Item 1. Financial Statements

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Item 1. Financial Statements

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Revenues:
Subscriptions	$	401,094	$	347,170	$	1,181,158	$	994,095
Maintenance	111,312		115,587		336,236		348,114
Professional services	64,728		64,462		187,390		201,196
Software licenses and royalties	5,100		6,188		15,757		20,251
Hardware and other	13,645		9,930		36,620		33,016
Total revenues	595,879		543,337		1,757,161		1,596,672

Cost of revenues:
Subscriptions, maintenance, and professional services	289,070		283,750		859,718		829,765
Software licenses and royalties	1,669		1,870		5,418		4,995
Amortization of software development	6,195		4,961		17,079		13,808
Amortization of acquired software	9,376		9,244		27,989		27,723
Hardware and other	8,117		6,052		25,240		21,439
Total cost of revenues	314,427		305,877		935,444		897,730

Gross profit	281,452		237,460		821,717		698,942

Sales and marketing expense	37,560		38,203		110,345		116,195
General and administrative expense	79,971		72,460		236,024		220,590
Research and development expense	51,788		30,120		150,474		88,504
Amortization of other intangibles	14,201		13,850		42,173		45,813

Operating income	97,932		82,827		282,701		227,840

Interest expense	(1,235)		(1,235)		(3,743)		(4,672)
Other income, net	10,855		4,504		26,397		8,232
Income before income taxes	107,552		86,096		305,355		231,400
Income tax provision	23,159		10,199		55,283		33,595
Net income	$	84,393	$	75,897	$	250,072	$	197,805

Earnings per common share:
Basic	$	1.96	$	1.78	$	5.80	$	4.64
Diluted	$	1.93	$	1.74	$	5.70	$	4.56

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Net income	$	84,393	$	75,897	$	250,072	$	197,805
Other comprehensive income, net of tax:
Securities available-for-sale and transferred securities:
Change in net unrealized holding gains on available-for-sale securities during the period	61		56		103		164

Reclassification adjustment for net income on sale of available-for-sale securities, included in net income	—		(1)		—		(1)
Other comprehensive income, net of tax	61		55		103		163
Comprehensive income	$	84,454	$	75,952	$	250,175	$	197,968

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)


	September 30, 2025 (unaudited)		December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	834,101	$	744,721
Accounts receivable (less allowance for losses and sales adjustments of $23,003 at 2025 and $17,325 at 2024)	661,986		587,634
Short-term investments	116,720		23,257
Prepaid expenses	80,117		65,135
Income tax receivable	36,761		11,975
Other current assets	8,160		8,057
Total current assets	1,737,845		1,440,779
Accounts receivable, long-term	6,855		7,153
Operating lease right-of-use assets	36,564		31,433
Property and equipment, net	160,626		163,775
Other assets:
Software development costs, net	71,777		76,117
Goodwill	2,554,457		2,531,653
Other intangibles, net	779,170		831,966
Non-current investments	22,439		10,758
Other non-current assets	87,636		86,381
	$	5,457,369	$	5,180,015
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	147,858	$	156,817
Accrued liabilities	173,095		197,709
Operating lease liabilities	9,661		9,643

Deferred revenue	761,050		701,438
Current portion of convertible senior notes due 2026, net	599,231		—
Total current liabilities	1,690,895		1,065,607


Convertible senior notes due 2026, net	—		597,934
Deferred revenue, long-term	22,217		22,376
Deferred income taxes	75,829		47,503
Operating lease liabilities, long-term	34,556		30,791
Other long-term liabilities	31,105		27,382
Total liabilities	1,854,602		1,791,593
Commitments and contingencies	—		—
Shareholders' equity:
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued	—		—
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued and outstanding as of September 30, 2025 and December 31, 2024	481		481
Additional paid-in capital	1,645,848		1,539,301
Accumulated other comprehensive loss, net of tax	(54)		(157)
Retained earnings	2,116,871		1,866,799
Treasury stock, at cost; 5,131,407 and 5,184,092 shares in 2025 and 2024, respectively	(160,379)		(18,002)
Total shareholders' equity	3,602,767		3,388,422
	$	5,457,369	$	5,180,015

See accompanying notes.

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2025		2024
Cash flows from operating activities:
Net income	$	250,072	$	197,805
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	103,931		108,766
Gains from sale of investments	—		(2)
Share-based compensation expense	112,631		88,460

Amortization of operating lease right-of-use assets	7,160		7,262
Deferred income tax benefit	26,382		(41,504)
Other	82		228
Changes in operating assets and liabilities, exclusive of effects of acquired companies:
Accounts receivable	(72,561)		(7,901)
Income tax payable	(24,786)		20,019
Prepaid expenses and other current assets	(16,894)		(28,157)
Accounts payable	(8,959)		(922)
Operating lease liabilities	(8,507)		(9,392)
Accrued liabilities	(21,636)		6,510
Deferred revenue	57,320		49,383
Other long-term liabilities	5,425		9,304
Net cash provided by operating activities	409,660		399,859

Cash flows from investing activities:
Additions to property and equipment	(11,698)		(16,734)
Purchase of marketable security investments	(179,966)		—
Proceeds and maturities from marketable security investments	76,307		7,700


Investment in software development	(14,138)		(24,412)
Cost of acquisitions, net of cash acquired	(35,137)		(1,395)
Other	525		168
Net cash used by investing activities	(164,107)		(34,673)

Cash flows from financing activities:

Payment on term loans	—		(50,000)


Payment of debt issuance costs	—		(2,637)
Purchase of treasury shares	(174,650)		—

Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award settlement	12,306		47,433
Contributions from employee stock purchase plan	13,883		12,821
Other	(7,712)		—
Net cash (used) provided by financing activities	(156,173)		7,617

Net increase in cash and cash equivalents	89,380		372,803
Cash and cash equivalents at beginning of period	744,721		165,493
Cash and cash equivalents at end of period	$	834,101	$	538,296

See accompanying notes.


	Nine Months Ended September 30,
	2025		2024
Supplemental cash flow information:
Cash paid for interest	$	2,164	$	2,860
Cash paid for income taxes, net	47,339		45,660
Non-cash investing and financing activities:
Non-cash additions to property and equipment	$	552	$	111

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
	Shares	Amount						Shares			Amount
Balance at June 30, 2025	48,148	$	481	$	1,620,258	$	(115)		$	2,032,478		(4,896)	$	(18,435)	$	3,634,667
Net income	—	—		—		—			84,393			—	—		84,393
Other comprehensive income, net of tax	—	—		—		61			—			—	—		61
Exercise of stock options and vesting of restricted stock units	—	—		(15,603)		—			—			57	31,078		15,475
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—			—			(1)	(14)		(14)
Share-based compensation	—	—		36,669		—			—			—	—		36,669
Issuance of shares pursuant to employee stock purchase plan	—	—		4,524		—			—			9	37		4,561
Treasury stock repurchases	—	—		—		—			—			(300)	(173,045)		(173,045)

Balance at September 30, 2025	48,148	$	481	$	1,645,848	$	(54)		$	2,116,871		(5,131)	$	(160,379)	$	3,602,767


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
	Shares	Amount						Shares			Amount
Balance at June 30, 2024	48,148	$	481	$	1,425,536	$	(218)		$	1,725,681		(5,524)	$	(19,372)	$	3,132,108
Net income	—	—		—		—			75,897			—	—		75,897
Other comprehensive income, net of tax	—	—		—		55			—			—	—		55
Exercise of stock options and vesting of restricted stock units	—	—		30,894		—			—			153	961		31,855
Employee taxes paid for withheld shares upon equity award settlement	—	—		—		—			—			(1)	(307)		(307)
Share-based compensation	—	—		31,187		—			—			—	—		31,187
Issuance of shares pursuant to employee stock purchase plan	—	—		4,306		—			—			10	41		4,347
Reimbursement of shares from escrow	—	—		12		—			—			—	(42)		(30)
Balance at September 30, 2024	48,148	$	481	$	1,491,935	$	(163)		$	1,801,578		(5,362)	$	(18,719)	$	3,275,112

TYLER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
	Shares	Amount						Shares			Amount
Balance at December 31, 2024	48,148	$	481	$	1,539,301	$	(157)		$	1,866,799		(5,184)	$	(18,002)	$	3,388,422
Net income	—	—		—		—			250,072			—	—		250,072
Other comprehensive income, net of tax	—	—		—		103			—			—	—		103
Exercise of stock options and vesting of restricted stock units	—	—		(19,854)		—			—			385	65,100		45,246
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—			—			(57)	(32,940)		(32,940)
Share-based compensation	—	—		112,631		—			—			—	—		112,631
Issuance of shares pursuant to employee stock purchase plan	—	—		13,770		—			—			28	113		13,883
Treasury stock purchases	—	—		—		—			—			(303)	(174,650)		(174,650)

Balance at September 30, 2025	48,148	$	481	$	1,645,848	$	(54)		$	2,116,871		(5,131)	$	(160,379)	$	3,602,767


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Shareholders' Equity
	Shares	Amount						Shares			Amount
Balance at December 31, 2023	48,148	$	481	$	1,354,787	$	(326)		$	1,603,773		(5,858)	$	(20,720)	$	2,937,995
Net income	—	—		—		—			197,805			—	—		197,805
Other comprehensive income, net of tax	—	—		—		163			—			—	—		163
Exercise of stock options and vesting of restricted stock units	—	—		34,324		—			—			542	36,872		71,196
Employee taxes paid for withheld shares for taxes upon equity award settlement	—	—		—		—			—			(52)	(23,763)		(23,763)
Share-based compensation	—	—		88,460		—			—			—	—		88,460
Issuance of shares pursuant to employee stock purchase plan	—	—		12,685		—			—			34	136		12,821
Reimbursement of shares from escrow	—	—		1,679		—			—			(28)	(11,244)		(9,565)
Balance at September 30, 2024	48,148	$	481	$	1,491,935	$	(163)		$	1,801,578		(5,362)	$	(18,719)	$	3,275,112

Tyler Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Tables in thousands, except per share data)

(1) Basis of Presentation

We prepared the accompanying condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“GAAP”), for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods. Balance sheet amounts are as of September 30, 2025, and December 31, 2024, and operating result amounts are for the three and nine months ended September 30, 2025, and 2024, and include all normal and recurring adjustments that we considered necessary for the fair summarized presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes included in our latest Form 10-K for the year ended December 31, 2024. Revenues, expenses, assets, and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Certain amounts for previous years have been reclassified to conform to the current year presentation.

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). During the three and nine months ended September 30, 2025, we had approximately $61,000 and $103,000, of other comprehensive income, net of taxes, respectively, from our available-for-sale investment holdings. During the three and nine months ended September 30, 2024, we had approximately $55,000 and $163,000, of other comprehensive income, net of taxes, respectively, from our available-for-sale investment holdings, respectively.

(2) Accounting Standards and Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 19, 2025, that have had a material impact on our condensed consolidated financial statements and related notes. See Recently Pronounced Accounting Standard below.

REVENUE RECOGNITION

Nature of Products and Services

We account for revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. We earn the majority of our revenues from subscription-based services and post-contract client support (“PCS” or “maintenance”). Other sources of revenue are professional services, software licenses and royalties, and hardware and other. Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products or services. We determine revenue recognition through the following steps:

Identification of the contract, or contracts, with a client
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, we satisfy a performance obligation

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

For arrangements that involve significant production, modification, or customization of the software, or where professional services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the client over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.

Subscription-Based Services

Subscription-based services consist primarily of revenues derived from software as a service (“SaaS”) arrangements and transaction-based fees. For SaaS arrangements, we evaluate whether the client has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the client can feasibly maintain the software on the client’s hardware or enter into another arrangement with a third-party to host the software. We recognize SaaS services ratably over the term of the arrangement, which range from one to 10 years, but most arrangements are typically for periods of one to three years. For professional services associated with certain SaaS arrangements, we have concluded that the services are not distinct, and we recognize the revenue ratably over the remaining contractual period once we have provided the client access to the software.

Transaction-based fees primarily relate to digital government services and online payment services, which are sometimes offered with the assistance of third-party vendors. When we are the principal in a transaction, we record the revenue and related costs on a gross basis. Otherwise, we net the cost of revenue associated with the service against the gross revenue (amount billed to the client) and record the net amount as revenue.

For transaction-based revenues from digital government services and online payments, we have the right to charge the client an amount that directly corresponds with the value to the client of our performance to date. Therefore, we recognize revenues for these services over time based on the amount billable to the client. In some cases, we are paid on a fixed-fee basis and recognize the revenue ratably over the contractual period. Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances where variable consideration exists, we include in our estimates additional revenues for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably, and its realization is probable.

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

Post-Contract Client Support (Maintenance)

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

Professional Services

When professional services are distinct, the fee allocable to the service element is recognized over the time we perform the services and is billed on a time and material or milestone basis. Contract fees are typically billed on a milestone basis as defined within contract terms. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met.

Revenue is recognized net of allowances for sales adjustments and any taxes collected from clients, which are subsequently remitted to governmental authorities.

Refer to Note 4, “Disaggregation of Revenue” for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenues and cash flows of our various revenue categories.

Contract Balances

Accounts receivable and allowance for losses and sales adjustments

Timing of revenue recognition may differ from the timing of invoicing to clients. We record an unbilled receivable when revenue is recognized prior to invoicing, or deferred revenue when invoicing occurs prior to revenue recognition. For multi-year agreements, we generally invoice clients annually at the beginning of each annual coverage period.

Accounts receivable is as follows:


	September 30, 2025		December 31, 2024
Accounts receivable - current	$	661,986	$	587,634
Accounts receivable - long term	6,855		7,153
Total accounts receivable	$	668,841	$	594,787

Total accounts receivable, including total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $668.8 million and $594.8 million, as of September 30, 2025, and December 31, 2024, respectively. We have recorded unbilled receivables of $110.4 million and $115.6 million as of September 30, 2025, and December 31, 2024, respectively. Unbilled receivables expected to be collected within one year have been included with the current portion of accounts receivable in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with the long-term portion of accounts receivable in the accompanying condensed consolidated balance sheets. Unbilled receivables also include retention receivables of $11.7 million and $11.4 million as of September 30, 2025, and December 31, 2024, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings.

We maintain allowances for losses and sales adjustments, which losses are recorded against revenue at the time the loss is incurred. Because most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payments. Consequently, we have not recorded a reserve for credit losses. Events or changes in circumstances that indicate the carrying amount for the allowances for losses and sales adjustments may require revision include, but are not limited to, managing our client’s expectations regarding the scope of the services to be delivered and defects or errors in new versions or enhancements of our software products. Our allowances for losses and sales adjustments are $23.0 million and $17.3 million as of September 30, 2025, and December 31, 2024, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

We perform an impairment assessment annually on October 1, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of each reporting unit’s goodwill. If the conclusion of an impairment assessment is that it is more likely than not that the fair value of the reporting unit is more than its carrying value, goodwill is not considered impaired, and we are not required to perform the quantitative goodwill impairment test. If the conclusion of an impairment assessment is that it is more likely than not that the fair value is less than its carrying value, we perform the quantitative goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. Impairments, if any, are based on the excess of the carrying amount over the fair value.

Other Intangible Assets

We make judgments about the recoverability of purchased intangible assets other than goodwill whenever events or changes in circumstances indicate that an impairment may exist. Client base and acquired software each comprise approximately half of our purchased intangible assets other than goodwill. We review our client turnover each year for indications of impairment. If indications of impairment are determined to exist, we measure the recoverability of assets by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets.

For the three and nine months ended September 30, 2025, no triggering event or changes to circumstances indicated that a potential impairment had occurred for goodwill or other intangible assets.

RECENTLY PRONOUNCED ACCOUNTING STANDARDS

In September 2025, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2025-06 - Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This update removes the prescriptive software development “project stages” and requires capitalization of software costs once (1) management authorizes and commits funding and (2) completion and use are probable. Entities must evaluate significant development uncertainty related to technological innovations or performance requirements. The amendments also require Subtopic 360-10 disclosures for all capitalized internal-use software costs and clarify that intangible asset disclosures under Subtopic 350-30 are not required. The standard is effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

In July 2025, the FASB issued ASU 2025-05 - Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This guidance provides a practical expedient available to all entities to simplify the estimation of the expected credit losses for current accounts receivables and current contract assets arising from revenue contracts under ASC 606. It is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods, with early adoption permitted. Because most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payment; as such, we do not expect this new standard to have a material impact on the Company’s financial statements.

In November 2024, the FASB issued ASU 2024-04 - Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This guidance clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. It is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods, with early adoption permitted. As of January 1, 2025, we have early-adopted this standard, and the new standard did not have a material impact on the Company’s financial statements.

In November 2024, the FASB issued ASU 2024-03 - Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This guidance requires public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. It is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. This guidance is not expected to have a material impact on the Company’s financial statements.

In December 2023, the FASB issued ASU 2023-09 - Income Taxes (Topic ASC 740) Income Taxes. The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 with early adoption permitted. This guidance is not expected to have a material impact on the Company’s financial statements.

(3) Segment and Related Information

Reportable operating segments are determined based on the Company’s management approach. The management approach, as defined by FASB ASC 280 “Segment Reporting,” is based on the way that the Chief Operating Decision Maker (“CODM”) organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our CODM, for purposes of FASB ASC 280, is our chief executive officer.

We report our results in two reportable segments. Our reportable segments are organized on the basis of a combination of the products and services they deliver to clients and the function that the public sector client performs. Operating segments that have met the aggregation criteria have been combined into our two reportable segments. The Enterprise Software (“ES”) reportable segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: public administration solutions, courts and public safety solutions, education solutions, and property and recording solutions. The Platform Technologies (“PT”) reportable segment provides public sector entities with platform and transformative solutions including digital solutions, payment processing, streamlined data processing, and improved operations and workflows.

The CODM uses segment operating income or loss to assess performance and to allocate resources (including employees, property, and financial or capital resources) for each segment, predominantly in the annual budget and forecasting process. During the fiscal periods presented, we had no significant transactions between reportable segments. Corporate unallocated amounts are comprised of non-cash amortization of intangible assets associated with acquisitions, depreciation associated with unallocated property and equipment assets, compensation costs for the executive management team and certain shared services staff, and share-based compensation expense for the entire company. Corporate unallocated amounts also include incidental revenues and expenses related to a company-wide user conference and rental income.


For the three months ended September 30, 2025	Enterprise Software		Platform Technologies		Totals
Revenues
Subscriptions:
SaaS	$	178,383	$	21,403
Transaction-based fees	78,331		122,977
Maintenance	105,450		5,862
Professional services	55,769		8,959
Software licenses and royalties	5,137		(37)
Hardware and other	13,036		128
Total segment revenues	436,106		159,292		595,398
Less:
Cost of revenues	183,674		108,655
Sales and marketing expense	25,244		5,004
General and administrative expense	11,330		14,764
Research and development expense	41,243		4,424
Segment operating income	$	174,615	$	26,445	$	201,060


For the three months ended September 30, 2024	Enterprise Software		Platform Technologies		Totals
Revenues
Subscriptions:
SaaS	$	144,445	$	22,179
Transaction-based fees	61,561		118,985
Maintenance	109,346		6,241
Professional services	53,947		10,515
Software licenses and royalties	5,424		764
Hardware and other	9,025		905
Total segment revenues	383,748		159,589		543,337
Less:
Cost of revenues	179,123		105,577
Sales and marketing expense	27,863		4,817
General and administrative expense	11,582		13,945
Research and development expense	25,306		2,384
Segment operating income	$	139,874	$	32,866	$	172,740


For the nine months ended September 30, 2025	Enterprise Software		Platform Technologies		Totals
Revenues
Subscriptions:
SaaS	$	505,183	$	64,254
Transaction-based fees	227,956		383,765
Maintenance	319,208		17,028
Professional services	167,224		20,166
Software licenses and royalties	15,977		(220)
Hardware and other	27,586		297
Total segment revenues	1,263,134		485,290		1,748,424
Less:
Cost of revenues	531,423		332,628
Sales and marketing expense	75,482		14,769
General and administrative expense	33,789		41,539
Research and development expense	118,318		12,957
Segment operating income	$	504,122	$	83,397	$	587,519


For the nine months ended September 30, 2024	Enterprise Software		Platform Technologies		Totals
Revenues
Subscriptions:
SaaS	$	408,632	$	62,754
Transaction-based fees	169,146		353,563
Maintenance	329,724		18,390
Professional services	167,571		33,625
Software licenses and royalties	19,314		937
Hardware and other	25,198		905
Total segment revenues	1,119,585		470,174		1,589,759
Less:
Cost of revenues	523,401		307,325
Sales and marketing expense	81,090		16,082
General and administrative expense	36,046		41,922
Research and development expense	74,889		8,815
Segment operating income	$	404,159	$	96,030	$	500,189


	Three Months Ended September 30,				Nine Months Ended September 30,
Reconciliation of reportable segment operating income to the Company's consolidated totals:	2025		2024		2025		2024
Total segment operating income	$	201,060	$	172,740	$	587,519	$	500,189
Corporate unallocated:
Total revenues	481		—		8,737		6,913
Cost of revenues	(22,098)		(21,177)		(71,393)		(67,004)
Sales and marketing expense	(7,312)		(5,523)		(20,094)		(19,023)
General and administrative expense	(53,877)		(46,933)		(160,696)		(142,622)
Research and development expense	(6,121)		(2,430)		(19,199)		(4,800)
Amortization of other intangibles	(14,201)		(13,850)		(42,173)		(45,813)
Interest expense	(1,235)		(1,235)		(3,743)		(4,672)
Other income, net	10,855		4,504		26,397		8,232
Income before income taxes	$	107,552	$	86,096	$	305,355	$	231,400

The following table presents reconciliations of segment revenues from external customers and other segment information to the Company’s consolidated totals:


	Three Months Ended September 30,				Nine Months Ended September 30,
Revenues:	2025		2024		2025		2024
ES	$	436,106	$	383,748	$	1,263,134	$	1,119,585
PT	159,292		159,589		485,290		470,174
Corporate unallocated	481		—		8,737		6,913
Total consolidated	$	595,879	$	543,337	$	1,757,161	$	1,596,672

Depreciation and amortization expense:
ES	$	7,608	$	8,437	$	21,615	$	27,431
PT	22,350		22,034		66,849		67,318
Corporate unallocated	5,030		4,059		15,467		14,017
Total consolidated	$	34,988	$	34,530	$	103,931	$	108,766

Software development expenditures:
ES	$	146	$	2,101	$	2,387	$	5,832
PT	3,457		4,661		11,534		13,240
Corporate	135		1,157		217		5,340
Total consolidated	$	3,738	$	7,919	$	14,138	$	24,412

Capital expenditures:
ES	$	1,456	$	1,855	$	3,738	$	13,857
PT	746		639		4,539		2,151
Corporate	1,674		390		3,421		726
Total consolidated	$	3,876	$	2,884	$	11,698	$	16,734


Segment assets:	September 30, 2025		December 31, 2024
ES	$	558,159	$	572,224
PT	424,712		416,635
Corporate	4,474,498		4,191,156
Total consolidated	$	5,457,369	$	5,180,015

Segment assets primarily consist of net accounts receivable, prepaid expenses and other current assets, and net property and equipment and software development costs. Corporate assets primarily consist of cash and investments; prepaid insurance; goodwill and intangibles associated with acquisitions; deferred income taxes; software development costs, net; and net property and equipment mainly related to unallocated information and technology assets. Certain presentation items from previous years have been adjusted to conform with current year presentation.

(4) Disaggregation of Revenue

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

Recurring Revenues

The majority of our revenues are comprised of revenues from subscriptions and maintenance, which we consider to be recurring revenues. Subscription revenues primarily consist of revenues derived from our SaaS arrangements and transaction-based fees. These revenues are considered recurring because revenues from these sources are expected to re-occur in similar annual amounts for the term of our relationship with the client. Transaction-based fees are generally the result of multi-year contracts with our clients that result in fees generated by payment transactions and digital government services and are collected on a recurring basis during the contract term. The contract terms for subscription arrangements range from one to 10 years but are typically contracted for initial periods of one to three years. Nearly all of our on-premises software clients contract with us for maintenance and support. Maintenance and support are generally provided under auto-renewing annual contracts or multi-year contracts. We consider all other revenue categories to be non-recurring revenues.

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


For the three months ended September 30, 2025	Enterprise Software		Platform Technologies		Corporate Unallocated		Totals
Revenues
Subscriptions:
SaaS	$	178,383	$	21,403	$	—	$	199,786
Transaction-based fees	78,331		122,977		—		201,308
Maintenance	105,450		5,862		—		111,312
Total recurring revenues	362,164		150,242		—		512,406

Professional services	55,769		8,959		—		64,728
Software licenses and royalties	5,137		(37)		—		5,100
Hardware and other	13,036		128		481		13,645
Total non-recurring revenues	73,942		9,050		481		83,473

Total	$	436,106	$	159,292	$	481	$	595,879


For the three months ended September 30, 2024	Enterprise Software		Platform Technologies		Corporate Unallocated		Totals
Revenues
Subscriptions:
SaaS	$	144,445	$	22,179	$	—	$	166,624
Transaction-based fees	61,561		118,985		—		180,546
Maintenance	109,346		6,241		—		115,587
Total recurring revenues	315,352		147,405		—		462,757

Professional services	53,947		10,515		—		64,462
Software licenses and royalties	5,424		764		—		6,188
Hardware and other	9,025		905		—		9,930
Total non-recurring revenues	68,396		12,184		—		80,580

Total	$	383,748	$	159,589	$	—	$	543,337


For the nine months ended September 30, 2025	Enterprise Software		Platform Technologies		Corporate Unallocated		Totals
Revenues
Subscriptions:
SaaS	$	505,183	$	64,254	$	—	$	569,437
Transaction-based fees	227,956		383,765		—		611,721
Maintenance	319,208		17,028		—		336,236
Total recurring revenues	1,052,347		465,047		—		1,517,394

Professional services	167,224		20,166		—		187,390
Software licenses and royalties	15,977		(220)		—		15,757
Hardware and other	27,586		297		8,737		36,620
Total non-recurring revenues	210,787		20,243		8,737		239,767

Total	$	1,263,134	$	485,290	$	8,737	$	1,757,161


For the nine months ended September 30, 2024	Enterprise Software		Platform Technologies		Corporate Unallocated		Totals
Revenues
Subscriptions:
SaaS	$	408,632	$	62,754	$	—	$	471,386
Transaction-based fees	169,146		353,563		—		522,709
Maintenance	329,724		18,390		—		348,114
Total recurring revenues	907,502		434,707		—		1,342,209

Professional services	167,571		33,625		—		201,196
Software licenses and royalties	19,314		937		—		20,251
Hardware and other	25,198		905		6,913		33,016
Total non-recurring revenues	212,083		35,467		6,913		254,463

Total	$	1,119,585	$	470,174	$	6,913	$	1,596,672

(5) Deferred Revenue and Performance Obligations

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


	September 30, 2025		December 31, 2024
Enterprise Software	$	738,964	$	683,909
Platform Technologies	42,128		36,117
Corporate	2,175		3,788
Totals	$	783,267	$	723,814

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


	Nine Months Ended September 30, 2025
Balance as of December 31, 2024	$	723,814
Deferral of revenue	1,195,890
Recognition of deferred revenue	(1,136,437)
Balance as of September 30, 2025	$	783,267

Remaining Performance Obligations

We expect to recognize as revenue approximately 97% of our deferred revenue balance as of September 30, 2025, in the next 12 months, and the remainder thereafter. We believe the portion of the transaction price allocated to the remaining performance obligations which is not included in our deferred revenue balance is not a meaningful indicator of future revenue due to contracts with transaction-based fees that vary with transaction activity, the variability in subscription term lengths, and termination provisions included in some contracts that limit inclusion and cause variability from period to period.

(6) Deferred Commissions

Deferred commissions are as follows:


	September 30, 2025		December 31, 2024
Prepaid commissions	$	19,952	$	18,037
Long-term deferred commissions	48,785		38,762
Total deferred commissions	$	68,737	$	56,799

Amortization expense related to deferred commissions is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Amortization expense	$	5,510	$	4,840	$	15,553	$	14,490

Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in sales and marketing expense in the accompanying condensed consolidated statements of income.

(7) Acquisitions

On July 28, 2025, we acquired Emergency Networking, Inc (“EN”). EN is a SaaS company specializing in cloud-native software for fire departments and emergency medical services (EMS) agencies. The total cash purchase price, net of cash acquired of $497,000, was approximately $19.4 million, subject to certain post-closing adjustments, including holdbacks of $2.5 million.

We have performed a preliminary valuation analysis of the fair market value of EN’s assets and liabilities. In connection with this transaction, we acquired total tangible assets of $1.6 million and assumed liabilities of approximately $1.3 million. We recorded goodwill of approximately $12.4 million, which is not deductible for tax purposes, and other identifiable intangible assets of approximately $9.1 million. We recorded net deferred tax liabilities of $1.9 million related to the tax effect of our estimated fair value allocations. The operating results of EN are included with the operating results of the Enterprise Software segment since the date of the acquisition. The impact of this acquisition on our operating results, assets, and liabilities is not material.

On January 31, 2025, we acquired MyGov, LLC (“MyGov”), a provider of SaaS platform solutions for community development. The total cash purchase price, net of cash acquired of $215,000, was approximately $18.2 million.

We have performed a preliminary valuation analysis of the fair market value of MyGov’s assets and liabilities. In connection with this transaction, we acquired total tangible assets of $0.7 million and assumed liabilities of approximately $1.1 million. We recorded goodwill of approximately $10.4 million, which is expected to be deductible for tax purposes, and other identifiable intangible assets of approximately $8.5 million. The operating results of MyGov are included with the operating results of the Enterprise Software segment since the inception date of the acquisition. The impact of this acquisition on our operating results, assets, and liabilities is not material.

As of September 30, 2025, the purchase price allocations for MyGov and EN are not final; therefore, certain preliminary valuation estimates of fair value assumed at the acquisition date for intangible assets and receivables are subject to change as valuations are finalized. Our balance sheet as of September 30, 2025, reflects the allocation of the purchase price to the net assets acquired based on their estimated fair value at the date of the acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level 3 unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

During the nine months ended September 30, 2025, we paid $7.7 million in cash for long-term indemnity holdbacks related to prior acquisitions.

(8) Debt

The following table summarizes our total outstanding borrowings:


	Rate	Maturity Date	September 30, 2025		December 31, 2024
2024 Credit Agreement
Revolving credit facility	S + 1.125%	September 2029	$	—	$	—
Convertible Senior Notes due 2026	0.25%	March 2026	600,000		600,000
Total borrowings			600,000		600,000
Less: unamortized debt discount and debt issuance costs			(769)		(2,066)
Total borrowings, net			599,231		597,934


Current portion of convertible senior notes due 2026, net			599,231		—
Long Term - convertible senior notes due 2026, net			—		597,934
Total Debt			$	599,231	$	597,934

2024 Credit Agreement

On September 25, 2024, the Company entered into a $700.0 million credit agreement with the various lender parties thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender (the “2024 Credit Agreement”). The 2024 Credit Agreement provides for an unsecured revolving credit facility in an aggregate principal amount of up to $700.0 million, including sub-facilities for standby letters of credit and swingline loans. The 2024 Credit Agreement matures on September 25, 2029, and loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any Secured Overnight Financing Rate (“SOFR”) breakage costs. The 2024 Credit Agreement replaced Tyler’s previous $500.0 million unsecured credit facility under the credit agreement dated April 21, 2021, among the Company and various lenders party thereto, which was scheduled to mature in April 2026.

The 2024 Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and defined events of defaults. The 2024 Credit Agreement requires us to maintain certain financial ratios and other financial conditions and limits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of September 30, 2025, we were in compliance with those covenants.

Loans under the revolving credit facility 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) plus a margin of 0.125% to 0.75% or (2) the one-, three-, or six-month SOFR rate plus a margin of 1.125% to 1.75%. The margin in each case is based upon Tyler’s total net leverage ratio, as determined pursuant to the 2024 Credit Agreement. In addition to paying interest on the outstanding principal of loans under the revolving credit facility, the Company is required to pay a commitment fee initially in the amount of 0.125% per annum, which will subsequently range from 0.125% to 0.25% based upon the Company’s total net leverage ratio. Borrowings under the 2024 Credit Agreement may be used for general corporate purposes, including working capital requirements, acquisitions and capital expenditures.

Convertible Senior Notes due 2026

On March 9, 2021, we issued 0.25% Convertible Senior Notes due in 2026 in the aggregate principal amount of $600.0 million (“the Convertible Senior Notes” or “the Notes”). The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture, dated as of March 9, 2021, with U.S. Bank National Association as trustee (the “Indenture”). 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 to 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. The Convertible Senior Notes mature on March 15, 2026, unless earlier repurchased, redeemed, or converted.

Before September 15, 2025, holders of the Convertible Senior Notes had the right to convert their Convertible Senior Notes only upon the occurrence of certain events. Under the terms of the Indenture, the Convertible Senior Notes are convertible into common stock of Tyler Technologies, Inc. (referred to herein as “our common stock”) at the following times or circumstances:

during any calendar quarter commencing after the calendar quarter ended June 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “Measurement Period”) if the trading price per $1,000 principal amount of Convertible Senior Notes, as determined following a request by their holder in accordance with the procedures in the Indenture, for each trading day of the Measurement Period, was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;
upon the occurrence of certain corporate events or distributions on our common stock, including but not limited to a “Fundamental Change” (as defined in the Indenture);
upon the occurrence of specified corporate events.

On September 15, 2025, we entered the Free Convertibility Period (as defined in the Indenture), during which the holders of the Convertible Senior Notes may convert their Convertible Senior Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle any conversions of the Convertible Senior Notes in a combination of cash and shares of our common stock at maturity. However, upon conversion of any Convertible Senior Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted. As of September 30, 2025, no conversions have occurred.

The initial conversion rate is 2.0266 shares of common stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $493.44 per share of common stock. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Convertible Senior Notes are redeemable, in whole or in part, at our option at any time, and from time to time, on or after March 15, 2024, and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price of the Notes on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. Subject to certain exceptions, if a change of control or other fundamental change (both as defined in the Indenture governing the Convertible Senior Notes), the holders of the Convertible Senior Notes may require us to repurchase all or part of the principal amount of the Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes, plus any accrued and unpaid interest up to, but excluding, the redemption date. In addition, calling any Note for redemption constitutes a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

Effective Interest Rate

The weighted average interest rate for the borrowings under the Convertible Senior Notes was 0.25% as of September 30, 2025. For the nine months ended September 30, 2025, the effective interest rate was 0.54% for the Convertible Senior Notes. The following sets forth the interest expense recognized related to the borrowings and commitment fees for unused portions under the 2024 Credit Agreement, the 2021 Credit Agreement and Convertible Senior Notes and is included in interest expense in the accompanying condensed consolidated statements of income:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Contractual interest expense - Revolving Credit Facility	$	(229)	$	(212)	$	(724)	$	(671)
Contractual interest expense - Term Loans	—		—		—		(761)
Contractual interest expense - Convertible Senior Notes	(375)		(375)		(1,125)		(1,125)
Amortization of debt discount and debt issuance costs	(631)		(648)		(1,894)		(2,115)
Total	$	(1,235)	$	(1,235)	$	(3,743)	$	(4,672)

As of September 30, 2025, we had one outstanding letter of credit totaling $500,000. The letter of credit, which guarantees our performance under a client contract, automatically renews annually unless canceled in writing, and expires in the third quarter of 2026.

(9) Financial Instruments

The following table presents our financial instruments:


	September 30, 2025		December 31, 2024
Cash and cash equivalents	$	834,101	$	744,721

Available-for-sale investments	139,159		34,015
Equity investment	10,000		10,000
Total	$	983,260	$	788,736

Cash and cash equivalents consist primarily of money market funds with original maturity dates of three months or less, for which we determine fair value through quoted market prices.

Our investment portfolio is classified as available-for-sale in order to have the flexibility to buy and sell investments and maximize cash liquidity. Our available-for-sale investments primarily consist of investment grade corporate bonds, U.S. Treasuries, and asset-backed securities with maturity dates through 2027. These investments are presented at fair value and are included in short-term investments and non-current investments in the accompanying condensed consolidated balance sheets. Unrealized gains or losses associated with the investments are included in accumulated other comprehensive income (loss), net of tax in the accompanying condensed consolidated balance sheets and other comprehensive income (loss), net of tax in the statements of comprehensive income. For our available-for-sale investments, we do not have the intent to sell, nor is it more likely than not that we would be required to sell before recovery of their cost basis.

As of September 30, 2025 and December 31, 2024, we have an accrued interest receivable balance of approximately $794,000 and $227,000, respectively, which is included in accounts receivable, net. We do not measure an allowance for credit losses for accrued interest receivables. We record any losses within the maturity period or at the time of sale of the investment, and any write-offs to accrued interest receivables are recorded as reductions to interest income in the period of the loss. During the three and nine months ended September 30, 2025, we have recorded no losses for accrued interest receivables. Interest income and amortization of discounts and premiums are included in other income, net in the accompanying condensed consolidated statements of income.

The following table presents the components of our available-for-sale investments:


	September 30, 2025		December 31, 2024
Amortized cost	$	139,233	$	34,225
Unrealized gains	72		3
Unrealized losses	(146)		(213)
Estimated fair value	$	139,159	$	34,015

As of September 30, 2025, we have $116.7 million of available-for-sale debt securities with contractual maturities of one year or less and $22.5 million with contractual maturities greater than one year. As of September 30, 2025, 27 available-for-sale securities with a fair value of $23.1 million have been in a loss position for one year or less and three securities with a fair value of $5.1 million have been in a loss position for greater than one year.

The following table presents the activity on our available-for-sale investments:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Proceeds from sales and maturities	$	42,023	$	1,349	$	76,307	$	7,700
Realized gains on sales, net of tax	—		1		—		1

Our equity investment consists of an 18% interest in BFTR, LLC, a wholly owned subsidiary of Bison Capital Partners V L.P. BFTR, LLC is a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in common stock is carried at cost less any impairment write-downs because we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values.

(10) Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. Guidance on fair value measurements and disclosures establishes a valuation hierarchy for disclosure of inputs used in measuring fair value defined as follows:

Level 1—Inputs are unadjusted quoted prices that are available in active markets for identical assets or liabilities.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in non-active markets, inputs other than quoted prices that are observable, and inputs that are not directly observable, but are corroborated by observable market data.
Level 3—Inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment.

The classification of a financial asset or liability within the hierarchy is determined based on the least reliable level of input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We also consider the counterparty and our own non-performance risk in our assessment of fair value.

The following table presents fair values of our financial and debt instruments categorized by their fair value hierarchy as of September 30, 2025:


	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	834,101	$	—	$	—	$	834,101
Available-for-sale investments	—		139,159		—		139,159
Equity investment	—		—		10,000		10,000


Convertible Senior Notes due 2026	—		663,690		—		663,690

The following table presents fair values of our financial and debt instruments categorized by their fair value hierarchy as of December 31, 2024:


	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	744,721	$	—	$	—	$	744,721
Available-for-sale investments	—		34,015		—		34,015
Equity investment	—		—		10,000		10,000



Convertible Senior Notes due 2026	—		731,310		—		731,310

Assets that are measured at fair value on a recurring basis

Accounts receivables, accounts payables, short-term obligations and certain other assets carrying value approximate fair value because of the short maturity of these instruments.

As of September 30, 2025, we have $139.2 million in investment grade corporate bonds, U.S. Treasuries, and asset-backed securities with maturity dates through 2027. The fair values of these securities are considered Level 2 as they are based on inputs from quoted prices in markets that are not active or other observable market data.

Assets that are measured at fair value on a nonrecurring basis

As of September 30, 2025, we have an 18% interest in BFTR, LLC. As we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values, our investment is carried at cost less any impairment write-downs. Periodically, our investment is assessed for impairment. We do not reassess the fair value of the investments if there are no identified events or changes in circumstances that indicate fair value of the investment or indicate impairment. No events or changes in circumstances have occurred during the period that require reassessment. There has been no impairment of this investment for the periods presented. This investment is included in other non-current assets in the accompanying condensed consolidated balance sheets.

As described in Note 2, “Summary of Significant Accounting Policies,” we assess goodwill for impairment annually on October 1. In addition, we review goodwill, property and equipment, and other intangibles for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. During the fourth quarter of 2024, we completed our annual assessment of goodwill which did not result in an impairment charge. Further, for the nine months ended September 30, 2025, we identified no indicators of impairment to goodwill, property and equipment, and other intangibles; therefore, no impairment was recorded.

Financial instruments measured at fair value only for disclosure purposes

The fair value of our Convertible Senior Notes is determined based on quoted market prices for a similar liability when traded as an asset in an active market, a Level 2 input. See Note 8, “Debt,” for further discussion.

The carrying amount of the Convertible Senior Notes is the par value less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the term of the Convertible Senior Notes. Interest expense is included in the accompanying condensed consolidated statements of income.

The following table presents the fair value and carrying value, net, of our Convertible Senior Notes:


	Fair Value at				Carrying Value at
	September 30, 2025		December 31, 2024		September 30, 2025		December 31, 2024






Convertible Senior Notes due 2026	$	663,690	$	731,310	$	599,231	$	597,934

(11) Income Tax Provision

We had an effective income tax rate of 21.5% and 18.1% for the three and nine months ended September 30, 2025, respectively, compared to 11.8% and 14.5% for the three and nine months ended September 30, 2024, respectively. The increase in the effective tax rate for the three and nine months ended September 30, 2025, as compared to the prior period, is due to a decrease in excess tax benefits related to stock incentive awards and research tax credit benefits, partially offset by a decrease in liabilities for uncertain tax positions.

The effective income tax rates for the periods presented are different from the statutory United States federal income tax rate of 21% primarily due to the excess tax benefits related to stock incentive awards and the tax benefits of research tax credits, offset by state income taxes, liabilities for uncertain tax positions, and non-deductible business expenses.

We made income tax payments, net of refunds, of $47.3 million and $45.7 million in the nine months ended September 30, 2025, and September 30, 2024, respectively.

On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which includes a broad range of tax reform provisions that may affect our Company. The OBBBA allows an elective deduction for domestic Research and Development (“R&D”), a reinstatement of elective 100% first-year bonus depreciation, and a more favorable tax rate on Foreign-derived Deduction Eligible Income and income from non-U.S. subsidiaries (“Net CFC Tested Income”), among other provisions. We do not anticipate a material impact on our effective tax rate in 2025 and future periods. We do, however, anticipate a significant reduction in current tax payments in the next 12 months, as well as a decrease in deferred tax assets and the income tax payable related to the provisions for full expensing of domestic R&D and bonus depreciation. The year-to-date impacts of the OBBBA are included in our operating results for the nine months ended September 30, 2025.

(12) Share-Based Compensation

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Cost of revenues	$	9,307	$	7,972	$	26,912	$	22,982
Operating expenses	27,362		23,215		85,719		65,478
Total share-based compensation expense	$	36,669	$	31,187	$	112,631	$	88,460

(13) Earnings Per Share

The following table details the reconciliation of basic earnings per share to diluted earnings per share:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Numerator for basic and diluted earnings per share:
Net income	$	84,393	$	75,897	$	250,072	$	197,805
Denominator:
Weighted-average basic common shares outstanding	43,135		42,714		43,085		42,592
Assumed conversion of dilutive securities:
Stock awards	552		830		624		782
Convertible Senior Notes	147		150		170		50
Denominator for diluted earnings per share - Adjusted weighted-average shares	43,834		43,694		43,879		43,424
Earnings per common share:
Basic	$	1.96	$	1.78	$	5.80	$	4.64
Diluted	$	1.93	$	1.74	$	5.70	$	4.56

For the three and nine months ended September 30, 2025, and 2024, stock awards representing the right to purchase common stock of approximately 700 and 35,000 shares and 500 and 79,000 shares, respectively, were not included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

We have used the if-converted method for calculating any potential dilutive effect of the Convertible Senior Notes on our diluted net income per share if our average stock price for the period exceeded the conversion price of $493.44 per share of common stock. Under the if-converted method, the Notes are assumed to be converted at the beginning of the period and the resulting common shares, if dilutive, are included in the denominator of the diluted earnings per share calculation for the entire period being presented. For the three and nine months ended September 30, 2025 and 2024, our average stock price for the period exceeded the conversion price resulting in a dilutive impact of the if-converted method as reflected in the table above.

(14) Leases

We lease office facilities, transportation, and other equipment for use in our operations. Most of our leases are non-cancelable operating lease agreements with remaining terms of one to 10 years. Some of these leases include options to extend for up to six years. We have no finance leases as of September 30, 2025. Right-of-use lease assets and lease liabilities for our operating leases are recorded in the condensed consolidated balance sheets.

The components of operating lease expense were as follows:


Lease Costs	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Operating lease cost	$	3,047	$	2,284	$	7,893	$	6,695
Short-term lease cost	448		510		1,518		1,583
Variable lease cost	276		219		683		593
Net lease cost	$	3,771	$	3,013	$	10,094	$	8,871

Supplemental information related to leases is as follows:


Other Information	Nine Months Ended September 30,
	2025			2024
Cash flows:
Cash paid amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	9,341		$	9,456

Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	$	11,920		$	2,865

Lease term and discount rate:
Weighted average remaining lease term (years)	5.8			6.4
Weighted average discount rate	3.54		%	1.71		%

Rental income from third parties

We own office buildings in Falmouth, Yarmouth and Orono, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; Moraine, Ohio; and Kingston Springs, Tennessee. We lease space in some of these buildings to third-party tenants. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between 2025 and 2035, and some have options to extend the lease for up to 10 years. We determine if an arrangement is a lease at inception. None of our leases allow the lessee to purchase the leased asset.

Rental income from third-party tenants for the three and nine months ended September 30, 2025, totaled $454,000 and $2.1 million, respectively, and for the three and nine months ended September 30, 2024, totaled $809,000 and $2.4 million, respectively. Rental income is included in hardware and other revenue on the condensed consolidated statements of income. As of September 30, 2025, future minimum operating rental income based on contractual agreements is as follows:


Year ending December 31,	Amount
2025 (Remaining)	$	668
2026	2,538
2027	2,276
2028	2,029
2029	1,355
Thereafter	5,581
Total	$	14,447

(15) Commitments and Contingencies

Litigation

During the first quarter of 2022, we received a notice of termination for convenience under a contractual arrangement with a state government client. Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees of approximately $15 million in connection with the termination for convenience.

The client was unresponsive to our outreach for several months, and on August 23, 2022, we filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. The client subsequently asked us to negotiate directly with the client to attempt to resolve the dispute. The negotiations were not successful, and on March 20, 2024, we reinitiated our 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 can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.

Purchase Commitments

We have contractual obligations for third-party technology used in our solutions and for other services that we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of September 30, 2025, the remaining aggregate minimum purchase commitment under these arrangements was approximately $589.3 million through 2031.

(16) Subsequent Events

There have been no material events or transactions that occurred subsequent to September 30, 2025.

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