Tyler Technologies (TYL) 10-K risk factor changes: FY2022 vs FY2021

[removed: Breaches of our network or data security could disrupt the security of our internal systems and business applications, impair our ability to provide services to our] clients and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our competitive position, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improve technologies, or otherwise adversely affect our business.

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

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

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

Subcontracting arrangements where we are not the prime contractor pose unique risks to us because we may not have control over the customer relationship, and our ability to generate [removed: revenue] [added: revenues] under such subcontracts may depend on the prime contractor, its performance and relationship with the customer, and its relationship with us.

Although we take what we believe to be reasonable precautions against such occurrences, we can give no assurance that damaging events such as these will not result in a prolonged interruption of our services, which could result in client dissatisfaction, loss of [removed: revenue,] [added: revenues,] and damage to our business.

[added: In addition to risks related to license requirements, use of open source] software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software.

We expect that the continued global [removed: spread] [added: presence] of COVID-19 may negatively impact our business and financial results in fiscal year [removed: 2022.][added: 2023.]

As the virus continues to [removed: spread, it has resulted] [added: persist, increased infection rates (generally or as the result of new strains of the virus) may result] in [added: government] authorities [removed: implementing ongoing] [added: returning to stricter] measures to contain the virus, including travel bans and restrictions, quarantines, and business limitations and shutdowns.

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

For the twelve months ended December 31, [removed: 2021, 79%] [added: 2022, 80%] of our total [removed: revenue] [added: revenues] and earnings are relatively predictable as a result of our subscription and maintenance revenue, which is recurring in nature; thus the effect of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods.

We have historically evaluated goodwill for impairment annually as of [removed: April] [added: October] 1, or more frequently if impairment indicators arose.

Our failure to secure contracts through the open bidding process, or to secure such contracts on favorable terms, may adversely affect our [removed: revenue] [added: revenues] and gross margins.

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

As of December 31, [removed: 2021,] [added: 2022,] we had outstanding an aggregate principal amount of $600 million of our Convertible Senior Notes and [removed: $755] [added: $395] million under our 2021 Credit Agreement.

In April 2021, we entered into the 2021 Credit Agreement with significantly increased borrowing capacity of up to $1.4 billion and on the closing of the acquisition of NIC on April 21, 2021, we borrowed initial loans in [added: the aggregate principal amount of $1.15 billion.]

The Indenture governing the [added: Convertible Senior] Notes and the 2021 Credit Agreement do, and our future indebtedness agreements may, contain covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities.

[added: Should the lenders proceed] against the guarantees, we cannot give assurance that we would have sufficient assets to pay amounts due on the 2021 Credit Agreement and the Convertible Senior Notes.

If interest rates [added: continue to] increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.

Our Term A-2 Loans bear interest, at our option, at a per annum rate of either (1) the Base Rate plus a margin of [removed: 0.00%] [added: 0%] to [removed: 0.50%] [added: 0.5%] or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 0.875% to [removed: 1.50%.][added: 1.5%.]

Based on the debt under the 2021 Credit Agreement, the aggregate principal outstanding balance as of December 31, [removed: 2021] [added: 2022] is [removed: $755.0] [added: $395.0] million, and each quarter point change in interest rates would result in a [removed: $1.9] [added: $1.0] million change in annual interest expense.

*Fluctuations in quarterly [removed: revenue] [added: revenues] could adversely impact our operating results and stock price.*

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

Although our focus is on [added: organic] internal growth, we will continue to identify and pursue strategic acquisitions with suitable candidates.

We have at times experienced and continue to experience [removed: challenges,] [added: challenges] in recruiting qualified personnel.

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

*We [removed: don’t] [added: do not] foresee paying dividends on our common stock.*

Breaches of our network or data security could disrupt the security of our internal systems and business applications, impair our ability to provide services to our

LIBOR, the London Inter-Bank Offered Rate, is currently anticipated to be phased out in June 2023 and is expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets.

In January 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the SOFR reference rate.

Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.

could be significant and may exceed our insurance policy limits or may not be covered by insurance at all.

In addition to risks related to license requirements, use of open source

During the second quarter 2021, we voluntarily changed the date of our annual assessment of goodwill to October 1 for all reporting units.

The change in testing date for goodwill impairment is a change in accounting principle, which management believes is preferable as the new date of the assessment better aligns with our annual planning process.

the aggregate principal amount of $1.15 billion.

Should the lenders proceed

For a comparison of our Results of Operations for the years ended December 31, [removed: 2020,] [added: 2021,] and [removed: 2019,] [added: 2020,] and our Cash Flow discussion for the year ended December [removed: 2020,] [added: 2021,] see “Part II, Item 7.

Management's Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, [removed: 2020,] [added: 2021,] as filed with the SEC on February [removed: 19, 2021.][added: 23, 2022.]

[added: CAUTIONARY NOTE CONCERNING] FORWARD-LOOKING STATEMENTS

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

We develop and market a broad line of software products and services to address the IT needs of [removed: cities, counties, states, schools, federal agencies, and other government] [added: public sector] entities.

In addition, we provide professional IT services to our clients, including software and hardware installation, data conversion, [removed: training] [added: training,] and for certain clients, product modifications, along with continuing maintenance and support for clients using our systems.

We [removed: also] provide subscription-based services such as software as a service (“SaaS”), [removed: transaction] [added: transaction-based fees primarily related to digital government services] and [added: online] payment [removed: processing solutions,] [added: processing,] and electronic document filing solutions (“e-filing”), which simplify the filing and management of court related documents.

[removed: We also] [added: Additionally, we] provide property appraisal outsourcing services for taxing jurisdictions.

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

[removed: As of January 1, 2021, certain administrative costs related to information technology,] [added: The digital government and payments solutions,] which [removed: were] [added: was] previously reported in the [removed: ES] [added: NIC reportable segment,] and [removed: A&T segments, were] [added: development platform solutions] moved to the [removed: Corporate] [added: PT reportable] segment to reflect changes in the way [added: in which] management makes operating decisions, allocates resources, and manages the growth and profitability of the Company.

Prior [removed: year] [added: period] amounts for [removed: all] [added: the ES and PT reportable] segments have been adjusted to reflect the segment change.

See Note [removed: 15,] [added: 17,] "Segment and Related Information," in the notes to the consolidated financial statements for additional information.

The total purchase price, net of cash [removed: acquired,] [added: acquired of $2.2 million,] was approximately [removed: $12.8] [added: $67.7] million, [added: consisting] of [removed: which $12.4] [added: $51.2] million [removed: was] paid in [removed: cash and approximately $0.5] [added: cash, $18.2] million [removed: was accrued for indemnity] [added: of common stock, and $500,000 related to working capital] holdbacks, subject to certain post-closing adjustments.

[removed: VendEngine is] [added: On September 1, 2021, we acquired VendEngine, Inc (VendEngine),] a cloud-based software provider focused on financial technology for the corrections market.

The total purchase price, net of cash acquired of $1.7 million, was approximately [removed: $83.8] [added: $83.6] million, consisting of [removed: $80.2] [added: $81.6] million paid in cash, and approximately [removed: $5.4] [added: $3.8] million related to indemnity [removed: holdbacks, subject to certain post-closing adjustments.][added: holdbacks.]

[removed: NIC is] [added: On April 21, 2021, we acquired NIC,] a leading digital government solutions and payment company that primarily serves federal and state government agencies.

The total purchase price, net of cash acquired of $331.8 million, was approximately $2.0 billion, consisting of cash paid of $2.3 billion and $1.9 million of purchase consideration related to the conversion of unvested restricted stock [removed: awards, subject to post-closing adjustments.][added: awards.]

[removed: As of December 31, 2021,] [added: Under our 2021 Credit Agreement,] we had [removed: $755.0] [added: $395] million in outstanding principal [added: for the Term Loans, no outstanding borrowings under the 2021 Revolving Credit Facility,] and [added: an] available borrowing capacity of $500 million [removed: under our 2021 Credit Agreement.][added: as of December 31, 2022.]

On March 9, 2021, we issued [removed: 0.25% Convertible Senior Notes due 2026 in the] [added: $600.0 million] aggregate principal amount of [removed: $600.0 million (“the] Convertible Senior [removed: Notes” or “the Notes”).][added: Notes.]

As of December 31, [removed: 2021,] [added: 2022,] we had [removed: outstanding an aggregate principal amount of] $600 million [removed: of our] [added: in outstanding principal for the] Convertible Senior [removed: Notes.][added: Notes due 2026.]

[removed: *2021] [added: *2022] Operating Results*

For the twelve months ended December 31, [removed: 2021,] [added: 2022,] total revenues increased [removed: 42.6%] [added: 16%] compared to the prior [removed: year.][added: period.]

Excluding the [added: 2022] impact of [removed: acquisitions,] [added: recent acquisitions1,] total revenues increased [removed: 8.9%] [added: 4%] compared to prior [removed: year.][added: period.]

Revenues from acquisitions contributed [removed: 33.7%] [added: 12.4%] of growth for the twelve months ended December 31, [removed: 2021.][added: 2022.]

Subscriptions revenue grew [removed: 123.7%] [added: 29.0%] for the twelve months ended December 31, [removed: 2021,] [added: 2022,] due to an ongoing shift toward a cloud-based, software as a service business model, as well as the inclusion of transaction-based [removed: revenues] [added: revenue] from NIC’s digital government and payments processing businesses.

Excluding the [added: 2022] impact of recent [removed: acquisitions,] [added: acquisitions1,] subscriptions revenue increased [removed: 23.4%] [added: 6.3%] for the twelve months ended December 31, [removed: 2021.][added: 2022.]

Revenues – We derive our revenues from five primary sources: [added: subscription-based arrangements; maintenance; professional services;] sale of software licenses and royalties; [removed: subscription-based arrangements; software services; maintenance;] and appraisal services.

Subscriptions and maintenance are considered recurring revenue sources and comprised approximately [removed: 79.1%] [added: 80%] of our [removed: revenue] [added: revenues] in [removed: 2021.][added: 2022.]

During [removed: 2021,] [added: 2022,] based on our number of customers, turnover was approximately 2%.

As of December 31, [removed: 2021,] [added: 2022,] our total employee count [added: included in cost of revenues] increased to [removed: 6,778] [added: 5,021] from [removed: 5,536] [added: 4,746] at December 31, [removed: 2020,] [added: 2021,] including [removed: 1,063] [added: 56] employees who joined [removed: Tyler] [added: us] through acquisitions [removed: in] [added: completed since December 31,] 2021.

[removed: Selling, General] [added: Sales] and [removed: Administrative (“SG&A”) Expenses] [added: Marketing (“S&M”) Expense] – The primary components of [removed: SG&A expenses are administrative and] [added: S&M expense include] sales personnel salaries and [removed: commissions,] share-based compensation expense, [added: sales commissions, travel-related expenses, advertising and] marketing [removed: expense, rent] [added: materials,] and [removed: professional fees.][added: allocated depreciation, facilities, and IT support.]

Sales commissions typically fluctuate with revenues and share-based compensation expense generally increases [added: based increased level of awards issues during the period and] as the market price of our stock increases.

[removed: In recent years,] we have also received significant amounts of cash from employees exercising stock options and contributing to our Employee Stock Purchase Plan.

For the twelve months ended December 31, [removed: 2021,] [added: 2022,] total revenues include COVID-related subscriptions revenue [added: of $10.8 million from NIC’s Tour Health offering] and [removed: software] [added: professional] services [removed: revenues] [added: revenue] of [removed: $75.0] [added: $40.2] million from [removed: NIC's TourHealth,] pandemic unemployment [removed: services,] and Virginia rent relief offerings.

In October 2021, the FASB issued ASU 2021-08 - *Accounting for Contract Assets and Contract Liabilities from Contracts with Customers* (ASC [removed: 805)(“ASU] [added: 805) (“ASU] 2021-08”).

The local government software market continues to be active with sales activity trending at or near pre-pandemic levels in most sectors of our business, and our backlog at December 31, [removed: 2021] [added: 2022] reached [removed: $1.80] [added: $1.89] billion, a [removed: 12.6%] [added: 5%] increase from the prior [removed: year.][added: period.]

We expect to continue to achieve solid growth in [removed: revenue] [added: revenues] and earnings.

The expenses associated with the cloud transition are expected to pressure operating margins in [removed: 2022] [added: 2023] and [removed: 2023.][added: 2024.]

CRITICAL ACCOUNTING [removed: POLICIES AND] ESTIMATES

Significant items subject to such estimates and assumptions include the application of the progress toward completion methods of revenue recognition, estimated standalone selling price ("SSP") for distinct performance obligations, the [removed: carrying] [added: fair value] amount and estimated useful lives of intangible assets, determination of share-based compensation expense and [removed: valuation] allowance for [removed: receivables.][added: losses and sales adjustments.]

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

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

- financial management, municipal courts, planning, regulatory, and maintenance software solutions;

- courts and justice and public safety software solutions;

- data and insights solutions;

- appraisal and tax software solutions, land and vital records management software solutions, and property appraisal services;

- development platform solutions including case management and business process management; and

- digital government and payments solutions.

In accordance with ASC 280-10, *Segment Reporting*, we report our results in two reportable segments.

The Platform Technologies (“PT”) reportable segment provides public sector entities with software solutions to perform transaction processing, streamline data processing, and improve operations and workflows such as digital government and payments solutions and development platform solutions.

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 non-cash amortization of intangible assets associated with their acquisitions, 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.

Corporate segment operating loss primarily consists of compensation costs for the executive management team, certain shared services staff, and share-based compensation expense for the entire company.

Corporate segment operating income also includes revenues and expenses related to a company-wide user conference.

As of January 1, 2022, the appraisal and tax software solutions, land and vital records management software solutions, and property appraisal service business unit, which was previously reported in the Appraisal & Tax ("A&T") reportable segment, was moved to the ES reportable segment.

As a result of the changes in our reportable segments, the former A&T and NIC reportable segments are no longer considered separate segments.

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

We have elected to present amortization of software development, previously included in the cost of revenues software licenses and royalties line item, in a separate category line item on the consolidated statements of income for all reporting periods presented.

Previously disclosed as selling, general and administrative expense is now disclosed in separate line items: sales and marketing expense and general and administrative expense on the consolidated statements of income for all reporting periods presented.

On October 31, 2022, we acquired Rapid Financial Solutions, LLC, a principal provider of reliable, scalable, and secure payments with best-in-class card issuance and digital disbursement capabilities.

On February 8, 2022, we acquired US eDirect Inc. (US eDirect), a leading provider of technology solutions for campground and outdoor recreation management.

The total purchase price, net of cash acquired of $6.4 million, was approximately $116.5 million, consisting of $118.8 million paid in cash and approximately $4.1 million related to indemnity holdbacks.

The total purchase price, net of cash acquired, was approximately $12.8 million.

The majority of our revenues are comprised of revenues from subscriptions and maintenance, which we consider to be recurring revenues.

Annualized recurring revenues ("ARR") is calculated based on quarter-to-date end total recurring revenues multiplied by four.

ARR was $1.50 billion and $1.39 billion as of December 31, 2022, and 2021, respectively.

ARR increased 8% compared to the prior period, due to an increase in subscriptions revenue due to an ongoing shift toward SaaS arrangements.

These programs all ended in 2022 and we do not expect to generate COVID-related subscriptions revenue and professional services revenue in future periods.

We monitor ARR which is calculated based on quarter-to-date end total recurring revenues multiplied by four.

As of December 31, 2022, ARR was $1.50 billion.

General and Administrative (“G&A”) Expense – The primary components of G&A expense include personnel salaries and share-based compensation expense for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, third party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses.

Share-based compensation expense generally increases as the market price of our stock increases.

Other administrative expenses tend to grow at a slower rate than revenues.

In recent years,

1 Excludes the 2022 incremental impact as a result of not having the recent acquisition for a full fiscal year.

Approximately $1.7 billion, or 70%, of total goodwill as of December 31, 2022, relates to these reporting units, which as a result of these recent acquisitions, do not have significant excess fair values over carrying values.

An entity that early adopts should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

The adoption of ASU 2021-08 resulted in no adjustments to the fair value of the deferred revenue balances assumed in our 2022 acquisitions.

Our products generally automate nine major functional areas: (1) financial management and education, (2) courts and justice, (3) public safety, (4) property appraisal and tax, (5) planning, regulatory and maintenance, (6) land and vital records management, (7) data and insights, (8) platform technologies, and (9) NIC digital government and payments.

We report our results in three segments.

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 provides 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.

On April 21, 2021, the Company acquired NIC, Inc. (“NIC”) resulting a new reportable segment, as its

operating results meet the criteria as a reportable segment.

The operating results of NIC are included with the operating results of the NIC segment from the date of acquisition.

On September 1, 2021, we acquired VendEngine, Inc (VendEngine) as contemplated by the Agreement and Plan of Merger dated June 3, 2021.

As result of the merger, VendEngine became a direct subsidiary of the Company.

On April 21, 2021 (“the Closing Date”), we acquired NIC as contemplated by the Agreement and Plan of Merger dated February 9, 2021.

As result of the merger, NIC became a direct subsidiary of the Company and NIC’s subsidiaries became indirect subsidiaries.

*2021 Credit Agreement*

In connection with the completion of the acquisition of NIC, on the Closing Date we, as borrower, entered into a new $1.4 billion Credit Agreement (the “2021 Credit Agreement”) with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender.

The 2021 Credit Agreement provides for (1) a senior unsecured revolving credit facility in an aggregate principal amount of up to $500 million, including sub-facilities for standby letters of credit and swingline loans (the “Revolving Credit Facility”), (2) an amortizing five-year term loan in the aggregate amount of $600 million (the “Term Loan A-1”), and (3) a non-amortizing three-year term loan in the aggregate amount of $300 million (the “Term Loan A-2”) and, together (the “Term Loans”).

The 2021 Credit Agreement matures on April 20, 2026.

The 2021 Credit Agreement replaces and terminates the Company’s previous $400 million credit facility pursuant to the Credit Agreement dated as of September 30, 2019 (the “2019 Credit Agreement”).

The Company’s previously announced commitment from Goldman Sachs Bank USA for a $1.6 billion 364-day senior unsecured bridge loan facility also terminated on the Closing Date.

The net proceeds from the borrowings under the 2021 Credit Agreement were $1.1 billion, net of debt discounts of $7.2 million and debt issuance costs of $4.9 million and $6.4 million of commitment fees paid related to the terminated $1.6 billion unsecured bridge loan facility.

*0.25% Convertible Senior Notes*

The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 9, 2021, with U.S. Bank National Association, as trustee.

The net proceeds from the issuance of the Convertible Senior Notes were $591.4 million, net of initial purchasers’ discounts of $6.0 million and debt issuance costs of $2.6 million.

The Convertible Senior Notes are senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

The Convertible Senior Notes accrue interest at a rate of 0.25% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021.

The Convertible Senior Notes mature on March 15, 2026, unless earlier repurchased, redeemed or converted.

Our backlog at December 31, 2021 was $1.80 billion, a 12.6% increase from last year.

*Impacts of the COVID-19 Pandemic*

Although market activity improved throughout 2021 in most sectors of our business and continues to trend to near or above pre-pandemic levels, the pandemic continues to delay some government procurement processes and is expected to impact our ability to complete certain implementations, negatively impacting our revenue.

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, 2021, excluding the impact of 2021 acquisitions, the impact of the COVID-19 pandemic resulted in lower revenues from software services.

Software services revenues have been affected by a decline in billable travel revenue, as most services are now being delivered virtually rather than on-site.

Lower revenues compared to prior periods were partially offset by continued cost savings attributed to lower spend on travel and user conferences and trade show expenses.

As travel restrictions are relaxed, software services and appraisal services revenues are increasing.

Also, we have adapted the way we do business by 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.

We currently expect that these low margin COVID-related revenues from TourHealth and pandemic unemployment will wind down in the first half of 2022, while revenues from the Virginia rent relief program are expected to continue through 2022.

Revenues from subscriptions and maintenance, which we consider recurring in nature, comprised 79.1% of our total consolidated revenue for the twelve months ended December 31, 2021, and include transaction-based revenue streams such as transaction and payment processing, e-filing, and digital government services.

As of December 31, 2021, we had $407.8 million in cash and investments and available borrowing capacity of $500.0 million under our 2021 Credit Agreement.

We had outstanding an aggregate principal amount of $600 million of our Convertible Senior Notes, and $755 million outstanding under our 2021 Credit Agreement as of December 31, 2021.

During the fourth quarter of 2021, we completed our annual assessment of goodwill which did not result in an impairment charge.

Therefore, we have recorded no impairment as of and for the period ended December 31, 2021.

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, 2021.

As of December 31, [removed: 2021,] [added: 2022,] we had [removed: $755.0] [added: $395.0] million [removed: in] [added: of] outstanding [removed: principal] [added: borrowings] under our 2021 Credit Agreement and available borrowing capacity under the 2021 Credit Agreement was $500.0 million.

Borrowings under the Revolving Credit Facility and the Term Loan A-1 [removed: will] bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) (the “Base Rate”) plus a margin of 0.125% to 0.75% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 1.125% to 1.75%.

The Term Loan A-2 [removed: will bear] [added: bears] interest, at the Company’s option, at a per annum rate of either (1) the Base Rate plus a margin of 0% to 0.5% or (2) the one-, three-, [removed: or] six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 0.875% to 1.5%.

During the [removed: year] [added: twelve months] ended December 31, [removed: 2021 our] [added: 2022, the] effective [removed: average] interest rate for our borrowings was [removed: 1.84%.][added: 3.79%.]

Based on the [removed: debt] [added: aggregate outstanding principal balance] under the 2021 Credit [removed: Agreement, the aggregate outstanding principal] [added: Agreement] as of December 31, [removed: 2021 is $755.0] [added: 2022, of $395.0] million, [removed: and] each quarter point change in interest rates would result in a [removed: $1.9] [added: $1.0] million change in annual interest expense.

In January 2023, we amended our 2021 Credit Agreement to replace the LIBOR reference rate with the SOFR reference rate.

Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.

As of December 31, 2021, our interest rate was 1.55% for our outstanding borrowings.

[removed: We] [added: In addition, we] provide electronic document filing (“e-filing”) solutions, which simplify the filing and management of court documents.

[removed: In addition, we] [added: We] provide digital government services and payment solutions.

Gartner, Inc., a leading information technology research and advisory company, estimates that state and local government application and vertical specific software spending will grow from [removed: $23.6] [added: $27.8] billion in [removed: 2022] [added: 2023] to [removed: $32.3] [added: $40.0] billion in [removed: 2025.][added: 2026.]

The professional services and support segments of the market are expected to expand from [removed: $32.0] [added: $33.5] billion in [removed: 2022] [added: 2023] to [removed: $38.4] [added: $41.9] billion in [removed: 2025.][added: 2026.]

Application and vertical specific software sales in the primary and secondary education segments of the market is expected to expand from [removed: $4.9] [added: $5.4] billion in [removed: 2022] [added: 2023] to [removed: $6.0] [added: $6.6] billion in [removed: 2025] [added: 2026] while professional services and support are expected to grow from $5.1 billion in [removed: 2022] [added: 2023] to [removed: $6.3] [added: $6.1] billion in [removed: 2025.][added: 2026.]

For the national and international government markets, application and vertical specific software sales is expected to expand from [removed: $38.5] [added: $42.2] billion in [removed: 2022] [added: 2023] to [removed: $53.8] [added: $61.5] billion in [removed: 2025] [added: 2026] while professional services and support are expected to grow from [removed: $63.1] [added: $65.6] billion in [removed: 2022] [added: 2023] to [removed: $74.4] [added: $82.1] billion in [removed: 2025.][added: 2026.]

- [removed: Financial Management] [added: financial management, education] and [removed: Education][added: planning, regulatory, and maintenance software solutions;]

- [removed: Courts] [added: courts] and [removed: Justice][added: justice and public safety software solutions;]

- [removed: Planning, Regulatory] [added: financial management, municipal courts, planning, regulatory,] and [removed: Maintenance][added: maintenance software solutions;]

- [removed: Land] [added: appraisal] and [removed: Vital Records Management][added: tax software solutions, land and vital records management software solutions, and property appraisal services;]

- [removed: Data] [added: data] and [removed: Insights][added: insights solutions;]

[removed: - NIC Digital] [added: *Digital] Government [removed: Services][added: Services*]

Each of our core software [removed: systems] [added: solutions] consists of several fully integrated applications.

For clients who acquire software for use on premises, we generally license our [removed: systems] [added: solutions] under standard perpetual license agreements that provide the client with a fully paid, nonexclusive, nontransferable right to use the software.

[removed: NIC delivers] [added: We deliver] user-friendly digital services that make it easier and more efficient for citizens and businesses to interact with government providing valuable conveniences like applying for unemployment insurance, submitting business filings, renewing licenses, accessing information and making secure payments without visiting a government office.

[removed: NIC] [added: Our] digital government services [added: unit] designs, builds, and operates digital government services on an enterprise-wide basis on behalf of state and local governments desiring to provide access to government information and to complete secure government-based transactions through multiple digital channels.

These digital government services consist of websites and applications [removed: NIC has built] that allow consumers, such as businesses and citizens, to access government information, complete transactions and make electronic payments.

[removed: NIC] [added: We] also [removed: provides] [added: provide] payment processing services, software development and digital government services, other than those services provided under state enterprise contracts, to federal agencies as well as state and local governments.

For arrangements that involve significant production, modification or customization of the software, or where [removed: software] [added: professional] services are otherwise not considered distinct, we recognize revenue over time by measuring progress-to-completion.

We typically receive notice of royalty [removed: revenues] [added: revenue] we are entitled to and billed on a quarterly basis in the quarter immediately following the royalty reporting period and adjustments have not been significant.

The contract terms for these arrangements range from one to [removed: 10] [added: ten] years but are typically contracted for initial periods of three to five years.

[removed: As part of our subscription-based services, we] [added: We also] provide [removed: e-filing] [added: electronic document filing] solutions [added: (“e-filing”)] that simplify the filing and management of court related documents for courts and law offices.

[removed: Revenues for e-filing are included in subscription-based revenues and are] [added: E-filing revenue is] derived from transaction fees and [removed: in some cases,] fixed fee arrangements.

Other [added: sources of subscriptions revenue are derived from] transaction-based fees primarily [removed: relate] [added: related] to digital government [removed: services and] [added: services,] online payment [removed: services,] [added: solutions,] which are sometimes offered with the assistance of third-party vendors, and online dispute resolution solutions.

Similar support is provided to our SaaS clients and is included in their subscription fees, which are classified as subscription-based [removed: revenues.][added: revenue.]

Our objective is to grow our [removed: revenue] [added: revenues] and earnings organically, supplemented by focused strategic acquisitions.

We are making significant investments in optimizing our products to be deployed efficiently in the public cloud and over a multi-year period are transitioning from hosting clients in Tyler’s [removed: own] [added: proprietary] data centers to utilizing Amazon Web Services (“AWS”) for cloud hosting.

Add-on sales to existing clients typically involve lower sales and marketing [removed: expenses] [added: expense] than sales to new clients.

We have a large recurring revenue base from maintenance and support and subscription-based services, which generated revenues of [removed: $1.3] [added: $1.5] billion, or [removed: 79%] [added: 80%] of total revenues, in [removed: 2021.][added: 2022.]

Subscription-based revenues have been our fastest growing revenue category over the past five years, increasing from [removed: $173.5] [added: $220.5] million in [removed: 2017] [added: 2018] to [removed: $784.4 million] [added: $1.0 billion] in [removed: 2021.][added: 2022.]

In addition, we believe that we have a marketing and administrative infrastructure in place that can be leveraged to accommodate significant long-term growth without proportionately increasing [removed: selling,] [added: sales and marketing and] general and administrative expenses.

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

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

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

[removed: This] [added: We have a strategic collaboration] agreement [added: with Amazon Web Services ("AWS") for cloud hosting services, which] brings together Tyler, the nation's largest software company exclusively focused on the public sector, and AWS, the broadest and deepest cloud platform.

During [removed: 2021,] [added: 2022,] approximately [removed: 30%] [added: 25%] of our revenue was attributable to ongoing support and maintenance agreements.

At December 31, [removed: 2021,] [added: 2022,] our revenue backlog was approximately [removed: $1.80] [added: $1.89] billion, compared to [removed: $1.59] [added: $1.80] billion at December 31, [removed: 2020.][added: 2021.]

Approximately [removed: $840] [added: $886] million, or 47%, of the backlog is expected to be recognized during [removed: 2022.][added: 2023.]

As of December 31, [removed: 2021,] [added: 2022,] we had approximately [removed: 6,800] [added: 7,200] team members.

Approximately [removed: 280] [added: 335] of these team members are located in Canada and the Philippines; the remainder work remotely in the U.S. or are based in one of our nearly [removed: 90] [added: 80] U.S. offices.

We offer clients delivery of our software applications through software as a service (“SaaS”) and on-premise solutions.

In recent years, substantially all of the Tyler’s products are sold through subscriptions delivered as SaaS.

Our software solutions and services are provided through seven business units, which focus on the following products:

- development platform solutions including case management and business process management; and

- digital government and payments solutions.

*Revenues*

- Professional services

Subscriptions revenue primarily consists of revenues derived from our SaaS arrangements.

Professional Services

We monitor Annualized Recurring Revenue (“ARR”), which is calculated based on quarter-to-date end total recurring revenues multiplied by four.

ARR was $1.50 billion and $1.39 billion as of December 31, 2022, and 2021, respectively.

ARR increased 8% compared to the prior period due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements.

Before we returned to office in January, the vast majority of team members worked remotely.

After the return, 39% of team members became either partially or fully office based.

- 974 Tyler team members participated in close to 11,000 hours of AWS cloud certification training.

There were 352 AWS accreditations and 228 certifications completed, as we continue to invest in developing cloud skills across the Tyler workforce.

- Again this year, over 200 Tyler managers participated in our 9-month Tyler Manager Development program which includes more than 50 hours of interactive, experiential learning, focused on developing skills managers need to lead a high performing team, plus multiple leadership assessments, including 360-degree feedback, and a dedicated mentor to support their development.

To date, 42% of our management leads have participated in the program.

Our networks of support, made up of local diversity, equity, and inclusion committees and employee resources groups, serve to enhance our inclusive and diverse culture.

We offer our clients on-premises software solutions and for clients who prefer not to physically acquire the software and hardware, most of our software applications can be delivered as software as a service (“SaaS”).

Our software solutions and services are generally grouped in nine major areas:

- Public Safety

- Property Appraisal and Tax

- Platform Technologies

*NIC Digital Government Services*

On April 21, 2021, we acquired NIC, Inc. (“NIC”).

- Software services

Subscription-based revenue is primarily derived from our SaaS arrangements, which generally utilize the Tyler private cloud, as well as our transaction-based offerings such as e-filing solutions, online dispute resolution solutions, and online payment services.

Software Services

In October 2019, we announced a strategic collaboration agreement with Amazon Web Services ("AWS") for cloud hosting services.

The majority of Tyler team members worked remotely for most of 2021 until we officially returned to our offices on January 24, 2022.

This represents an increase over 2020 turnover which decreased during the pandemic.

Compensation was also cited as a factor.

- 1,100 Tyler team members participated in over 16,600 hours of AWS cloud certification training and achieved over 90 certifications and 600 accreditations as we continue to invest in developing the cloud skills of our team members.

- Over 200 Tyler managers participated in our 9-month New Manager Development program which includes targeted content and sessions focused on the core aspects of managing a team, 360-degree feedback, team and individual coaching, and a dedicated mentor.

Our Women’s Leadership Network, Veteran’s Employee Resource group (ERG), and local office diversity councils, among other programs, serve to enhance our inclusive and diverse culture.

During the first quarter 2022, the Company received a notice of termination for convenience for professional services under a contractual arrangement with a state client.

Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.

As of December 31, the total exposure in our financial statements included the remaining balance of net billed accounts receivable for licenses and services rendered under the contract of approximately $12 million.

The client was unresponsive to company outreach for several months.

On August 23, 2022, the Company filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement.

The client has not filed responsive pleadings and no other significant activity has occurred in the lawsuit.

Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time the matter remains unresolved.

We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter.

We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.

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.

For the Fiscal Year Ended December 31, [removed: 2021][added: 2022]

The aggregate market value of the voting stock held by non-affiliates of the registrant was [removed: $18,292,141,436] [added: $13,686,594,900] based on the reported last sale price of common stock on June 30, [removed: 2021,] [added: 2022,] which is the last business day of the registrant’s most recently completed second fiscal quarter.

The number of shares of common stock of the registrant outstanding on February [removed: 22, 2022] [added: 21, 2023] was [removed: 41,348,917][added: 41,819,280.]

Certain information required by Part III of this annual report is incorporated by reference from the registrant’s definitive proxy statement for its annual meeting of stockholders to be held on May [removed: 12, 2022.][added: 11, 2023.]

| Item 1. | | | [removed: [Business](#i70c5999dd4304fe59500a9cbbfd041cc_13)] [added: [Business](#ia2a49e1dcd8d427486d3a54d0502a122_13)] | | | [removed: [3](#i70c5999dd4304fe59500a9cbbfd041cc_13)] [added: [3](#ia2a49e1dcd8d427486d3a54d0502a122_13)] | | |

| Item 1A. | | | [Risk [removed: Factors](#i70c5999dd4304fe59500a9cbbfd041cc_16)] [added: Factors](#ia2a49e1dcd8d427486d3a54d0502a122_16)] | | | [removed: [12](#i70c5999dd4304fe59500a9cbbfd041cc_16)] [added: [12](#ia2a49e1dcd8d427486d3a54d0502a122_16)] | | |

| Item 1B. | | | [Unresolved Staff [removed: Comments](#i70c5999dd4304fe59500a9cbbfd041cc_19)] [added: Comments](#ia2a49e1dcd8d427486d3a54d0502a122_19)] | | | [removed: [21](#i70c5999dd4304fe59500a9cbbfd041cc_19)] [added: [21](#ia2a49e1dcd8d427486d3a54d0502a122_19)] | | |

| Item 2. | | | [removed: [Properties](#i70c5999dd4304fe59500a9cbbfd041cc_22)] [added: [Properties](#ia2a49e1dcd8d427486d3a54d0502a122_22)] | | | [removed: [21](#i70c5999dd4304fe59500a9cbbfd041cc_22)] [added: [22](#ia2a49e1dcd8d427486d3a54d0502a122_22)] | | |

| Item 3. | | | [Legal [removed: Proceedings](#i70c5999dd4304fe59500a9cbbfd041cc_25)] [added: Proceedings](#ia2a49e1dcd8d427486d3a54d0502a122_25)] | | | [removed: [21](#i70c5999dd4304fe59500a9cbbfd041cc_25)] [added: [22](#ia2a49e1dcd8d427486d3a54d0502a122_25)] | | |

| Item 4. | | | [Submission of Matters to a Vote of Security [removed: Holders](#i70c5999dd4304fe59500a9cbbfd041cc_28)] [added: Holders](#ia2a49e1dcd8d427486d3a54d0502a122_28)] | | | [removed: [21](#i70c5999dd4304fe59500a9cbbfd041cc_28)] [added: [22](#ia2a49e1dcd8d427486d3a54d0502a122_28)] | | |

| Item 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#i70c5999dd4304fe59500a9cbbfd041cc_34)] [added: Securities](#ia2a49e1dcd8d427486d3a54d0502a122_34)] | | | [removed: [22](#i70c5999dd4304fe59500a9cbbfd041cc_34)] [added: [23](#ia2a49e1dcd8d427486d3a54d0502a122_34)] | | |

| Item 6. | | | [Selected Financial [removed: Data](#i70c5999dd4304fe59500a9cbbfd041cc_37)] [added: Data](#ia2a49e1dcd8d427486d3a54d0502a122_37)] | | | [removed: [23](#i70c5999dd4304fe59500a9cbbfd041cc_37)] [added: [24](#ia2a49e1dcd8d427486d3a54d0502a122_37)] | | |

| Item 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i70c5999dd4304fe59500a9cbbfd041cc_40)] [added: Operations](#ia2a49e1dcd8d427486d3a54d0502a122_40)] | | | [removed: [24](#i70c5999dd4304fe59500a9cbbfd041cc_40)] [added: [25](#ia2a49e1dcd8d427486d3a54d0502a122_40)] | | |

| Item 7A. | | | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#i70c5999dd4304fe59500a9cbbfd041cc_61)] [added: Risk](#ia2a49e1dcd8d427486d3a54d0502a122_61)] | | | [removed: [40](#i70c5999dd4304fe59500a9cbbfd041cc_61)] [added: [41](#ia2a49e1dcd8d427486d3a54d0502a122_61)] | | |

| Item 8. | | | [Financial Statements and Supplementary [removed: Data](#i70c5999dd4304fe59500a9cbbfd041cc_64)] [added: Data](#ia2a49e1dcd8d427486d3a54d0502a122_64)] | | | [removed: [40](#i70c5999dd4304fe59500a9cbbfd041cc_64)] [added: [42](#ia2a49e1dcd8d427486d3a54d0502a122_64)] | | |

| Item 9. | | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#i70c5999dd4304fe59500a9cbbfd041cc_67)] [added: Disclosure](#ia2a49e1dcd8d427486d3a54d0502a122_67)] | | | [removed: [41](#i70c5999dd4304fe59500a9cbbfd041cc_67)] [added: [42](#ia2a49e1dcd8d427486d3a54d0502a122_67)] | | |

| Item 9A. | | | [Controls and [removed: Procedures](#i70c5999dd4304fe59500a9cbbfd041cc_70)] [added: Procedures](#ia2a49e1dcd8d427486d3a54d0502a122_70)] | | | [removed: [41](#i70c5999dd4304fe59500a9cbbfd041cc_70)] [added: [42](#ia2a49e1dcd8d427486d3a54d0502a122_70)] | | |

| Item 9B. | | | [Other [removed: Information](#i70c5999dd4304fe59500a9cbbfd041cc_73)] [added: Information](#ia2a49e1dcd8d427486d3a54d0502a122_73)] | | | [removed: [41](#i70c5999dd4304fe59500a9cbbfd041cc_73)] [added: [42](#ia2a49e1dcd8d427486d3a54d0502a122_73)] | | |

| | | | [PART [removed: III](#i70c5999dd4304fe59500a9cbbfd041cc_76)] [added: III](#ia2a49e1dcd8d427486d3a54d0502a122_76)] | | | | | |

| Item 10. | | | [Directors, Executive Officers and Corporate [removed: Governance](#i70c5999dd4304fe59500a9cbbfd041cc_79)] [added: Governance](#ia2a49e1dcd8d427486d3a54d0502a122_79)] | | | [removed: [42](#i70c5999dd4304fe59500a9cbbfd041cc_79)] [added: [43](#ia2a49e1dcd8d427486d3a54d0502a122_79)] | | |

| Item 11. | | | [Executive [removed: Compensation](#i70c5999dd4304fe59500a9cbbfd041cc_82)] [added: Compensation](#ia2a49e1dcd8d427486d3a54d0502a122_82)] | | | [removed: [42](#i70c5999dd4304fe59500a9cbbfd041cc_82)] [added: [43](#ia2a49e1dcd8d427486d3a54d0502a122_82)] | | |

| Item 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i70c5999dd4304fe59500a9cbbfd041cc_85)] [added: Matters](#ia2a49e1dcd8d427486d3a54d0502a122_85)] | | | [removed: [42](#i70c5999dd4304fe59500a9cbbfd041cc_85)] [added: [43](#ia2a49e1dcd8d427486d3a54d0502a122_85)] | | |

| Item 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i70c5999dd4304fe59500a9cbbfd041cc_88)] [added: Independence](#ia2a49e1dcd8d427486d3a54d0502a122_88)] | | | [removed: [42](#i70c5999dd4304fe59500a9cbbfd041cc_88)] [added: [43](#ia2a49e1dcd8d427486d3a54d0502a122_88)] | | |

| Item 14. | | | [Principal Accounting Fees and [removed: Services](#i70c5999dd4304fe59500a9cbbfd041cc_91)] [added: Services](#ia2a49e1dcd8d427486d3a54d0502a122_91)] | | | [removed: [42](#i70c5999dd4304fe59500a9cbbfd041cc_91)] [added: [43](#ia2a49e1dcd8d427486d3a54d0502a122_91)] | | |

| Item 15. | | | [Exhibits, Financial Statement [removed: Schedules](#i70c5999dd4304fe59500a9cbbfd041cc_97)] [added: Schedules](#ia2a49e1dcd8d427486d3a54d0502a122_97)] | | | [removed: [43](#i70c5999dd4304fe59500a9cbbfd041cc_97)] [added: [44](#ia2a49e1dcd8d427486d3a54d0502a122_97)] | | |

| [removed: [Signatures](#i70c5999dd4304fe59500a9cbbfd041cc_100)] [added: [Signatures](#ia2a49e1dcd8d427486d3a54d0502a122_100)] | | | | | | [removed: [45](#i70c5999dd4304fe59500a9cbbfd041cc_100)] [added: [47](#ia2a49e1dcd8d427486d3a54d0502a122_100)] | | |

| | | | [PART I](#ia2a49e1dcd8d427486d3a54d0502a122_10) | | | | | |

| | | | [PART II](#ia2a49e1dcd8d427486d3a54d0502a122_31) | | | | | |

| | | | [PART IV](#ia2a49e1dcd8d427486d3a54d0502a122_94) | | | | | |

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| | | | [PART I](#i70c5999dd4304fe59500a9cbbfd041cc_10) | | | | | |

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| | | | [PART II](#i70c5999dd4304fe59500a9cbbfd041cc_31) | | | | | |

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| | | | [PART IV](#i70c5999dd4304fe59500a9cbbfd041cc_94) | | | | | |

We occupy a total of approximately [removed: 1.4] [added: 1.3] million square feet of office space, of which approximately 746,000 square feet is in various office facilities we own.

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

At December 31, [removed: 2021,] [added: 2022,] we had approximately [removed: 1,090] [added: 1,065] stockholders of record.

Most of our stockholders hold their shares in street name; therefore, there are substantially more than [removed: 1,090] [added: 1,065] beneficial owners of our common stock.

We did not pay any cash dividends in [removed: 2021] [added: 2022] or [removed: 2020.][added: 2021.]

There are no warrants or rights related to our equity compensation plans as of December 31, [removed: 2021.][added: 2022.]

| | | | Number of securities to be issued upon exercise of outstanding options, warrants, purchase rights and vesting of restricted stock units as of December 31, [removed: 2021] [added: 2022] | | | | | | Weighted average exercise price of outstanding options and unvested restricted stock units | | | | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in initial column as of December 31, [removed: 2021)] [added: 2022)] | | |

As of December 31, [removed: 2021,] [added: 2022,] we had authorization to repurchase up to approximately [removed: 2.4] [added: 2.3] million additional shares of Tyler common stock.

A summary of the repurchase activity during [removed: 2021] [added: 2022] is as follows:

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

| Three months ended March 31 | | | [removed: | | |] — | | | | | | — | | | | | | [removed: $ |] — | | | | | [removed: 2,447,176] | [added: 2,344,200] | | [added: |]

| Three months ended June 30 | | | [removed: | | | 32,600] [added: —] | | | | | | — | | | | | | [removed: 398.00] [added: —] | | | | | | [removed: 2,414,576] [added: 2,344,200] | | |

| Three months ended September 30 | | | [removed: | | |] — | | | | | | — | | | | | | — | | | | | | [removed: 2,414,576] [added: 2,344,200] | | |

As of February [removed: 23, 2022,] [added: 22, 2023,] we had remaining authorization to repurchase up to [removed: 2.4] [added: 2.3] million additional shares of our common stock.

The following table compares total shareholder returns for Tyler over the last five years to the Standard and Poor’s 500 Stock Index and the Standard and Poor’s 600 Information Technology Index assuming a $100 investment made on December 31, [removed: 2016.][added: 2017.]

[removed: ][added: ]

| Company / Index | | | [removed: 12/31/16] [added: 12/31/17] | | | | | | [removed: 12/31/17] [added: 12/31/18] | | | | | | [removed: 12/31/18] [added: 12/31/19] | | | | | | [removed: 12/31/19] [added: 12/31/20] | | | | | | [removed: 12/31/20] [added: 12/31/21] | | | | | | [removed: 12/31/21] [added: 12/31/22] | | |

| 2018 Incentive Stock Plan | | | 2,078,261 | | | | | | 263.59 | | | | | | 1,254,531 | | |

| Employee Stock Purchase Plan | | | 11,092 | | | | | | 274.05 | | | | | | 576,343 | | |

| | | | 2,089,353 | | | | | | $ | 263.64 | | | | | 1,830,874 | | |

During 2022, we purchased no shares of our common stock.

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

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

| October 1 through October 31 | | | — | | | | | | — | | | | | | — | | | | | | 2,344,200 | | |

| November 1 through November 30 | | | — | | | | | | — | | | | | | — | | | | | | 2,344,200 | | |

| December 1 through December 31 | | | — | | | | | | — | | | | | | — | | | | | | 2,344,200 | | |

| | | | — | | | | | | — | | | | | | — | | | | | | | | |

| Tyler Technologies, Inc. | | | 100 | | | | | | 104.95 | | | | | | 169.45 | | | | | | 246.55 | | | | | | 303.84 | | | | | | 182.10 | | |

| S&P 500 Stock Index | | | 100 | | | | | | 95.62 | | | | | | 125.72 | | | | | | 148.85 | | | | | | 191.58 | | | | | | 156.88 | | |

| S&P 600 Information Technology Index | | | 100 | | | | | | 91.07 | | | | | | 127.12 | | | | | | 162.47 | | | | | | 206.09 | | | | | | 160.00 | | |

| 2018 Incentive Stock Plan | | | 1,777,620 | | | | | | $ | 234.87 | | | | | 1,867,041 | | |

| Employee Stock Purchase Plan | | | 8,044 | | | | | | 457.26 | | | | | | 628,719 | | |

| | | | 1,785,664 | | | | | | $ | 235.87 | | | | | 2,495,760 | | |

During 2021, we purchased approximately 33,000 shares of our common stock for an aggregate purchase price of $13.0 million.

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

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

| October 1 through October 31 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,414,576 | | |

| November 1 through November 30 | | | | | | 3 | | | | | | — | | | | | | 541.89 | | | | | | 2,414,579 | | |

| December 1 through December 31 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,414,579 | | |

| | | | | | | 32,603 | | | | | | — | | | | | | $ | 398.01 | | | | | | | |

| Tyler Technologies, Inc. | | | 100 | | | | | | 124.01 | | | | | | 130.15 | | | | | | 210.14 | | | | | | 305.75 | | | | | | 376.79 | | |

| S&P 500 Stock Index | | | 100 | | | | | | 121.83 | | | | | | 116.49 | | | | | | 153.17 | | | | | | 181.35 | | | | | | 233.41 | | |

| S&P 600 Information Technology Index | | | 100 | | | | | | 110.28 | | | | | | 100.43 | | | | | | 140.19 | | | | | | 179.18 | | | | | | 227.28 | | |

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

[removed: *Evaluation of Disclosure Controls and Procedures* —] We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management, with the participation of the chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, [removed: 2021.][added: 2022.]

Based on this evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of December 31, [removed: 2021.][added: 2022.]

[removed: *Management’s Report on Internal Control Over Financial Reporting* —] Tyler’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Securities Exchange Act Rule 13a-15(f).

Management assessed the effectiveness of Tyler’s internal control over financial reporting as of December 31, [removed: 2021.][added: 2022.]

Based on our assessment, we concluded that, as of December 31, [removed: 2021,] [added: 2022,] Tyler’s internal control over financial reporting was effective based on those criteria.

Tyler’s internal control over financial reporting as of December 31, [removed: 2021] [added: 2022] has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited Tyler’s financial statements.

[removed: *Changes in Internal Control Over Financial Reporting* —] During the quarter ended December 31, [removed: 2021,] [added: 2022,] there were no changes in our internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f), that [added: have] materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

*Evaluation of Disclosure Controls and Procedures*

*Management’s Report on Internal Control Over Financial Reporting*

*Changes in Internal Control over Financial Reporting*

PART III

See the information under the following captions in Tyler’s definitive Proxy Statement, which is incorporated herein by reference.

Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Such incorporation by reference does not include the Compensation Discussion and Analysis, the Compensation Committee Report or the Audit Committee Report, which are included in the Proxy Statement.

| | | | | | | | | |

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

| | | | | | | Headings in Proxy Statement | | |

| | | | | | | | | |

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

| | | | | | | | | |

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

| ITEM 11. EXECUTIVE COMPENSATION. | | | | | | “Executive Compensation” | | |

| | | | | | | | | |

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

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

| | | | | | | | | |

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

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

| | | | | | | | | |

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

| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. | | | | | | | | |

| The information required under this item may be found under the section captioned “Proposals For Consideration – Proposal Two – Ratification of Our Independent Auditors for Fiscal Year 2021” in our Proxy Statement when filed. | | | | | | | | |

PART IV

None.

PART III

See the information under the following captions in Tyler’s definitive Proxy Statement, which is incorporated herein by reference.

Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Such incorporation by reference does not include the Compensation Discussion and Analysis, the Compensation Committee Report or the Audit Committee Report, which are included in the Proxy Statement.

| | | | | | | | | |

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

| | | | | | | Headings in Proxy Statement | | |

| | | | | | | | | |

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

| | | | | | | | | |

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

| ITEM 11. EXECUTIVE COMPENSATION. | | | | | | “Executive Compensation” | | |

| | | | | | | | | |

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

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

| | | | | | | | | |

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

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

| | | | | | | | | |

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

| ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. | | | | | | | | |

| | | | | | | | | |

| The information required under this item may be found under the section captioned “Proposals For Consideration – Proposal Two – Ratification of Our Independent Auditors for Fiscal Year 2022” in our Proxy Statement when filed. | | | | | | | | |

PART IV

| | | | | | | | | | | | | [Reports of Independent Registered Public Accounting [removed: Firm](#i70c5999dd4304fe59500a9cbbfd041cc_103)] [added: Firm](#ia2a49e1dcd8d427486d3a54d0502a122_103)] (PCAOB ID: 42) | | | | | | [removed: [F-1](#i70c5999dd4304fe59500a9cbbfd041cc_103)] [added: [F-1](#ia2a49e1dcd8d427486d3a54d0502a122_103)] | | |

| | | | | | | | | | | | | [Consolidated Statements of [removed: Comprehensive] Income for the years ended December 31, [removed: 202](#i70c5999dd4304fe59500a9cbbfd041cc_106)[1](#i70c5999dd4304fe59500a9cbbfd041cc_106)[, 20](#i70c5999dd4304fe59500a9cbbfd041cc_106)[20](#i70c5999dd4304fe59500a9cbbfd041cc_106)[,](#i70c5999dd4304fe59500a9cbbfd041cc_106) [and 201](#i70c5999dd4304fe59500a9cbbfd041cc_106)[9](#i70c5999dd4304fe59500a9cbbfd041cc_106)[](#i70c5999dd4304fe59500a9cbbfd041cc_106)] [added: 2022, 2021, and 2020](#ia2a49e1dcd8d427486d3a54d0502a122_106)] | | | | | | [removed: [F-4](#i70c5999dd4304fe59500a9cbbfd041cc_106)] [added: [F-4](#ia2a49e1dcd8d427486d3a54d0502a122_106)] | | |

| | | | | | | | | | | | | [Consolidated Balance Sheets as of December 31, [removed: 202](#i70c5999dd4304fe59500a9cbbfd041cc_109)[1](#i70c5999dd4304fe59500a9cbbfd041cc_109) [and 20](#i70c5999dd4304fe59500a9cbbfd041cc_109)[20](#i70c5999dd4304fe59500a9cbbfd041cc_109)] [added: 2022 and 2021](#ia2a49e1dcd8d427486d3a54d0502a122_109)] | | | | | | [removed: [F-5](#i70c5999dd4304fe59500a9cbbfd041cc_109)] [added: [F-6](#ia2a49e1dcd8d427486d3a54d0502a122_109)] | | |

| | | | | | | | | | | | | [Consolidated Statements of Cash Flows for the years ended December [removed: 31,](#i70c5999dd4304fe59500a9cbbfd041cc_112) [2021,](#i70c5999dd4304fe59500a9cbbfd041cc_112) [2020,](#i70c5999dd4304fe59500a9cbbfd041cc_112) [and](#i70c5999dd4304fe59500a9cbbfd041cc_112) [2019](#i70c5999dd4304fe59500a9cbbfd041cc_112)] [added: 31, 2022, 2021, and 2020](#ia2a49e1dcd8d427486d3a54d0502a122_112)] | | | | | | [removed: [F-6](#i70c5999dd4304fe59500a9cbbfd041cc_112)] [added: [F-](#ia2a49e1dcd8d427486d3a54d0502a122_112)[7](#ia2a49e1dcd8d427486d3a54d0502a122_112)] | | |

| | | | | | | | | | | | | [Consolidated Statements of Shareholders’ Equity for the years ended December [removed: 31,](#i70c5999dd4304fe59500a9cbbfd041cc_115) [2021,](#i70c5999dd4304fe59500a9cbbfd041cc_115) [2020,](#i70c5999dd4304fe59500a9cbbfd041cc_115) [and](#i70c5999dd4304fe59500a9cbbfd041cc_115) [2019](#i70c5999dd4304fe59500a9cbbfd041cc_115)] [added: 31, 2022, 2021, and 2020](#ia2a49e1dcd8d427486d3a54d0502a122_115)] | | | | | | [removed: [F-7](#i70c5999dd4304fe59500a9cbbfd041cc_115)] [added: [F-](#ia2a49e1dcd8d427486d3a54d0502a122_115)[9](#ia2a49e1dcd8d427486d3a54d0502a122_115)] | | |

| | | | | | | | | | | | | [Notes to Consolidated Financial [removed: Statements](#i70c5999dd4304fe59500a9cbbfd041cc_118)] [added: Statements](#ia2a49e1dcd8d427486d3a54d0502a122_118)] | | | | | | [removed: [F-8](#i70c5999dd4304fe59500a9cbbfd041cc_118)] [added: [F-10](#ia2a49e1dcd8d427486d3a54d0502a122_118)] | | |

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

| [3.3](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) | | | | | | [Amended and Restated By-Laws of [removed: Tyler](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [Technologies Inc.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm)[, dated](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [February](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [1](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm)[, 2022](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [(filed] [added: Tyler Technologies Inc., dated February 1, 2022 (filed] as Exhibit [removed: 3.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm)[1](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [to] [added: 3.1 to] our [removed: Form](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [8-K](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm)[dated February](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) [7](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm)[, 2022](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm)[,] [added: Form 8-K dated February 7, 2022,] and incorporated by reference herein).](https://www.sec.gov/Archives/edgar/data/860731/000086073122000005/amendedandrestatedby-law.htm) | | |

| [removed: [4.2](https://www.sec.gov/Archives/edgar/data/860731/000086073121000020/exhibit101wellsfargo_tyl.htm)] [added: [4.3](https://www.sec.gov/Archives/edgar/data/860731/000086073121000020/exhibit101wellsfargo_tyl.htm)] | | | | | | [Credit Agreement dated April 21, 2021, 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 April 21, 2021, and incorporated by reference herein).](https://www.sec.gov/Archives/edgar/data/860731/000086073121000020/exhibit101wellsfargo_tyl.htm) | | |

| [removed: [4.3](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm)] [added: [4.4](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm)] | | | | | | [Agreement and Plan of Merger, dated February 9, 2021 by and among Tyler Technologies, Inc., Topos Acquisition, Inc., and NIC, Inc.(filed as Exhibit 2.1 to our Form 8-K, dated February 10, 2021, and incorporated by reference herein).](https://www.sec.gov/Archives/edgar/data/860731/000086073121000005/nicagreement2921.htm) | | |

| [removed: [10.5](#i70c5999dd4304fe59500a9cbbfd041cc_1)] [added: [10.5](#ia2a49e1dcd8d427486d3a54d0502a122_1)] | | | | | | [Agreement and plan of merger by and among Tyler Technologies, Inc. TMP Subsidiary, Inc., MP Holding Parent, Inc. (filed as Exhibit 10.7 to our Form 10-K dated February 20, 2019 and incorporated by reference herein).](http://www.sec.gov/Archives/edgar/data/860731/000086073119000009/plan_ofxmergermicropactexh.htm) | | |

| [removed: [*](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit211.htm)[21.1](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit211.htm)] [added: [*21.1](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit211.htm)] | | | | | | [Subsidiaries of Tyler Technologies, [removed: Inc.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit211.htm)] [added: Inc.](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit211.htm)] | | |

| [removed: [*23](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit-23.htm)] [added: [*23](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit-23.htm)] | | | | | | [Consent of Independent Registered Public Accounting [removed: Firm.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit-23.htm)] [added: Firm.](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit-23.htm)] | | |

| [removed: [*31.1](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit311.htm)] [added: [*31.1](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit311.htm)] | | | | | | [Rule 13a-14(a) Certification by Principal Executive Officer.(a) Certification by Principal Executive [removed: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit311.htm)] [added: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit311.htm)] | | |

| [removed: [*31.2](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit312.htm)] [added: [*31.2](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit312.htm)] | | | | | | [Rule 13a-14(a) Certification by Principal Financial [removed: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit312.htm)] [added: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit312.htm)] | | |

| [removed: [*32.1](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit321.htm)] [added: [*32.1](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit321.htm)] | | | | | | [Section 1350 Certification of Principal Executive Officer and Principal Financial [removed: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073122000011/tyl12312021exhibit321.htm)] [added: Officer.](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/tyl12312022exhibit321.htm)] | | |

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, [removed: Texas,] [added: Texas] 75024.

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ H. Lynn Moore, Jr. | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ John S. Marr, Jr. | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ H. Lynn Moore, Jr. | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Brian K. Miller | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Glenn A. Carter | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Brenda A. Cline | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Ronnie D. Hawkins, [removed: JR.] [added: Jr.] | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Mary Landrieu | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Daniel M. Pope | | |

| Date: February [removed: 23, 2022] [added: 22, 2023] | | | | | | By: | | | | | | /s/ Dustin [removed: R.Womble] [added: R. Womble] | | |

We have audited the accompanying consolidated balance sheets of Tyler Technologies, Inc. (the Company) as of December 31, [removed: 2021] [added: 2022] and [removed: 2020,] [added: 2021,] the related consolidated statements of [added: income,] comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2021,] [added: 2022,] 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, [removed: 2021] [added: 2022] and [removed: 2020,] [added: 2021,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2021,] [added: 2022,] 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, [removed: 2021,] [added: 2022,] 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 [removed: 23, 2022] [added: 22, 2023,] expressed an unqualified opinion thereon.

The critical audit [removed: matters] [added: matter] communicated below [removed: are matters] [added: is a matter] arising from the current period audit of the financial statements that [removed: were] [added: was] communicated or required to be communicated to the audit committee and that: (1) [removed: relate] [added: 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 [added: the] critical audit [removed: matters] [added: 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 [removed: matters] [added: matter] below, providing [added: a] separate [removed: opinions] [added: opinion] on the critical audit [removed: matters] [added: matter] or on the [removed: accounts] [added: account] or [removed: disclosures] [added: disclosure] to which [removed: they relate.][added: it relates.]

| *Description of the Matter* | | | As of December 31, [removed: 2021,] [added: 2022,] the Company’s goodwill [removed: asset] balance of [removed: $2.4] [added: $2.5] billion was attributable to multiple reporting units. As disclosed in Note 1 to the consolidated financial statements, goodwill is assessed [removed: annually] for [removed: impairment,] [added: impairment annually,] or more frequently [removed: if an event occurs] [added: whenever events] or [added: changes in] circumstances [removed: change that would more likely than not reduce the fair value of a reporting unit below] [added: indicate] its carrying [removed: value.] [added: value may not be recoverable.] The Company [removed: performs] [added: begins with] a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying [removed: value. If it is determined through] [added: value before applying a quantitative assessment. During] the [removed: evaluation] [added: fourth quarter] of [removed: events or circumstances that the carrying value may not be recoverable,] [added: 2022,] the Company [removed: performs] [added: performed] a quantitative [removed: analysis comparing an estimated fair value of the] [added: assessment for goodwill associated with] reporting [removed: unit to its] [added: units comprised of more recently acquired businesses, which do not have significant excess fair values over] carrying [removed: value.] [added: values.] Auditing management’s quantitative analyses for goodwill impairment was complex and highly judgmental due to the significant judgement required to determine the fair value of these reporting units. In particular, the Company’s fair value estimates for these reporting units were sensitive to significant assumptions, such as weighted average cost of capital and revenue growth [removed: rates,] [added: rates] which are forward looking and affected by expectations about future market or economic conditions. | | |

| *How We Addressed the Matter in Our Audit* | | | We obtained an understanding, evaluated the [removed: design] [added: design,] and tested the operating effectiveness of controls over the Company’s review process for quantitative goodwill impairment assessments, including controls over management’s review of the significant assumptions described above. To test the estimated fair value of the applicable reporting units, we performed audit procedures that included, among others, assessing the methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analyses. We evaluated management’s forecasted revenue to identify, understand and evaluate changes as compared to historical results and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We also involved internal valuation specialists to assist in evaluating management’s methodologies and significant assumptions applied in developing the fair value estimates. | | |

[removed: February 23,] 2022

We have audited Tyler Technologies, Inc.’s internal control over financial reporting as of December 31, [removed: 2021,] [added: 2022,] 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, [removed: 2021,] [added: 2022,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, [removed: 2021] [added: 2022] and [removed: 2020,] [added: 2021,] the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, [removed: 2021,] [added: 2022,] and the related notes and our report dated February [removed: 23, 2022] [added: 22, 2023] expressed an unqualified opinion thereon.

For the years ended December [removed: 31][added: 31,]

| | | | [removed: 2021] [added: 2022] | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | |

| | | | | | | | | | | | | [Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020](#ia2a49e1dcd8d427486d3a54d0502a122_1580) | | | | | | [F-](#ia2a49e1dcd8d427486d3a54d0502a122_1580)[5](#ia2a49e1dcd8d427486d3a54d0502a122_1580) | | |

| [4.2](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/thirdamendmentto2021cred.htm) | | | | | | [Third Amendment to the Credit Agreement dated January 27, 2023, among Tyler Technologies, Inc. and Wells Fargo Bank, N. A. as Administrative Agent and other lenders party hereto (filed as Exhibit 4.2 to our Form 10-K dated February 22, 2023, and incorporated by reference herein](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/thirdamendmentto2021cred.htm)[)](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/thirdamendmentto2021cred.htm)[.](https://www.sec.gov/Archives/edgar/data/860731/000086073123000009/thirdamendmentto2021cred.htm) | | |

| [4.5](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm) | | | | | | [Indenture, dated as of March 9, 2021, between Tyler Technologies, Inc. and U.S. Bank National Association, as trustee, relating to the 0.25% Convertible Senior Notes due 2026.](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm) [(fi](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm)[l](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm)[ed as Exhibit 4.1 to our Form 8-K, dated March 9](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm)[, 2021, and](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm) [incorporated by reference herein.)](https://www.sec.gov/Archives/edgar/data/860731/000086073121000018/exhibit41indenture3921.htm) | | |

| Date: February 22, 2023 | | | | | | By: | | | | | | /s/ Jason P. Durham | | |

| | | | | | | | | | | | | Jason P. Durham | | |

February 22, 2023

February 22, 2023

Consolidated Statements of Income

| Amortization of software development | | | 6,507 | | | | | | 2,325 | | | | | | — | | |

| Sales and marketing expense | | | 135,743 | | | | | | 118,624 | | | | | | 98,466 | | |

| General and administrative expense | | | 267,324 | | | | | | 271,955 | | | | | | 161,095 | | |

| Amortization of other intangibles | | | 61,363 | | | | | | 44,849 | | | | | | 21,662 | | |

| Other comprehensive loss, net of tax: | | | | | | | | | | | | | | | | | |

| Securities available-for-sale and transferred securities: | | | | | | | | | | | | | | | | | |

| Change in net unrealized holding losses on available for sale securities during the period | | | (850) | | | | | | — | | | | | | — | | |

| Reclassification adjustment of unrealized losses on securities transferred from held-to-maturity | | | (27) | | | | | | — | | | | | | — | | |

| Reclassification adjustment for net loss on sale of available for sale securities, included in net income | | | 79 | | | | | | — | | | | | | — | | |

| Other comprehensive loss, net of tax | | | (798) | | | | | | — | | | | | | — | | |

| Comprehensive income | | | $ | 163,442 | | | | | $ | 161,458 | | | | | $ | 194,820 | |

| Cash and cash equivalents | | | $ | 173,857 | | | | | $ | 309,171 | |

| | | | $ | 4,687,417 | | | | | $ | 4,732,161 | |

| Income tax payable | | | 43,667 | | | | | | — | | |

| | | | $ | 4,687,417 | | | | | $ | 4,732,161 | |

| Losses from sale of investments | | | 45 | | | | | | — | | | | | | — | | |

| Supplemental cash flow information: | | | | | | | | | | | | | | | | | |

| Cash paid for interest | | | $ | 21,256 | | | | | $ | 17,728 | | | | | $ | 610 | |

| Cash paid for income taxes, net | | | 38,490 | | | | | | 2,212 | | | | | | 3,263 | | |

| Non-cash investing and financing activities: | | | | | | | | | | | | | | | | | |

| Non-cash additions to property and equipment | | | $ | 169 | | | | | $ | 233 | | | | | $ | 189 | |

| Issuance of shares for acquisitions | | | 18,169 | | | | | | — | | | | | | — | | |

| Purchase consideration for conversion of unvested restricted stock awards | | | — | | | | | | 1,872 | | | | | | — | | |

| Issuance of shares pursuant to stock compensation plan | | | — | | | | | | — | | | | | | 90,636 | | | | | | — | | | | | | — | | | | | | 1,283 | | | | | | 33,727 | | | | | | 124,363 | | |

| Net income | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 164,240 | | | | | | — | | | | | | — | | | | | | 164,240 | | |

| Other comprehensive loss, net of tax | | | — | | | | | | — | | | | | | — | | | | | | (798) | | | | | | — | | | | | | — | | | | | | — | | | | | | (798) | | |

| Issuance of shares for acquisitions | | | — | | | | | | — | | | | | | 17,943 | | | | | | — | | | | | | — | | | | | | 56 | | | | | | 226 | | | | | | 18,169 | | |

| Balance at December 31, 2022 | | | 48,148 | | | | | | $ | 481 | | | | | $ | 1,209,725 | | | | | $ | (844) | | | | | $ | 1,437,854 | | | | | (6,365) | | | | | | $ | (22,827) | | | | | $ | 2,624,389 | |

*See accompanying notes.*

Tyler Technologies, Inc.

During the twelve months ended December 31, 2022, we had approximately $798,000 of other comprehensive loss, net of taxes, from our available-for-sale investment holdings.

We have elected to present amortization of software development, previously included in the cost of revenues software licenses and royalties line item, in a separate category line item on the consolidated statements of income for all reporting periods presented.

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| Date: February 23, 2022 | | | | | | By: | | | | | | /s/ W. Michael Smith | | |

| | | | | | | | | | | | | W. Michael Smith | | |

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| | | | Valuation of Acquired Intangible Assets in a Business Combination | | |

| *Description of the Matter* | | | As described in Note 2 to the consolidated financial statements, the Company acquired NIC, Inc. (NIC) during 2021 for a total purchase price, net of cash acquired of $2.0 billion. The transaction was accounted for as a business combination. Auditing the Company's accounting for its acquisition of NIC was complex due to the significant size of the transaction and the estimation uncertainty in the Company’s determination of the fair value of identified intangible assets related to customer relationships and developed technology which aggregated to $777 million. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to the significant underlying assumptions required in the valuation models used to value the intangible assets and the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The Company valued customer relationships using a discounted cash flow model. The significant assumptions used in this model included the customer attrition rate, weighted average cost of capital, existing customer revenue growth and operating margins. The Company valued the developed technology using the relief-from-royalty method. The significant assumptions used in this method included the royalty rate, obsolescence rate and weighted average cost of capital. These are forward looking assumptions which are affected by expectations about future market or economic conditions. | | |

| *How We Addressed the Matter in Our Audit* | | | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s internal controls over its accounting for the valuation of these intangible assets. For example, we tested controls over the Company’s process to identify and value acquired intangible assets as well as controls over management's review of the valuation models and the significant assumptions described above used to develop such estimates. To test the estimated fair values of the acquired customer relationships and developed technology, we performed audit procedures that included, among others, evaluating the Company’s selection of the valuation methodologies, evaluating the significant assumptions used in the Company’s valuation calculations and testing the completeness and accuracy of the underlying data supporting the significant assumptions. We involved our valuation specialists to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates. Additionally, we performed sensitivity analyses and compared significant assumptions to forecasts and to historical financial results of both the Company and the acquiree, among other procedures. | | |

February 23, 2022

| Selling, general and administrative expenses | | | 390,579 | | | | | | 259,561 | | | | | | 257,746 | | |

| Amortization of customer and trade name intangibles | | | 44,849 | | | | | | 21,662 | | | | | | 21,445 | | |

| | | | $ | 4,732,161 | | | | | $ | 2,607,274 | |

| | | | $ | 4,732,161 | | | | | $ | 2,607,274 | |

| Cash and cash equivalents at beginning of period | | | 603,623 | | | | | | 232,682 | | | | | | 134,279 | | |

| 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) | | |

| Issuance of shares pursuant to stock compensation plan | | | — | | | | | | — | | | | | | (52,833) | | | | | | — | | | | | | — | | | | | | 1,075 | | | | | | 149,741 | | | | | | 96,908 | | |

On April 21, 2021, we acquired NIC, Inc. (“NIC”) as contemplated by the Agreement and Plan of Merger dated February 9, 2021.

NIC digital government services designs, builds, and operates digital government services on an enterprise-wide basis on behalf of state and local governments desiring to provide access to government information and to complete secure government-based transactions through multiple digital channels.

These digital government services consist of websites and applications NIC has built that allow consumers, such as businesses and citizens, to access government information, complete transactions and make electronic payments.

NIC also provides payment processing services, software development and digital government services, other than those services provided under state enterprise contracts, to federal agencies as well as state and local governments.

The results of NIC are include in consolidated financial statements since the date of acquisition.

*Impacts of the COVID-19 Pandemic*

Although market activity improved throughout 2021 in most sectors of our business and continues to trend to near or above pre-pandemic levels, the pandemic continues to delay some government procurement processes and is expected to impact our ability to complete certain implementations, negatively impacting our revenue.