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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

F-1

			Estimation of hours for certain progress-to-completion (POC) arrangements
Description of the Matter			As described in Note 1 to the consolidated financial statements under “Revenue Recognition,” many of the Company’s software arrangements involve “off-the-shelf” software. For arrangements that involve significant production, modification or customization of the software, or where software services are otherwise not considered distinct, the Company recognizes revenue over time based on a measurement of progress-to-completion (POC). The Company measures POC primarily using labor hours incurred, believing it best depicts the pattern of transfer of control to the customer, which occurs as the Company incurs costs on its contracts. Estimates of budgeted total hours for these arrangements requires management judgment. Auditing management’s estimates of total budgeted contract hours required additional audit effort due to the existence of management judgment required to make these estimates for arrangements that are completed over an extended period. These estimates require ongoing monitoring by management and may require revision over time.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to review contract progress-to-date and total budgeted hours, inclusive of executed contract amendments and change orders. To test the appropriateness of management’s assessment of contract progress-to-date, our audit procedures included, among others, obtaining an understanding of any increase or decrease to budgeted hours via contract amendments or change orders, observing quarterly POC meetings where the Company discussed contract progress-to-date and evaluated the appropriateness of contract estimated hours to complete, reviewing signed Company attestations as to the contracts’ progress toward completion, performing a sensitivity analysis to assess the appropriateness of remaining budgeted hours and trend of progress on the contracts and performing an analysis of completed contracts to compare actual hours incurred upon completion to the original budget.

/s/ ERNST & YOUNG LLP

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

Dallas, Texas

February 19, 2021

F-2

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, 2020, 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, 2020, 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, 2020 and 2019, the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 19, 2021 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 19, 2021

F-3

Tyler Technologies, Inc.

Consolidated Statements of Comprehensive Income

For the years ended December 31

(In thousands, except per share amounts)

			2020						2019						2018
Revenues:
Software licenses and royalties			$	73,164					$	100,205					$	93,441
Subscriptions			350,648						296,352						220,547
Software services			186,409						213,061						191,269
Maintenance			467,513						430,318						384,521
Appraisal services			21,127						23,479						21,846
Hardware and other			17,802						23,012						23,658
Total revenues			1,116,663						1,086,427						935,282
Cost of revenues:
Software licenses and royalties			3,339						3,938						3,802
Acquired software			31,962						30,642						22,972
Subscriptions, software services and maintenance			510,504						502,138						438,923
Appraisal services			15,945						15,337						14,299
Hardware and other			12,401						17,472						15,708
Total cost of revenues			574,151						569,527						495,704
Gross profit			542,512						516,900						439,578
Selling, general and administrative expenses			259,561						257,746						207,605
Research and development expense			88,363						81,342						63,264
Amortization of customer and trade name intangibles			21,662						21,445						16,217
Operating income			172,926						156,367						152,492
Other income, net			2,116						3,471						3,378
Income before income taxes			175,042						159,838						155,870
Income tax (benefit) provision			(19,778)						13,311						8,408
Net income			$	194,820					$	146,527					$	147,462
Earnings per common share:
Basic			$	4.87					$	3.79					$	3.84
Diluted			$	4.69					$	3.65					$	3.68

See accompanying notes.

F-4

Tyler Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except par value and share amounts)

			12/31/2020						12/31/2019
ASSETS
Current assets:
Cash and cash equivalents			$	603,623					$	232,682
Accounts receivable (less allowance for losses and sales adjustments of $9,255 in 2020 and $5,738 in 2019)			382,319						374,089
Short-term investments			72,187						39,399
Prepaid expenses			30,864						24,717
Income tax receivable			21,598						6,482
Other current assets			2,479						2,328
Total current assets			1,113,070						679,697
Accounts receivable, long-term			21,417						22,432
Operating lease right-of-use assets			18,734						18,992
Property and equipment, net			168,004						171,861
Other assets:
Goodwill			838,428						840,117
Other intangibles, net			331,189						378,914
Non-current investments			82,640						42,235
Other non-current assets			33,792						37,366
			$	2,607,274					$	2,191,614
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable			$	14,011					$	14,977
Accrued liabilities			83,084						75,234
Operating lease liabilities			5,904						6,387
Deferred revenue			461,278						412,495
Total current liabilities			564,277						509,093
Revolving line of credit			—						—
Deferred revenue, long-term			100						199
Deferred income taxes			40,507						48,442
Operating lease liabilities, long-term			16,279						16,822
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 2020 and 2019			481						481
Additional paid-in capital			905,332						739,478
Accumulated other comprehensive loss, net of tax			(46)						(46)
Retained earnings			1,112,156						917,336
Treasury stock, at cost; 7,608,627 and 8,839,352 shares in 2020 and 2019, respectively			(31,812)						(40,191)
Total shareholders' equity			1,986,111						1,617,058
			$	2,607,274					$	2,191,614

See accompanying notes.

F-5

Tyler Technologies, Inc.

Consolidated Statements of Cash Flows

For the years ended December 31

(In thousands)

			2020						2019						2018
Cash flows from operating activities:
Net income			$	194,820					$	146,527					$	147,462
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization			81,657						76,672						61,759
Share-based compensation expense			67,365						59,967						52,740
Provision for losses and sales adjustments - accounts receivable			3,517						1,636						(569)
Operating lease right-of-use assets - non cash			5,782						5,397						—
Deferred income tax benefit			(7,936)						(6,088)						(5,069)
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable			(10,733)						(65,738)						(50,916)
Income tax receivable			(15,117)						(1,925)						6,642
Prepaid expenses and other current assets			(8,304)						(8,976)						(588)
Accounts payable			(967)						7,403						(2,416)
Operating lease liabilities			(6,549)						(6,113)						—
Accrued liabilities			2,870						1,516						(2,445)
Deferred revenue			48,684						44,442						43,603
Net cash provided by operating activities			355,089						254,720						250,203
Cash flows from investing activities:
Additions to property and equipment			(22,690)						(37,236)						(27,424)
Purchase of marketable security investments			(156,618)						(54,742)						(115,625)
Proceeds from marketable security investments			82,742						70,796						81,205
Purchase of equity investment in common shares			(10,000)						—						—
Proceeds from the sale of equity investment in preferred shares			15,000						—						—
Capitalized software development costs			(5,776)						(4,804)						—
Cost of acquisitions, net of cash acquired			(1,292)						(218,734)						(178,093)
Decrease (increase) in other			314						(295)						1,682
Net cash used by investing activities			(98,320)						(245,015)						(238,255)
Cash flows from financing activities:
Decrease in net borrowings on revolving line of credit			—						—						—
Purchase of treasury shares			(15,484)						(17,786)						(146,553)
Payment of contingent consideration			(5,619)						—						—
Proceeds from exercise of stock options			124,363						96,908						74,907
Contributions from employee stock purchase plan			10,912						9,576						8,051
Net cash provided (used) by financing activities			114,172						88,698						(63,595)
Net increase (decrease) in cash and cash equivalents			370,941						98,403						(51,647)
Cash and cash equivalents at beginning of period			232,682						134,279						185,926
Cash and cash equivalents at end of period			$	603,623					$	232,682					$	134,279

See accompanying notes.

F-6

Tyler Technologies, Inc.

Consolidated Statements of Shareholders’ Equity

For the years ended December 31, 2020, 2019, and 2018

(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, 2017			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
Net income			—						—						—						—						146,527						—						—						146,527
Retained earnings adjustment-adoption of Topic 842 Leases, net of taxes			—						—						—						—						(1,116)						—						—						(1,116)
Exercise of stock options and vesting of restricted stock units			—						—						(52,833)						—						—						1,075						149,741						96,908
Employee taxes paid for withheld shares for taxes upon equity award settlement			—						—						—						—						—						(23)						(5,361)						(5,361)
Stock compensation			—						—						59,967						—						—						—						—						59,967
Issuance of shares pursuant to employee stock purchase plan			—						—						909						—						—						53						8,667						9,576
Treasury stock purchases			—						—						—						—						—						(72)						(14,289)						(14,289)
Balance at December 31, 2019			48,148						481						739,478						(46)						917,336						(8,839)						(40,191)						1,617,058
Net income			—						—						—						—						194,820						—						—						194,820
Exercise of stock options and vesting of restricted stock units			—						—						90,636						—						—						1,283						33,727						124,363
Employee taxes paid for withheld shares for taxes upon equity award settlement			—						—						—						—						—						(34)						(12,923)						(12,923)
Stock compensation			—						—						67,365						—						—						—						—						67,365
Issuance of shares pursuant to employee stock purchase plan			—						—						7,853						—						—						40						3,059						10,912
Treasury stock purchases			—						—						—						—						—						(59)						(15,484)						(15,484)
Balance at December 31, 2020			48,148						$	481					$	905,332					$	(46)					$	1,112,156					(7,609)						$	(31,812)					$	1,986,111

See accompanying notes.

F-7

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 primarily 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.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of a COVID-19 pandemic ("COVID-19"), 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 considered recurring in nature, 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.

F-8

Revenues from subscriptions and maintenance, which we consider recurring in nature, comprised 73% 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. During the second quarter of 2020, we completed our annual assessment of goodwill which did not result in an impairment charge. Since our assessment in the second quarter of 2020, we identified no indicators of impairment to goodwill; therefore, we have recorded no impairment as of and for the period ended December 31, 2020. We identified no indicators of impairment to long-lived and other assets and therefore, no impairment was recorded as of and for the period ended December 31, 2020. However, due to significant uncertainty surrounding COVID-19 and market conditions, there are no assurances conditions will not deteriorate in the future.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include our parent company and eleven 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 and other comprehensive income. We had no items of other comprehensive income during the years ended December 31, 2020, 2019, and 2018.

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-9

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 adjusted if needed, 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 primarily of revenues derived from SaaS arrangements, typically utilizing 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 and billed annually in advance.

F-10

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. We recognize SaaS 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 revenues 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.

Other transaction-based fees primarily relate to online payment services, which are offered with the assistance of third-party vendors. In general, when we are the principal in a transaction based on the factors identified in ASC 606-10-55-36 through 55-40, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount billed to the customer) and record the net amount as revenue.

For e-filing transaction fees and certain other transaction-based revenues, we have the right to charge the customer an amount that directly corresponds with the value to the customer of our performance to date. 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 executed 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 executed 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-11

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 losses and sales adjustments

Timing of revenue recognition may differ from the timing of invoicing to customers. We record an unbilled receivable when revenue is recognized prior to invoicing, or deferred revenue when 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.

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.

As of December 31, 2020, and December 31, 2019, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $403.7 million and $396.5 million, respectively. We have recorded unbilled receivables of $140.8 million and $134.0 million at December 31, 2020, and December 31, 2019, respectively. Included in unbilled receivables are retention receivables of $13.1 million at December 31, 2020, and December 31, 2019, 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 90 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.

F-12

We maintain allowances for losses and sales adjustments, which losses are recorded against revenue at the time the loss is incurred. Since most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for losses and sales adjustments may require revision, include, but are not limited to, managing our client’s expectations regarding the scope of the services to be delivered and defects or errors in new versions or enhancements of our software products. Our allowance for losses and sales adjustments of $9.3 million and $5.7 million at December 31, 2020, and December 31, 2019, respectively, does not include provisions for credit losses. As of January 1, 2020, we adopted ASU 2016-13 and primarily evaluated our historical experience with credit losses related to trade and other receivables. Because we have not experienced any historical credit losses with the majority of our clients, we have no basis to record a reserve for credit losses as defined by the standard.

The following table summarizes the changes in the allowance for losses and sales adjustments:

			Years ended December 31,
			2020						2019						2018
Balance at beginning of year			$	5,738					$	4,647					$	5,427
Provisions for losses and sales adjustments - accounts receivable			3,517						1,636						(569)
Collections of accounts previously written off			—						(545)						(211)
Balance at end of year			$	9,255					$	5,738					$	4,647

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 commensurate with the recognition of associated revenue 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.

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, 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; the carrying amount of operating lease right-of-use assets and operating lease liabilities; determining share-based compensation expense; the allowance for losses and sales adjustments; 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.

F-13

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 expense of $88.4 million in 2020, $81.3 million in 2019, and $63.3 million in 2018.

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".

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.

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, an impairment charge is recorded against goodwill for the amount of that excess. The impairment is limited to the amount of goodwill in that reporting unit. 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.

F-14

As part of our annual impairment test, our qualitative assessments included our estimated effects of COVID-19 for all reporting units except for the data and insights reporting unit. As a result of these qualitative assessments, we determined that it was not more likely than not that an impairment existed; therefore, we did not perform a Step 1 quantitative impairment test. We did perform a quantitative assessment for goodwill of $75.7 million associated with our data and insights business unit and concluded no impairment existed as of our annual assessment date. For most of our reporting units, goodwill relates to a combination of legacy and acquired businesses and as a result those units have fair values that substantially exceed their underlying carrying values. For other reporting units, in particular our platform technologies and data and insights units, goodwill entirely relates to recently acquired businesses, and as a result those units do not have significant excess fair values over carrying values. The platform technologies and data and insights business units combined goodwill was $152.0 million, or 18%, of total goodwill as of December 31, 2020. Our annual goodwill impairment analysis did not result in an impairment charge. During 2020, we have recorded no impairment to goodwill as no triggering events or changes in circumstances indicating a potential impairment have occurred as of period-end. However, due to significant uncertainty surrounding COVID-19 and market conditions, there are no assurances conditions will not deteriorate in the future.

Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Changes in market conditions or other factors outside of our control, such as a worsening of expected impact of COVID-19, could cause us to change key assumptions and our judgment about a reporting unit’s prospects. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units, and a consequent future impairment charge.

There have been no impairments to goodwill in any of the periods presented. 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 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 disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There was no impairment 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. During the twelve months period ended December 31, 2020 and 2019, respectively, we capitalized approximately $5.8 million and $4.8 million 2019 of software development costs. 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 of, generally, five years. Amortization of software development costs was approximately $1.2 million in 2020 and $0.3 million in 2019, and is included in cost of software license revenue in the accompanying consolidated statements of comprehensive income. We have not capitalized any internal use software development costs in any of the periods presented.

F-15

CONTINGENT PURCHASE CONSIDERATION

Contingent future cash payments related to acquisitions are recognized at fair value as of the acquisition date and included in the determination of the acquisition date purchase price. Subsequent changes in the fair value of the contingent future cash payments are recognized in earnings in the period that the change occurs.

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, 2020, because our interest rates reset approximately every 30 days or less. See Note 6 – “Revolving Line of Credit” for further discussion.

As of December 31, 2020, we have $154.8 million in investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates ranging from 2021 through 2028. 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 other observable market data. These investments are presented at amortized cost and are included in short-term investments and non-current investments in the accompanying condensed consolidated balance sheets. As of December 31, 2020, we have an accrued interest receivable balance of approximately $896,000 which is included in accounts receivable, net. We do not measure an allowance for credit losses for accrued interest receivables. We record any losses within the maturity period of the investment and any write-offs to accrued interest receivables are recorded as a reduction to interest income in the period of the loss. During the twelve months ended December 31, 2020, we have recorded no credit losses. Interest income and amortization of discounts and premiums are included in other income, net in the accompanying consolidated statements of income.

During 2020, we sold our $15.0 million investment in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings to BFTR, LLC, a wholly owned subsidiary of Bison Capital Partners V L.P. During the same period, we purchased $10.0 million in common stock representing a 18% interest in BFTR, LLC. The investment in common 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. Periodically, 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. No events or changes in circumstances have occurred during the period that require reassessment. 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, 2020, we had cash and cash equivalents of $603.6 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, 2020.

We maintain allowances for losses and sales adjustments, 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 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.

LEASES

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, and operating lease liabilities, current and long-term, on our consolidated balance sheets. We currently do not have any finance lease arrangements.

F-16

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

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. 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" for additional information.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, 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 an allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities 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. As of January 1, 2020, we adopted the new standard with no material impact of credit losses to our trade and other receivables, held-to-maturity debt securities and retained earnings included in our condensed consolidated financial statements.

On January 26, 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The new standard eliminates Step 2 from the goodwill impairment test. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. This standard is effective for public business entities in fiscal years beginning after December 15, 2019, and the standard was adopted and applied prospectively by the Company as of January 1, 2020, but it did not have a significant impact on the Company's financial statements and disclosures.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, ("ASU 2019-12") which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new standard is effective for fiscal years beginning after December 15, 2020. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. We do not expect adoption of this standard to have a material effect on our consolidated financial statements.

F-17

(2)ACQUISITIONS

2019

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 SaaS solution to manage all facets of juror management, from source list generation to juror processing and payment. The total purchase price was approximately $20.4 million paid in cash.

In 2020, our final valuation of the fair market value of CHT's assets and liabilities resulted in the adjustment to the preliminary opening balance sheet. These adjustments related to an increased allocation to customer related intangibles and reduction to goodwill of approximately $1.7 million.

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 $201.8 million consisting of $198.2 million paid in cash.

In 2020, we paid $5.6 million in contingent consideration. We have no contingent consideration accrued as of December 31, 2020.

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, 2020, the purchase price allocations for CHT, MicroPact and MyCivic are complete. Our balance sheet as of December 31, 2020, 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.

The operating results of all 2019 acquisitions are included with the operating results of the Enterprise Software segment since their date of acquisition. In 2019, we incurred fees of approximately $1.1 million for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete these acquisitions. These fees were expensed in 2019 and are included in selling, general and administrative expenses on the consolidated statement of comprehensive income.

(3)PROPERTY AND EQUIPMENT, NET

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

			Useful Lives (years)						2020						2019
Land			—						$	18,653					$	18,653
Building and leasehold improvements			5-39						147,729						137,448
Computer equipment and purchased software			3-5						108,571						99,435
Furniture and fixtures			5						30,666						28,506
Transportation equipment			5						295						402
									305,914						284,444
Accumulated depreciation and amortization									(137,910)						(112,583)
Property and equipment, net									$	168,004					$	171,861

Depreciation expense was $25.5 million in 2020, $23.4 million in 2019, and $21.2 million in 2018.

We paid $9.9 million and $20.8 million for real estate and the expansion of existing buildings in 2020 and 2019, respectively.

F-18

(4)GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the two years ended December 31, 2020 are as follows:

			Enterprise Software						Appraisal and Tax						Total
Balance as of 12/31/2018			$	739,550					$	14,168					$	753,718
Goodwill acquired related to the purchase of MicroPact			76,319						—						76,319
Goodwill acquired related to other acquisitions			10,080						—						10,080
Balance as of 12/31/2019			825,949						14,168						840,117
Purchase price adjustments related to CHT acquisition			(1,689)						—						(1,689)
Balance as of 12/31/2020			$	824,260					$	14,168					$	838,428

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

			2020						2019
Gross carrying amount of other intangibles:
Customer related intangibles			$	322,619					$	321,019
Acquired software			262,286						262,286
Trade names			22,905						22,905
Capitalized software development costs			10,581						4,804
Leases acquired			5,037						5,037
			623,428						616,051
Accumulated amortization			(292,239)						(237,137)
Total other intangibles, net			$	331,189					$	378,914

Amortization expense for acquired software and capitalized software development costs are recorded to cost of revenues. Amortization expense for customer relationships and trade names are recorded to selling, general and administrative expenses. Total amortization expense for other intangibles was $55.1 million in 2020, $52.8 million in 2019, and $39.6 million in 2018.

The amortization periods of other intangible assets is summarized in the following table:

			December 31, 2020																		December 31, 2019
			Gross Carrying Amount						Weighted Average Amortization Period						Accumulated Amortization						Gross Carrying Amount						Weighted Average Amortization Period						Accumulated Amortization
Non-amortizable intangibles:
Goodwill			$	838,428					—						$	—					$	840,117					—						$	—
Amortizable intangibles:
Customer related intangibles			$	322,619					16 years						$	116,609					$	321,019					16 years						$	97,320
Acquired software			262,286						7 years						162,378						262,286						7 years						130,416
Trade names			22,905						11 years						9,366						22,905						11 years						7,205
Capitalized software development costs			10,581						5 years						1,460						4,804						5 years						296
Leases acquired			5,037						9 years						2,426						5,037						9 years						1,900

F-19

Estimated annual amortization expense related to acquired leases will be recorded as a reduction to hardware and other revenue and is expected to be $525,000 in 2021, $525,000 in 2022, $525,000 in 2023, $525,000 in 2024, $397,000 in 2025, and $114,000 thereafter.

Estimated annual amortization expense related to other intangibles, including customer relationships, acquired software, trade names and capitalized software development costs. Capitalized software in progress of $4.5 million has been excluded from the estimated annual amortization expense table below:

2021			$	54,411
2022			50,713
2023			32,562
2024			31,978
2025			30,622
Thereafter			123,805
			$	324,091

(5)ACCRUED LIABILITIES

Accrued liabilities consist of the following at December 31:

			2020						2019
Accrued wages, bonuses and commissions			$	63,814					$	49,126
Other accrued liabilities			19,270						26,108
			$	83,084					$	75,234

(6)REVOLVING LINE OF CREDIT

On September 30, 2019, we entered into a $400 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 unsecured revolving credit in an aggregate principal amount of up to $400 million, including a $25 million sublimit for letters of credit. The Credit Facility matures on September 30, 2024. 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 0.125% to 0.75% or (2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 1.125% to 1.75%. As of December 31, 2020, our interest rate was 3.38% under the prime rate option or approximately 1.27% under the 30-day LIBOR option. 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, 2020, we were in compliance with those covenants.

At December 31, 2020, we had no outstanding borrowings and had unused borrowing capacity of $400 million under the Credit Facility*.* In addition, as of December 31, 2020, we had one outstanding standalone letter of credit totaling $2 million in favor of a client contract. The letter of credit guarantees our performance under the contract and expires in 2021.

We paid interest of $610,000 in 2020, $1,750,000 in 2019, and $770,000 in 2018.

(7)INCOME TAX

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

F-20

			Years Ended December 31,
			2020						2019						2018
Current:
Federal			$	(10,538)					$	12,814					$	9,110
State			(1,304)						6,585						4,367
			(11,842)						19,399						13,477
Deferred			(7,936)						(6,088)						(5,069)
			$	(19,778)					$	13,311					$	8,408

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

			Years Ended December 31,
			2020						2019						2018
Federal income tax expense at statutory rate			$	36,759					$	33,566					$	32,733
State income tax, net of federal income tax benefit			6,677						6,999						7,953
Net operating loss carryback			(3,445)						—						—
Excess tax benefits of share-based compensation			(60,190)						(29,819)						(32,487)
Adjustments from the 2017 Tax Cuts and Jobs Act			—						—						(1,750)
Tax credits			(3,867)						(3,446)						(3,715)
Non-deductible business expenses			4,199						6,011						5,655
Other, net			89						—						19
			$	(19,778)					$	13,311					$	8,408

The Coronavirus Aid, Relief and Economic Security ("CARES") Act, which was signed into law on March 27, 2020, provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, and investments and grants for entities in affected industries (e.g., health care, airlines). The business tax provisions of the CARES Act include temporary changes to income and non-income based tax laws, including the ability to utilize net operating losses, interest expense deductions, alternative minimum tax credit refunds, charitable contributions, and depreciation of qualified improvement property. Measures not related to income-based taxes include (1) allowing an employer to pay its share of Social Security payroll taxes that would otherwise be due from the date of enactment through December 31, 2020, over the following two years and (2) allowing eligible employers subject to closure due to the COVID-19 pandemic to receive a 50% credit on qualified wages against their employment taxes each quarter, with any excess credits eligible for refunds.

The most significant provision of the CARES Act impacting our accounting for income taxes is the five-year carryback allowance for taxable net operating losses generated in tax years in which the statutory federal income tax rate is 21.0%, to periods in which the statutory federal income tax rate is 35.0%. We intend to carry back our 2020 taxable loss into our 2015 tax year, which results in a $3.4 million income tax benefit in the current year.

F-21

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

			2020						2019
Deferred income tax assets:
Operating expenses not currently deductible			$	9,084					$	10,214
Stock option and other employee benefit plans			17,446						19,308
Loss and credit carryforwards			27,199						23,841
Total deferred income tax assets			53,729						53,363
Valuation allowance			(1,490)						(1,923)
Total deferred income tax assets, net of valuation allowance			52,239						51,440
Deferred income tax liabilities:
Intangible assets			(76,766)						(84,019)
Property and equipment			(9,918)						(9,265)
Prepaid expenses			(6,869)						(4,922)
Deferred revenue			807						(1,676)
Total deferred income tax liabilities			(92,746)						(99,882)
Net deferred income tax liabilities			$	(40,507)					$	(48,442)

As of December 31, 2020, we had federal net operating loss carryforwards of approximately $81.5 million, after-tax state net operating loss carryforwards of approximately $3.5 million, and tax credit carryforwards of approximately $8.6 million. The federal net operating loss carryforward will begin to expire in 2032 if not utilized, and a portion of the state net operating loss and tax credit carryforwards begin expiring in 2021 if not utilized.

The acquired carryforwards are subject to an annual limitation but are expected to be realized with the exception of certain state net operating loss and tax credit carryforwards. The valuation allowance disclosed in the table above relates to state net operating losses and tax credit carryforwards that are likely to expire before utilization. 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. The entire amount, if recognized, would affect the effective tax rate. There was no change in the balance of unrecognized tax benefits during 2020. 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.

We are subject to U.S. federal income 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. With few exceptions, major U.S. federal, state, local and foreign jurisdictions are no longer subject to examination for years before 2015. As of February 19, 2021, no significant adjustments have been proposed by any taxing jurisdiction.

We paid income taxes, net of refunds received, of $3.3 million in 2020, $21.3 million in 2019, and $6.8 million in 2018.

F-22

(8)SHAREHOLDERS’ EQUITY

The following table details activity in our common stock:

			Years Ended December 31,
			2020												2019												2018
			Shares						Amount						Shares						Amount						Shares						Amount
Stock option exercises			1,174						$	124,363					999						$	96,908					1,126						$	74,907
Purchases of common stock			(59)						(15,484)						(72)						(14,289)						(781)						(150,050)
Employee stock plan purchases			40						10,912						53						9,576						45						8,051
Restricted stock units vested, net of withheld shares upon award settlement			76						(12,923)						53						(5,361)						—						—

As of February 19, 2021, we had authorization from our board of directors to repurchase up to 2.5 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 2020, 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, 2020, there were 2.5 million shares available for future grants under the plan from the 22.9 million shares previously approved by the shareholders.

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.

F-23

The following weighted average assumptions were used for options granted:

			Years Ended December 31,
			2020						2019						2018
Expected life (in years)			5.0						6.0						6.0
Expected volatility			27.0		%				26.6		%				26.7		%
Risk-free interest rate			0.4		%				1.8		%				2.7		%
Expected forfeiture rate			—		%				—		%				—		%

Share-Based Award Activity

The following table summarizes restricted stock unit and performance stock unit activity during fiscal year 2020 (shares in thousands):

						Number of Shares						Weighted Average Grant Date Fair Value per Share
Unvested at January 1, 2019						334						$	221.25
Granted						256						241.19
Vested						(76)						221.15
Forfeited						(14)						229.75
Unvested at December 31, 2019						500						231.57
Granted						204						379.94
Vested						(110)						232.59
Forfeited						(7)						266.94
Unvested at December 31, 2020						587						$	282.45

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, 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
Granted			162						251.58
Exercised			(999)						96.92
Forfeited			(29)						174.54
Outstanding at December 31, 2019			3,226						145.27
Granted			128						403.99
Exercised			(1,174)						105.97
Forfeited			(3)						165.93
Outstanding at December 31, 2020			2,177						$	181.63					6						$	554,709
Exercisable at December 31, 2020			1,424						$	155.06					6						$	400,814

We had unvested options to purchase approximately 752,000 shares with a weighted average grant date exercise price of $231.93 as of December 31, 2020, and unvested options to purchase approximately 1.2 million shares with a weighted average grant date exercise price of $188.48 as of December 31, 2019.

F-24

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

			2020						2019						2018
Weighted average grant-date fair value of stock options granted			$	98.69					$	74.54					$	66.52
Total intrinsic value of stock options exercised			$	292,394					$	155,899					$	176,716

Share-Based Compensation Expense

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

			Years Ended December 31,
			2020						2019						2018
Cost of subscriptions, software services and maintenance			$	18,125					$	15,002					$	13,588
Selling, general and administrative expenses			49,240						44,965						39,152
Total share-based compensation expenses			67,365						59,967						52,740
Excess tax benefit			(60,190)						(29,819)						(32,487)
Net decrease in net income			$	7,175					$	30,148					$	20,253

As of December 31, 2020, we had $164.0 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 3.12 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, 2020, there were 664,000 shares available for future issuances under the ESPP from the 2.0 million shares previously approved by the stockholders.

(10)EARNINGS PER SHARE

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

			Years Ended December 31,
			2020						2019						2018
Numerator for basic and diluted earnings per share:
Net income			$	194,820					$	146,527					$	147,462
Denominator:
Weighted-average basic common shares outstanding			40,035						38,640						38,445
Assumed conversion of dilutive securities:
Share-based awards			1,491						1,465						1,678
Denominator for diluted earnings per share - Adjusted weighted-average shares			41,526						40,105						40,123
Earnings per common share:
Basic			$	4.87					$	3.79					$	3.84
Diluted			$	4.69					$	3.65					$	3.68

Share-based awards representing the right to purchase common stock of 132,000 shares in 2020, 633,000 shares in 2019, and 888,000 shares in 2018 were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

F-25

(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 in one year to seven years. Some of these leases include options to extend for up to 10 years. We had no finance leases and no related party lease agreements as of December 31, 2020. Operating lease costs were approximately $10.2 million in 2020, $9.9 million in 2019, and $7.4 million in 2018.

The components of operating lease expense were as follows (in thousands):

Lease Costs						Financial Statement Classification						For the year ended						For the year ended
												2020						2019
Operating lease cost						Selling, general and administrative expenses						$	6,524					$	6,379
Short-term lease cost						Selling, general and administrative expenses						1,940						2,269
Variable lease cost						Selling, general and administrative expenses						1,760						1,274
Net lease cost												$	10,224					$	9,922

As of December 31, ROU lease assets and lease liabilities for our operating leases were recorded in the consolidated balance sheet as follows (in thousands):

						2020						2019
Assets:
Operating lease right-of-use assets						$	18,734					$	18,992
Liabilities:
Operating leases, short-term						5,904						6,387
Operating leases, long-term						16,279						16,822
Total lease liabilities						$	22,183					$	23,209

Supplemental information related to leases was as follows:

Other Information						For the year ended						For the year ended
						2020						2019
Cash Flows (in thousands):
Cash paid amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases						$	8,131					$	7,267
Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases						$	5,524					$	3,466
Lease Term and Discount Rate:
Weighted average remaining lease term (years)						3						4
Weighted average discount rate						3.28		%				4.00		%

F-26

As of December 31, 2020, maturities of lease liabilities were as follows (in thousands):

Year ending December 31,						Amount
2021						$	7,015
2022						4,853
2023						3,826
2024						3,337
2025						2,198
Thereafter						2,537
Total lease payments						23,766
Less: Interest						(1,583)
Present value of operating lease liabilities						$	22,183

Rental Income from third parties

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. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between 2021 and 2025, some of which have options to extend the lease for up to five years. We determine if an arrangement is a lease at inception. None of our leases allow the lessee to purchase the leased asset.

Rental income from third-party tenants was $1.1 million in 2020, $1.1 million in 2019, and $1.2 million in 2018. Rental income is included in hardware and other revenue on the consolidated statements of comprehensive income. Future minimum operating rental income based on contractual agreements is as follows (in thousands):

Year ending December 31,						Amount
2021						$	1,372
2022						1,402
2023						1,432
2024						1,462
2025						858
Thereafter						—
Total						$	6,526

As of December 31, 2020, we had no additional significant operating or finance leases that had not yet commenced.

(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 $12.7 million in 2020, $11.5 million in 2019, and $9.3 million in 2018.

(13)COMMITMENTS AND CONTINGENCIES

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.

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

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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 have made insurance claims for lost revenue related to the Incident, (primarily software services revenue) for the year ended December 31, 2020. Insurance reimbursements pertaining to lost revenue represent a contingent gain and any recovery of these revenues will be recorded when received. We do not expect such gains to be material. We incurred $4.2 million in costs associated with the Incident as of December 31, 2020. As of December 31, 2020, we have recorded $1.1 million of accrued insurance recoveries and received $2.4 million of insurance recoveries related to the Incident. The recorded costs consisted primarily of payments to third-party service providers and consultants, including legal fees, and enhancements to our cybersecurity measures. 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.

Litigation

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 six business units, which focus on the following products:

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

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

• courts and justice and public safety software solutions;

• data and insights solutions;

• platform technologies; and

• appraisal and tax software solutions and property appraisal services.

In accordance with ASC 280-10, Segment Reporting, we report our results in two segments. The financial management, education and planning, regulatory and maintenance software solutions unit; financial management, municipal courts, planning, regulatory and maintenance, and land and vital records management software solutions unit; courts and justice and public safety software solutions unit; the data and insights solutions unit; and platform technologies solutions unit meet the criteria for aggregation and are presented in one reportable segment, Enterprise Software (“ES”). The 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, land and vital records management, data and insights and platform technologies processes. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property, land and vital records management 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.

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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. Due to the shelter-in-place orders caused by the COVID-19 pandemic, we cancelled our company-wide user conference for the current year. The accounting policies of the reportable segments are the same as those described in Note 1, “Summary of Significant Accounting Policies”.

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.

Segment assets primarily consist of net accounts receivable, prepaid expenses and other current assets and net property and equipment, and capitalized software development costs. Corporate assets primarily 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 $6.6 million in 2020 and $12.6 million in 2019 for the expansion of existing buildings and purchases of buildings and land. A&T segment capital expenditures included $3.3 million in 2020 and $8.2 million in 2019 for the expansion of existing buildings.

For the year ended December 31, 2020			Enterprise Software						Appraisal and Tax						Corporate						Totals
Revenues
Software licenses and royalties			$	64,200					$	8,964					$	—					$	73,164
Subscriptions			326,284						24,364						—						350,648
Software services			164,520						21,889						—						186,409
Maintenance			429,224						38,289						—						467,513
Appraisal services			—						21,127						—						21,127
Hardware and other			17,670						121						11						17,802
Intercompany			19,061						70						(19,131)						—
Total revenues			$	1,020,959					$	114,824					$	(19,120)					$	1,116,663
Depreciation and amortization expense			67,411						1,055						13,191						81,657
Segment operating income			285,271						27,383						(86,104)						226,550
Capital expenditures			11,099						3,823						6,826						21,748
Segment assets			$	847,672					$	94,149					$	1,665,453					$	2,607,274

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For the year ended December 31, 2019			Enterprise Software						Appraisal and Tax						Corporate						Totals
Revenues
Software licenses and royalties			$	90,808					$	9,397					$	—					$	100,205
Subscriptions			279,282						17,070						—						296,352
Software services			179,865						33,196						—						213,061
Maintenance			393,521						36,797						—						430,318
Appraisal services			—						23,479						—						23,479
Hardware and other			16,553						203						6,256						23,012
Intercompany			15,290						206						(15,496)						—
Total revenues			$	975,319					$	120,348					$	(9,240)					$	1,086,427
Depreciation and amortization expense			64,245						970						11,457						76,672
Segment operating income			255,365						26,918						(73,829)						208,454
Capital expenditures			19,283						8,436						10,379						38,098
Segment assets			$	833,203					$	91,343					$	1,267,068					$	2,191,614

For the year ended December 31, 2018			Enterprise Software						Appraisal and Tax						Corporate						Totals
Revenues
Software licenses and royalties			$	81,299					$	12,142					$	—					$	93,441
Subscriptions			205,193						15,354						—						220,547
Software services			161,612						29,657						—						191,269
Maintenance			349,387						35,134						—						384,521
Appraisal services			—						21,846						—						21,846
Hardware and other			18,387						390						4,881						23,658
Intercompany			12,764						391						(13,155)						—
Total revenues			$	828,642					$	114,914					$	(8,274)					$	935,282
Depreciation and amortization expense			49,921						1,123						10,715						61,759
Segment operating income			231,819						28,434						(68,572)						191,681
Capital expenditures			9,918						1,241						13,973						25,132
Segment assets			$	554,960					$	64,810					$	1,171,193					$	1,790,963

Reconciliation of reportable segment operating						Years Ended December 31,
income to the Company's consolidated totals:						2020						2019						2018
Total segment operating income						$	226,550					$	208,454					$	191,681
Amortization of acquired software						(31,962)						(30,642)						(22,972)
Amortization of customer and trade name intangibles						(21,662)						(21,445)						(16,217)
Other income, net						2,116						3,471						3,378
Income before income taxes						$	175,042					$	159,838					$	155,870

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(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, 2020						Products and services transferred at a point in time						Products and services transferred over time						Total
Revenues:
Software licenses and royalties						$	62,029					$	11,135					$	73,164
Subscriptions						—						350,648						350,648
Software services						—						186,409						186,409
Maintenance						—						467,513						467,513
Appraisal services						—						21,127						21,127
Hardware and other						17,802						—						17,802
Total						$	79,831					$	1,036,832					$	1,116,663

For the year ended December 31, 2019						Products and services transferred at a point in time						Products and services transferred over time						Total
Revenues:
Software licenses and royalties						$	84,900					$	15,305					$	100,205
Subscriptions						—						296,352						296,352
Software services						—						213,061						213,061
Maintenance						—						430,318						430,318
Appraisal services						—						23,479						23,479
Hardware and other						23,012						—						23,012
Total						$	107,912					$	978,515					$	1,086,427

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

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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. Non-recurring revenues are derived from all other revenue categories.

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

For the year ended December 31, 2020						Enterprise Software						Appraisal and Tax						Corporate						Totals
Recurring revenues						$	755,508					$	62,652					$	—					$	818,160
Non-recurring revenues						246,390						52,102						11						298,503
Intercompany						19,061						70						(19,131)						—
Total revenues						$	1,020,959					$	114,824					$	(19,120)					$	1,116,663

For the year ended December 31, 2019						Enterprise Software						Appraisal and Tax						Corporate						Totals
Recurring revenues						$	672,804					$	53,866					$	—					$	726,670
Non-recurring revenues						287,225						66,276						6,256						359,757
Intercompany						15,290						206						(15,496)						—
Total revenues						$	975,319					$	120,348					$	(9,240)					$	1,086,427

For the year ended December 31, 2018						Enterprise Software						Appraisal and Tax						Corporate						Totals
Recurring revenues						$	554,581					$	50,488					$	—					$	605,069
Non-recurring revenues						261,297						64,035						4,881						330,213
Intercompany						12,764						391						(13,155)						—
Total revenues						$	828,642					$	114,914					$	(8,274)					$	935,282

(16) DEFERRED REVENUE AND PERFORMANCE OBLIGATIONS

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

						December 31, 2020						December 31, 2019
Enterprise Software						$	422,742					$	375,838
Appraisal and Tax						36,945						35,487
Corporate						1,691						1,369
Totals						$	461,378					$	412,694

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

						2020
Balance at beginning of year						$	412,694
Deferral of revenue						1,094,185
Recognition of deferred revenue						(1,045,501)
Balance at end of year						$	461,378

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, 2020 was $1.59 billion, of which we expect to recognize approximately 49% as revenue over the next 12 months and the remainder thereafter.

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(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 generally three to seven years. Deferred commissions were $32.3 million, $29.8 million, as of December 31, 2020, and 2019 respectively. Amortization expense was $11.9 million, $11.5 million, and $9.6 million for the twelve months ended December 31, 2020, 2019, and 2018, 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 comprehensive income.

(18) SUBSEQUENT EVENTS

The following events or transactions have occurred subsequent to December 31, 2020.

NIC, Inc.

On February 9, 2021, Tyler Technologies, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Topos Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and NIC Inc., a Delaware corporation (“NIC”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, Merger Sub will merge with and into NIC (the “Merger”), with NIC surviving the Merger and continuing as a wholly owned subsidiary of the Company*.*

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of Common Stock prior to the Effective Time, par value $0.0001 per share, of NIC (the “NIC Common Stock”) other than (i) shares of NIC Common Stock owned directly or indirectly by the Company, NIC or any of their respective subsidiaries immediately prior to the Effective Time, including shares of NIC held as treasury stock, (ii) shares of NIC Common Stock as to which dissenters’ rights have been properly perfected, and (iii) shares of NIC Common Stock covered by unvested NIC restricted stock awards) will be converted in the Merger into the right to receive $34.00 in cash, without interest (the “Merger Consideration”).

Under the terms of the Merger Agreement, the completion of the Merger is subject to certain customary closing conditions, including, among others: (i) adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the voting power of the outstanding shares of NIC Common Stock; (ii) the accuracy of the parties’ respective representations and warranties in the Merger Agreement, subject to specified materiality qualifications; (iii) compliance by the parties with their respective covenants in the Merger Agreement in all material respects; (iv) the absence of any order restraining, enjoining, or otherwise prohibiting the consummation of the Merger; and (v) the expiration of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

The Merger Consideration is expected to be financed with a combination of new debt and cash on the Company’s balance sheet. In connection with its entry into the Merger Agreement, the Company obtained a commitment from Goldman Sachs Bank USA for a $1.6 billion 364-day senior unsecured bridge loan facility, subject to customary conditions.

The Merger Agreement and the consummation of the transactions contemplated thereby have been unanimously approved by the NIC board of directors, and the NIC board of directors has resolved to recommend to the stockholders of NIC to adopt the Merger Agreement, subject to its terms and conditions.

The Merger Agreement provides that, at the Effective Time, with respect to NIC restricted stock awards, (i) each vested restricted stock award will be converted into the right to receive the Merger Consideration with respect to each share of NIC Common Stock subject to such awards, less applicable withholding of taxes and other authorized deductions, (ii) each outstanding unvested performance-based restricted stock award will automatically vest in full, in accordance with the terms of its award agreement, and be converted into the right to receive the Merger Consideration with respect to such number of shares of NIC Common Stock, less applicable withholding of taxes and other authorized deductions, and (iii) each outstanding unvested time-based restricted stock will be assumed by the Company and converted into corresponding awards relating to the Company’s Common Stock in accordance with the terms set forth in the Merger Agreement.

The Merger Agreement contains customary representations, warranties and covenants made by each of the Company, Merger Sub, and NIC, including, among others, covenants by NIC regarding the conduct of its business during the pendency of the transactions contemplated by the Merger Agreement, public disclosures and other matters. NIC is required, among other things, not to solicit alternative business combination transactions and, subject to certain exceptions, not to engage in discussions or negotiations regarding an alternative business combination transaction.

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Both the Company and NIC may terminate the Merger Agreement under certain specified circumstances, including (i) if the Merger is not consummated by June 30, 2021, subject to an extension of up to three months in order to obtain required regulatory approval, (ii) if the approval of the NIC stockholders is not obtained, and (iii) if NIC’s board makes an adverse recommendation change with respect to the proposed transaction or approve or recommend a superior acquisition proposal. In certain circumstances in connection with the termination of the Merger Agreement, including if NIC’s board of directors changes or withdraws its recommendation of the Merger to its stockholders, fails to include its recommendation to shareholders in NIC’s proxy statement, or terminates the Merger Agreement to enter into an agreement with respect to a “superior proposal,” NIC will be required to pay the Company a termination fee of $55 million in cash.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 to our Form 8-K, dated February 10, 2021, is incorporated by reference herein.

(19) QUARTERLY FINANCIAL INFORMATION (unaudited)

The following table contains selected financial information from unaudited statements of income for each quarter of 2020 and 2019:

			Quarters Ended
			2020																								2019
			Dec. 31						Sept. 30						June 30						Mar. 31						Dec. 31						Sept. 30						June 30						Mar. 31
Revenues			$	283,285					$	285,746					$	271,091					$	276,541					$	288,837					$	275,400					$	275,124					$	247,066
Gross profit			138,669						143,509						131,203						129,131						142,275						130,717						127,860						116,048
Income before income taxes			48,412						49,936						41,811						34,883						47,790						40,552						36,419						35,077
Net income			54,094						39,284						53,892						47,550						46,790						40,390						31,999						27,348
Earnings per diluted share			$	1.29					$	0.94					$	1.30					$	1.16					$	1.15					$	1.00					$	0.80					$	0.69
Shares used in computing diluted earnings per share			41,925						41,606						41,416						41,144						40,736						40,280						39,813						39,585

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