1
the journey
continues
2013 Annual Report
Tyler Technologies 2013 Annual Report 1
With a clear direction and
favorable conditions, Tyler gained
significant ground in 2013.
Experienced trailblazers understand the
importance of mapping a route, staying on
course, and equipping their team with the
tools and provisions they’ll need to maintain
momentum. Tyler Technologies continually
invests in our products and people —
further enhancing our strong competitive
position and enabling Tyler to gain even
more ground when conditions are favorable.
Tyler Technologies 2013 Annual Report Tyler Technologies 2013 Annual Report
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1
to our
shareholders
Tyler Technologies takes a steady, long-term approach to
our business — building on successes and consistently
investing in growth opportunities. In 2013, our commitment
to that strategy continued to strengthen our position by
magnifying the benefits of an improving market.
Net income was $39.1 million, or $1.13 per diluted share,
an increase of 18.5 percent compared to $33 million, or
$1.00 per diluted share, in 2012. Non-GAAP net income
for the year was $52.3 million, or $1.51 per diluted share,
up 22.9 percent from 2012. We achieved these solid results
even as we expensed significant investments in long-term
opportunities, including approximately $3.3 million in
startup costs related to our statewide e-filing contract for
Texas courts, as well as costs associated with onboarding
staff to increase our capacity to deliver current and
Not only did Tyler achieve our best year ever by virtually
projected backlog.
every financial measure, reaching new highs in revenues,
earnings, bookings and backlog, but we did so while
Investing for Strength
investing in emerging opportunities and continuing to
From an economic perspective, the public sector
improve our competitive position across our product
experienced considerable challenges in recent years
groups. These results reflect our unwavering focus on
that lengthened sales cycles and caused many local
the core strategy that has served our stakeholders so
governments and schools to delay software purchases in
well over the years.
Financial Highlights
For the second consecutive year, Tyler achieved double-
2010 and 2011. While many of our competitors reacted
to the slowdown by cutting back on research and
development, Tyler chose to increase our investments in
product development to further advance our already strong
digit growth in revenue — bringing our 2013 total to
competitive position.
$416.6 million, up 14.7 percent over 2012. Recurring
revenue from maintenance and subscriptions accounted
for 61 percent of total revenue, driven in part by growing
client demand for cloud-based software as a service
(SaaS) solutions. Subscription revenues rose 39 percent
from 2012 as more new and existing clients opted for SaaS
delivery, coupled with strong growth in revenue streams
such as e-filing for courts.
Bookings grew even faster than revenues, with a 45
percent increase over 2012, pushing year-end backlog
up 45 percent to $551.7 million and enhancing visibility
into 2014 and beyond. A great deal of the momentum
in bookings and awards in 2013 can be attributed to a
growing number of multiyear SaaS agreements, along with
a restructured e-filing contract with the state of Texas that
replaces transaction-based fees with fixed revenues now
included in backlog.
With many local governments seeing an improved economic
environment over the last several quarters, activity in our
market has gradually returned to normal levels, and Tyler
has emerged from the recession stronger than ever. Win
Tyler’s resolute business
strategy, combined with
a resurgence of public
sector activity amid a
strengthening economy,
generated double-digit
revenue growth for the
second consecutive year.
Tyler Technologies 2013 Annual Report 2
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Tyler Technologies 2013 Annual Report
rates are up and we are clearly gaining market share. We
consolidate our Courts & Justice Division and corporate
spent a record $23.3 million on research and development
staff from two separate leased spaces in the greater Dallas
in 2013 to keep the momentum going. And our client
area. More than 400 employees office here, and the 26-
retention rate of approximately 98 percent serves as a
acre campus offers considerable room for future expansion.
powerful testament to our ability to deliver lasting value to
the public sector clients we serve.
An Employer of Choice
Tyler’s current workforce already reflects an unrivaled level
of experience supporting the public sector. In fact, more
than 60 percent of employees who were with the company
a decade ago are still with Tyler today. As Tyler continues to
grow, attracting and retaining talented employees remains a
top priority. That’s why we offer competitive compensation
and benefits, career development opportunities, and a
work environment that fosters employee pride. In August
2013, we moved into our new company-owned corporate
headquarters in Plano, Texas, which allowed us to
We were recognized for the sixth time as one of the Best
Places to Work in Maine, where more than 500 Tyler
employees are based, and we were ranked among North
Texas’ Top 100 Places to Work by the Dallas Morning News.
We were also recognized by the Dayton Daily News as one
of the Top Workplaces in the Dayton metro area, where our
Appraisal & Tax Division is headquartered. These accolades
are important to us, in that they reflect our commitment to
supporting the professional success and personal well-
being of our employees. By strengthening our position as
an employer of choice, Tyler continues to lead the industry
with innovative, reliable solutions that are helping the public
sector do more with less.
Tyler Technologies 2013 Annual Report Tyler Technologies 2013 Annual Report
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Executing Our Strategies
Through all economic climates, Tyler’s core growth
strategies endure — expanding our geographic reach,
broadening our product and service offerings, winning
large-scale contracts, and extending our relationships with
existing clients. As we review our 2013 performance and
set our sights on the journey ahead, we extend our thanks
to the valued shareholders, employees and clients who
share our success as the journey continues.
Total Revenues
in millions
Backlog
in millions
6
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1
4
$
3
.
3
6
3
$
4
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9
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3
$
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$
6
.
8
8
2
$
.
7
1
5
5
$
6
.
0
8
3
$
8
.
9
3
3
$
4
.
1
8
2
$
.
1
3
3
2
$
John S. Marr Jr.
President and Chief Executive Officer
March 21, 2014
9
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(from left to right)
Brett Cate
Christopher P. Hepburn
Matthew B. Bieri
Terri L. Alford
W. Michael Smith
Brian K. Miller
John M. Yeaman
John S. Marr Jr.
Dustin R. Womble
H. Lynn Moore Jr.
Samantha B. Crosby
Robert J. Sansone
Bruce Graham
Richard E. Peterson Jr.
Andrew D. Teed
For more information about
our management team, please
refer to the inside back cover.
Tyler Technologies 2013 Annual Report 4
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Tyler Technologies 2013 Annual Report
tyler
overview
With more than 2,600 employees and 11,000 government and school clients in
all 50 states, Canada, the Caribbean, the United Kingdom, and other international
jurisdictions, Tyler Technologies is the largest software company in the nation with
an exclusive focus on the public sector. We’re more than software developers — we’re
implementation and support partners whose client relationships span decades. From
student transportation management solutions in South Texas to an $18 million property tax
solution for New York City, Tyler’s perpetual upgrades and comprehensive services empower
our clients to serve the public with efficiency, accessibility and fiscal responsibility.
SCHOOL SOLUTIONS
STUDENT MANAGEMENT
Tyler offers a full suite
of student management
solutions to help educators
and administrators put
students first, including
student information (grades,
attendance and scheduling),
data analytics, special
education and student
transportation. In fact, Tyler’s
Versatrans® solutions manage
transportation for 1 out of
every 10 U.S. school districts.
FINANCIAL
Tyler delivers integrated
financial solutions that
address the unique
budgeting and procurement
needs of educational
clients. By enhancing our
clients’ most essential
business functions, Tyler
helps schools maximize
their resources in the more
than 1,350 school districts
we serve.
Tyler Technologies 2013 Annual Report 5
5
Recurring Revenues
in millions
6
.
3
5
2
$
5
.
6
1
2
$
.
7
7
7
1
$
.
0
9
5
1
$
.
7
1
4
1
$
STATE & LOCAL GOVERNMENT SOLUTIONS
ERP | FINANCIAL
COURTS & JUSTICE
APPRAISAL & TAX
More than 4,000
From paperless court case
Tyler serves 1,300 taxing
government entities rely on
management to e-filing
authorities throughout the
Tyler’s financial solutions
solutions, Tyler’s courts
United States and Canada
for efficient management
and justice products offer a
with computer-assisted
of their accounting, payroll
broad range of functionality
mass appraisal (CAMA)
and human resources
for courts, prosecutors, law
solutions, tax billing and
functions as they manage
enforcement, corrections
collections software, and
$116 billion in public
and supervision staff.
turnkey reassessment and
sector funds annually. Our
More than 25 percent of
revaluation services. Tyler’s
human capital management
the U.S. population lives
appraisal and tax solutions
solutions process paychecks
in jurisdictions that have
facilitate the efficient
for more than 1 million
licensed Tyler’s Odyssey®
management of more
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
public sector employees.
case management or e-filing
than 60 million parcels
solutions.
of property.
Revenue Mix
PUBLIC SAFETY
When it comes to public
safety, timeliness and
PLANNING,
PERMITTING
& LICENSING
RECORDS &
DOCUMENTS
Our records and documents
accuracy are paramount.
Tyler’s planning, permitting
solutions are instrumental
Tyler’s public safety
and licensing products
in the management of
solutions facilitate the
centralize and connect
land and vital records for
sharing of mission-critical
processes across building
24 million citizens across
information and streamline
departments, code
the United States. Using
records management
enforcement, public works
Tyler solutions, our clients
for first responders,
and other agencies, with
currently store and access
dispatchers, jails and
24-hour citizen access
more than 380 million land
others. Protecting more
and mobile solutions that
and vital records.
than 2 million citizens every
extend functionality into the
day, Tyler solutions equip
field. These solutions serve
jurisdictions to take
approximately 23 million
1.6 million 911/dispatch
citizens in the United States
calls annually.
and Canada.
46.0% Maintenance
22.4% Services
14.8% Subscriptions
9.8% Software Licenses
and Royalties
5.0% Appraisal
2.0% Hardware and Other
Tyler Technologies 2013 Annual Report
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Q&A:
Tyler’s strong competitive position
contributed to accelerating growth and
How would you characterize the public sector
market in 2013?
In our 2012 annual report, we noted that the markets we
serve were gradually improving following a challenging new-
business environment in 2010 and 2011, as many local
governments and schools experienced budget pressures
profitability in 2013 as the broader public
in a weak economy. That improvement continued into
sector market continued to improve. In this
question and answer format, we address
many of the issues and events that shaped
our performance during the year and will
continue to influence the future.
2013, and by year-end market activity had returned to
pre-recession levels not seen since 2009. As we enter
2014, our pipeline of new business opportunities is at a
historically high level.
How did Tyler benefit from the improved economic
environment, and what other factors contributed to
Tyler’s record results in 2013?
While the improved economic environment certainly
contributed to Tyler’s revenue and earnings increases in
2013, our growth was clearly above the market growth rate,
as bookings and year-end backlog each rose by 45 percent
over 2012. We attribute that market share gain to our strong
competitive position, which reflects increased investments
in product development over the past several years as well
as an unmatched record of successfully executing projects
on time and on budget.
Tyler Technologies 2013 Annual Report Tyler Technologies 2013 Annual Report
77
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mapping the
route
Tyler’s core strategies serve as a compass for the decisions we
make. By expanding our geographic reach, broadening our product
offerings, winning large-scale contracts, and extending our
relationships with existing clients, we continue to move forward
with confidence.
ERP | FINANCIAL
We continued to expand our leadership
position in local government financial
systems with both the Incode® and
Munis® suites of products, along
with Microsoft Dynamics® AX. We
offered our first Windows 8 apps on
the Microsoft store — Munis Field
Inspector, Munis My Work and Munis
Work Orders. We also launched the
general release of CAFR Statement
In previous reports, you’ve discussed a trend toward
software as a service (SaaS) solutions. Did this hold
true for 2013 as well?
The number of clients choosing Tyler’s SaaS solutions
continued to rise in 2013. In fact, subscriptions —
including SaaS and e-filing for courts as well as other
Builder and Tyler eTimekeeper.
transaction-based offerings — were the fastest-growing
part of our business in 2013. Subscriptions were up
39 percent as 100 new clients signed SaaS contracts
and 63 existing Tyler clients converted from on-premises
solutions. Thirty-two percent of our new-name clients
chose SaaS solutions in 2013, compared to 30 percent
of new clients in 2012.
There are a number of reasons why Tyler’s cloud
offerings have increasing appeal. All of our major products
are available as robust SaaS solutions that offer the same
features, functionality and evergreen upgrades as our on-
premises solutions. This gives clients the option to easily
convert from one model to the other without disruption.
Additionally, SaaS solutions enable clients to spread out
their investments over a longer period of time — which
can be an attractive option for clients who need to replace
mission-critical functions, but are challenged with funding
Contract highlights for on-premises
license implementations included a
$4.4 million Munis and EnerGov® deal
with the city of Columbia, Missouri;
a $4.3 million contract with Pasco
County, Florida; and significant
contracts with El Paso County, Texas,
and Pasadena, California. Major new
SaaS clients included a $4.1 million
Munis contract with Baltimore County,
Maryland; and a new arrangement
with Hallandale Beach, Florida.
We also signed five new clients for
Microsoft Dynamics AX, led by a
$5 million contract with the city of
Columbus, Ohio, the nation’s 15th-
largest city.
Tyler Technologies 2013 Annual Report 8
major capital investments. Our SaaS solutions also enable
margins on new SaaS clients are offset by higher margins
local governments to deal effectively with the “brain-drain”
from SaaS clients added in prior years. We believe the fact
that many of them face as longtime employees retire and
that we offer our solutions in both traditional on-premises
it becomes more difficult to manage their increasingly
and hosted cloud solution models differentiates Tyler from
complex IT infrastructures.
most of our competitors. Simply put, we want to win new
How does the growing popularity of the cloud affect
Tyler’s financial model?
Although the percentage of new clients choosing our SaaS
model continues to increase, it has done so gradually
clients and serve their needs, regardless of their preference
for how they acquire and access our software.
With the increasing adoption of SaaS solutions, how
are traditional software licenses performing?
over the past decade and we expect that to continue in
As noted above, the transition to SaaS in our market is
the near future. Because the shift is gradual, the effect of
slower than in the private sector, and more than two-thirds
the ongoing transition of our model is not disruptive. We
of our new clients in 2013 chose a traditional license-
have still been able to achieve margin improvements while
based, on-premises solution. In fact, software license and
growing recurring revenue streams, as the lower first-year
royalties revenues increased more than 20 percent in 2013
to reach the highest level in four years, even as subscription
With eFileTexas.gov, Texas
courts were well prepared for
mandatory e-filing
On January 1, 2014, the state of Texas
initiated a rolling schedule that will make
electronic filing mandatory for all civil court
cases in Texas by 2016. Tyler expects to
eventually serve 90,000 attorneys and
all 254 counties in Texas through the
eFileTexas.gov site, which was successfully
launched in 2013. The system shortens
lines at clerk counters, enhances tracking
and reporting, and saves taxpayer dollars
through increased efficiencies associated
with the elimination of paper documents.
COURTS & JUSTICE
Our Courts & Justice Division went live
with two major Odyssey jail software
implementations in 2013 — Fulton
County (Atlanta), Georgia; and El Paso
County, Texas.
Three new statewide Odyssey deals
led our Courts & Justice Division
signings in 2013, including a $19.2
million contract with the state of
Washington; a $6.2 million deal
with Idaho; and a $5.9 million
contract with Rhode Island. Tyler
also continued to gain ground in the
California courts market, winning 12
of the 14 contracts awarded in the
state as of this writing.
Significant new clients for our Incode
municipal court solution included the
cities of Corpus Christi, Texas; and
Pueblo, Colorado.
Tyler Technologies 2013 Annual Report $70
$30
$5
revenues grew 39 percent. In a sense, Tyler is a hybrid
company committed to both SaaS and traditional software
license offerings — providing our shareholders with a
fast-growing SaaS business built on top of a mature, highly
profitable license-based software business with more than
11,000 installations and a maintenance base that should
surpass $200 million in revenues in 2014. No matter which
delivery method a client may choose, these long-term
client relationships hold tremendous value as we generate
recurring revenues and cultivate client loyalty with a high
level of client support and perpetual upgrades.
How is Tyler’s e-filing business for courts
progressing?
Since Tyler’s acquisition of Wiznet in 2010, we have
expanded our relationships with courts across the nation
to establish Tyler as a leader in providing electronic filing
solutions for courts. Our Odyssey File & Serve solution
allows attorneys to file documents electronically with the
courts, and the courts to serve documents electronically on
parties involved in cases. We generally provide the e-filing
solution with no up-front or ongoing out-of-pocket costs to
the courts, and earn recurring revenues from fees paid by
parties filing documents. Our e-filing revenues from courts
increased 84 percent in 2013 to $10.9 million.
We are actively pursuing new e-filing arrangements with
existing and new Odyssey courts software clients, as well as
with courts that do not use our case management software.
The majority of courts in the country do not currently
mandate e-filing, so the growth opportunity in this space
is significant, although new e-filing contracts typically have
long lead times before becoming mandatory.
During 2013, we signed 24 new e-filing contracts, including
the Idaho State Judiciary, the Rhode Island Judiciary, and
the Third Judicial Circuit of Michigan.
Tyler Technologies 2013 Annual Report
9
Transition to Cloud-Based Services
in millions
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
Subscription Revenues
Software Licenses and Royalties Revenues
APPRAISAL & TAX
Tyler expanded our appraisal and
tax software line with a number
of releases in 2013, including the
iasWorld® Field Mobile feature.
We also enhanced our iasWorld
appraisal tax administration software
with expanded cross-browser
support, integration points and
feature updates.
Contract highlights included an
$18 million iasWorld property tax
solution for New York City, New York;
contracts totaling $2.8 million for
iasWorld and Tyler Verify with Franklin
County (Columbus), Ohio; and a $7
million appraisal services agreement
with Washington County, Pennsylvania.
We also signed our first Tyler Verify
contract in the state of Indiana with
Vanderburgh County and expanded
our international presence with an
iasWorld software contract in Brunei.
10 Tyler Technologies 2013 Annual Report
10
leading the
industry
In 2013, Tyler’s spending on product
development was at a record high level.
Both new and existing clients benefit
from Tyler’s evergreen solutions, which
include perpetual upgrades.
What is the status of the eFileTexas.gov
engagement?
On January 1, 2014, Texas implemented mandatory
electronic filing requirements for civil cases in the state’s
10 largest counties and appellate courts, with the
remaining courts to be added on a rolling schedule by
2016. As the statewide provider for mandatory electronic
filing of civil court documents in Texas under a contract
executed in 2012, Tyler orchestrated a successful rollout
of the eFileTexas.gov site that began in June 2013 when
Gregg County went live on the system. An estimated
90,000 attorneys will eventually be using the system for
filing documents with courts in all 254 Texas counties.
In 2014, eFileTexas.gov is expected to handle
3.5 million electronic court filings — one of the
largest statewide systems in the nation. We expect
eFileTexas.gov to provide a powerful stream of recurring
Tyler Technologies 2013 Annual Report Tyler Technologies 2013 Annual Report
11
11
revenues with attractive margins. Revenues from e-filing
e-filing contracts, we generally collect a fee per filing, and
in Texas courts are expected to total approximately
because they are transaction-based, they are not included
$17 million in 2014, increasing to more than $19 million
in backlog.
annually in subsequent years. In 2013, however, we
expensed approximately $3.3 million of costs associated
with the startup of the system, with revenues of
approximately $3.8 million in the second half of the year.
How does the eFileTexas.gov revenue arrangement
differ from Tyler’s other e-filing revenues?
In 2012, you had an unprecedented opportunity to
establish a presence in California courts with your
Odyssey case management solution. What progress
did Tyler make with that opportunity during 2013?
In early 2012, the state of California terminated a 10-year
project with a systems integrator for developing a custom
We restructured our e-filing fee arrangement with the
statewide case management system for the courts in
state of Texas in 2013 from a per-filing, transaction-based
the state’s 58 counties, which unleashed demand for
model to a fixed-fee arrangement. Filers now pay the
new systems for courts software in the nation’s most
courts a one-time e-filing fee when a case is initiated,
populous state. With the clear leadership position our
and Tyler receives a fixed fee each quarter. The four-
Odyssey solution has built in the case management
year contract is valued at approximately $72 million. At
space nationwide, we were confident that Tyler was
December 31, 2013, our backlog included approximately
well-positioned to compete in the California market. In
$68 million related to eFileTexas.gov. With our other
2013, we built on our early wins in California with further
success in the state.
RECORDS &
DOCUMENTS
Tyler’s records and documents
solutions facilitate public access and
vital records management. As an
example, Tyler’s Eagle Recorder and
Eagle Web with Fraud Guard offer a
secure, Web-accessible solution and
give residents the flexibility to conduct
online record searches and register to
be alerted when a document with their
name is recorded.
Contract highlights included an Eagle
Recorder software contract including
both licenses and SaaS solutions with
Wayne County (Detroit), Michigan; as
well as Eagle contracts with Riverside
County, California; and Palm Beach
County, Florida.
Tyler Technologies 2013 Annual Report 12
2013 Quarterly
Earnings Per Share
in dollars
Annual Earnings
Per Share
in dollars
2
3
.
0
$
0
3
.
0
$
6
2
.
0
$
5
2
.
0
$
.
3
1
1
$
0
0
.
1
$
3
8
.
0
$
4
7
.
0
$
1
7
.
0
$
3
1
Q
1
3
1
Q
2
3
1
Q
3
3
1
Q
4
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
PLANNING,
PERMITTING &
LICENSING
Tyler was one of three providers selected to enter into
master service agreements that allow counties to bypass
the requirement to issue individual requests for proposal to
purchase new systems. We signed contracts during 2013
with courts in 11 counties in California, including Orange,
Fresno and Merced. Six Northern California counties
came together to form the NorCal Collaboration Project,
an innovative arrangement under which they each signed
five-year SaaS contracts to jointly implement Odyssey in a
single project. To date, 12 of the 14 California counties that
have signed contracts for new courts systems since 2012
have selected Tyler’s Odyssey solution, with seven of them
choosing our SaaS model. The market in California remains
very active, and we anticipate that courts in some of the
state’s larger counties will make decisions during 2014 to
replace their aging case management systems.
Our success in California courts has not been limited to
sales, however. In January 2014, our first California courts
client, San Luis Obispo County, went live on Odyssey, just
13 months after we kicked off the implementation.
How is Tyler building on its leadership position
in financial software for local governments and
schools?
While we are excited about the potential of our e-filing and
case management solutions, our financial product suites —
Munis and Incode — form our foundation. These products
accounted for approximately one-half of our revenues
and an even greater percentage of our operating profit in
2013. Our core financial solutions achieved higher win
rates against key competitors during the past year, while
continuing to expand our presence in larger cities, counties
Since acquiring EnerGov in November
and school districts.
2012, Tyler has had several major
wins over our largest competitor
for that product suite, including
contracts in 2013 with Temecula,
California; Palm Beach County,
Florida; and Columbia, Missouri.
Other key EnerGov contracts included
the Washington Suburban Sanitation
Commission and the city of Richmond
Hill, Canada, as well as San Mateo
and Tulare counties in California.
The addition of EnerGov, the planning, permitting,
licensing, and land management solution we acquired
late in 2012, also added to solid double-digit growth in
our financial systems revenues in 2013. EnerGov
contributed wins in both standalone licensing and
permitting opportunities and in contracts that also
included our Munis or Incode financial solutions.
Tyler Technologies 2013 Annual Report Tyler Technologies 2013 Annual Report
13
Expanding our presence in
the California courts market
When the state of California abandoned a
10-year effort to develop a custom statewide
case management system, Tyler’s clear
position of national leadership in the courts
software market enabled us to achieve early
success in that state. Today, our Odyssey®
court case management system has been
selected by courts throughout the state to
manage their growing case activity more
effectively and do more with less.
PUBLIC SAFETY
Tyler’s public safety solutions grew
at a steady pace, with a 14 percent
increase in our client base from
2012 to 2013. The largest contract
was with the city of Tupelo,
Mississippi, a combined agreement
with Tyler’s Incode court solution.
Other significant contracts were
the Bowie County-Texarkana
Communication Center in Texas and
Coahoma County, Mississippi.
What is the status of Microsoft Dynamics AX, the
financial product you jointly developed for the
public sector with Microsoft?
Dynamics AX 2012 was released by Microsoft in late 2011.
We have two revenue streams related to this product, which
we jointly developed by adding public sector functionality
to the Microsoft product. We sell this product to targeted
public sector entities through our direct sales channel, and
we receive royalties on both licenses and maintenance from
public sector sales by other Microsoft partners worldwide.
Although 2013 was only the second year in which we
received royalties from Microsoft, they grew to $3.1 million
from $756,000 in 2012. In the first two years,
Dynamics AX has gained broad geographic penetration
with diverse public sector entities worldwide, with royalties
in 2013 from public sector sales in 38 countries. This
relationship allows Tyler to bring our deep public sector
expertise to clients all over the world through the Microsoft
channel and to generate revenues in markets we wouldn’t
have otherwise pursued on a direct basis — such as
organizations in Zimbabwe, Poland and India. We expect
that Dynamics AX sales through Microsoft’s partner
network will continue to expand and that royalties will
become more meaningful in future years as the product
continues to gain traction.
Tyler’s direct sales of Microsoft Dynamics AX in 2013
included contracts with Columbus, Ohio, the nation’s
15th-largest city; all 77 district courts of the Supreme
Court of Oklahoma; Walker County, Texas; and the
Maricopa Association of Governments in Phoenix, Arizona.
Tyler was also recognized as the 2013 United States
Microsoft Dynamics Public Sector Partner of the Year.
You’ve won an increasing number of large deals
in recent years. Why is that, and does it have any
bearing on your relationships with small and mid-
size clients?
Historically, many of the nation’s largest public sector
organizations tended to defer to a select few large
multinational providers when choosing a technology
partner. These providers were often chosen based on
their name recognition and horizontal capabilities, even
though their vertical expertise in the public sector may
14 Tyler Technologies 2013 Annual Report
14
visible
results
Tyler’s Versatrans product increased its GPS market
share by 600 in-vehicle devices through contracts with
Shelby County and Washington Consolidated School
District, Tennessee; Dubuque Community School
District, Iowa; and Shenendehowa PSD, New York.
STUDENT
MANAGEMENT
Tyler continued to enhance our
student management offerings in
2013 with the release of Traversa®,
a Web-based K-12 transportation
management solution, as well as the
launch of a new Tyler Telematic GPS
device with advanced data collection
capabilities for our Versatrans product.
In addition, Tyler has been named
a preferred vendor in Oklahoma,
allowing school districts to bypass
individual RFPs and purchase Tyler
SIS at a negotiated rate.
Contract highlights include a
Versatrans deal with Brownsville ISD,
Texas — our largest Versatrans sale to
date; and the sale of 442 additional
Tyler Telematic GPS units to the Polk
County School District, Florida —
making it the largest Tyler Telematic
GPS fleet at 691 buses.
have been lacking. Meanwhile, Tyler continued to build
our business consistently, staying true to our exclusive
focus on solutions for public sector clients and devoting
all of our investments to innovations that address their
unique needs. Today, Tyler Technologies is recognized by
public sector entities of all sizes for its resources, financial
strength and vertical expertise.
What product enhancements and new releases did
Tyler announce in 2013?
We continued to refine many of our existing products by
enhancing features, functionality and technology. New
releases included Traversa, a comprehensive Web-based
school transportation management solution for K-12; the
iasWorld Field Mobile feature; CAFR Statement Builder
for the software suites of Eden, FundBalance, Incode and
Munis; and Tyler eTimekeeper, a Web-based time and
attendance tracker that can be used with mobile devices
as well as desktop computers.
Tyler Technologies 2013 Annual Report Tyler Technologies 2013 Annual Report
15
15
How do mobile technologies fit into your product
development strategy?
Every new Tyler solution or product enhancement is driven
by the needs of our clients — and mobile solutions are no
exception. Mobile apps and utilities make it possible for
employees in the field to efficiently gather and securely
share information with the main office or other authorized
parties in real time. We know from experience that every
dollar spent by schools and governments has to justify its
worth, and mobile solutions offer a level of flexibility and
responsiveness that makes them a good fit for the public
sector. We will continue to develop and refine products
that extend our clients’ capabilities and enhance the user
experience, including mobile apps, cloud-based solutions
and traditional licensed products.
Tyler Technologies 2013 Annual Report 16 Tyler Technologies 2013 Annual Report
What mobile solutions does Tyler currently offer?
in the business world — because each award and accolade
Tyler has already developed and released a number
serves to reinforce the value we deliver to our clients.
of mobile solutions that enable our clients to do their
We achieved our highest ranking yet on the Forbes list of
jobs more effectively and more efficiently. Our EnerGov
100 Best Small Companies in America, having been named
Mobile App Suite features Apple iPad® functionality that
to the list for six of the last seven years. Our 2013 ranking
allows code enforcement officers, inspectors and other
was 25th — 11 spots higher than the previous year. Criteria
agency workers to make notes and take photos on site,
included companies with revenues from $5 million to
manage workflow productivity, and update information in
$1 billion, a share price above $5, a healthy return on
real time via Wi-Fi connectivity. We also offer the Incode
equity, sustained sales and earnings growth in the past
Mobile Management Console for Windows 8 and Windows
12 months and over the last five years, and solid stock
RT, which offers remote tablet access to financial and
performance in comparison to industry peers.
personnel information through available 3G, 4G or Wi-Fi
networks. Other mobile solutions from Tyler include Munis
My Work for approvals, notifications and alerts; the Tyler
Public Safety mobile app for real-time information at the
scene; and the Traversa, iasWorld Field Mobile, and Tyler
eTimekeeper solutions previously mentioned.
For the sixth consecutive year, Tyler appeared on the
Software 500 ranking, published by Software Magazine.
The Software 500 is based on revenue from software
licenses, maintenance and support, training, and software-
related services and consulting. Tyler ranked 166 on the
2013 list, which was based on software and services
What recognition for its success did Tyler receive
revenue for 2012.
during 2013?
Every business decision we make is driven by our
commitment to serving the public sector. For that reason,
we value the recognition we receive from respected sources
SCHOOL FINANCIAL
We also made our fourth appearance on the Barron’s 400
Index. The index uses proprietary methodologies to identify
400 publicly traded companies it considers to be financially
sound, and only around 6 percent of all publicly listed
North American companies are selected. The Barron’s 400
Index has outperformed the broader U.S. equity market by
more than 5 percentage points per year in the last decade.
Tyler is proud of the hard work and public sector expertise
that these awards represent, and we will continue to
challenge our team to further extend our position as an
In keeping with the growing popularity
industry innovator and leader.
The preceding Q&A is a composite representation of
the views of Tyler management with regard to company
performance and market perspectives. For further
information, visit tylertech.com or contact our investor
relations team at info@tylertech.com.
of SaaS solutions, many of our existing
clients made the transition from
traditional licenses to SaaS in 2013.
Tyler’s SaaS solutions also attracted
several new clients to our School
Financial solutions, while sales of
traditional licenses remained strong.
School Financial contract highlights
for 2013 included Munis contracts
with the Lewisville Independent
School District in Texas and the
Santa Barbara Unified School District
in California.
financial
information
Stock Market Data
Tyler Technologies 2013 Annual Report
19
Stock Market Data
Our common stock is traded on the New York Stock Exchange under the symbol “TYL.” At December 31, 2013,
we had approximately 1,776 stockholders of record. A number of our stockholders hold their shares in street name;
therefore, there are substantially more than 1,776 beneficial owners of our common stock.
The following table shows, for the calendar periods indicated, the high and low sales price per share of our common
stock as reported on the New York Stock Exchange.
2012: First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013: First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 39.43
41.61
44.41
49.60
$ 61.60
70.49
88.68
105.74
$ 29.67
36.00
36.99
41.95
$ 48.86
57.00
68.60
83.25
We did not pay any cash dividends in 2013 or 2012. Our bank credit agreement contains restrictions on the payment
of cash dividends. We intend to retain earnings for use in the operation and expansion of our business, and, therefore,
we do not anticipate declaring a cash dividend in the foreseeable future.
As of December 31, 2013, we had authorization to repurchase up to 1.7 million additional shares of Tyler common
stock. There was no repurchase activity during the twelve months ended December 31, 2013. The repurchase
program, which was approved by our board of directors, was announced in October 2002, and was amended in
April 2003, July 2003, October 2004, October 2005, May 2007, May 2008, October 2008, May 2009, July 2010,
October 2010 and September 2011. There is no expiration date specified for the authorization and we intend to
repurchase stock under the plan from time to time.
20
Tyler Technologies 2013 Annual Report
Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except per share data)
2013
2012
2011
2010
2009
For the Years Ended December 31,
STATEMENT OF OPERATIONS DATA:
Revenues
Costs and expenses:
Cost of revenues
$ 416,643
$ 363,304
$ 309,391
$ 288,628
$ 290,286
223,440
195,602
167,479
160,311
161,523
Selling, general and administrative expenses
98,289
86,706
75,650
69,480
70,115
Research and development expense
23,269
20,140
16,414
13,971
11,159
Amortization of customer and trade name
intangibles
Operating income
Other expense, net
4,517
4,279
3,331
3,225
2,705
67,128
56,577
46,517
41,641
44,784
(1,309)
(2,709)
(2,404)
(1,742)
(146)
Income from operations before income taxes
65,819
53,868
44,113
39,899
44,638
Income tax provision
Net income
26,718
20,874
16,556
14,845
17,628
$ 39,101
$ 32,994
$ 27,557
$ 25,054
$ 27,010
Net income per diluted share
$
1.13
$
1.00
$
0.83
$
0.71
$
0.74
Weighted average diluted shares
34,590
32,916
33,154
35,528
36,624
STATEMENT OF CASH FLOWS DATA:
Cash flows provided by operating activities
$ 66,090
$ 58,668
$ 56,435
$ 35,350
$ 42,941
Cash flows used by investing activities
(25,658)
(34,736)
(28,809)
(8,694)
(13,658)
Cash flows provided (used) by financing activities
32,038
(18,852)
(28,414)
(34,238)
(21,349)
BALANCE SHEET DATA:
Total assets
Revolving line of credit
Shareholders’ equity
$ 444,488
$ 338,666
$ 295,391
$ 264,032
$ 270,670
—
18,000
60,700
26,500
—
246,319
145,299
78,110
106,972
134,358
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains forward-looking statements. The forward-looking
statements are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to certain risks and uncertainties that could cause actual results
to differ materially from those reflected in the forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management’s opinion only as of the date hereof.
We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements.
Readers should carefully review the risk factors described in documents we file from time to time with the Securities
and Exchange Commission.
When used in this Annual Report, the words “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,”
“plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or the negative of such
terms and other similar words or expressions are intended to identify forward-looking statements. Similarly, statements
that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.
OVERVIEW
General
We provide integrated information management solutions and services for the public sector, with a focus on local
governments. We develop and market a broad line of software products and services to address the information
technology (“IT”) needs of cities, counties, schools and other local government entities. In addition, we provide
professional IT services to our customers, including software and hardware installation, data conversion, training and
for certain customers, product modifications, along with continuing maintenance and support for customers using
our systems. We also provide subscription-based services such as software as a service (“SaaS”), which utilizes the Tyler
private cloud, and electronic document filing solutions (“e-filing”). In 2010 we began providing e-filing for courts
and law offices, which simplify the filing and management of court related documents. Revenues for e-filing are derived
from transaction fees and in some cases fixed fee arrangements. We also provide property appraisal outsourcing
services for taxing jurisdictions.
Our products generally automate three major functional areas: (1) financial management and education, (2) courts
and justice and (3) property appraisal and tax and we report our results in two segments. The Enterprise Software
Solutions (“ESS”) segment provides municipal and county governments and schools with software systems and services
to meet their information technology and automation needs for mission-critical “back-office” functions such as
financial management and courts and justice processes. The Appraisal and Tax Software Solutions and Services (“ATSS”)
segment provides systems and software that automate the appraisal and assessment of real and personal property
as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal
outsourcing services include: the physical inspection of commercial and residential properties; data collection and
processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration
between taxpayers and the assessing jurisdiction.
We monitor and analyze several key performance indicators in order to manage our business and evaluate our financial
and operating performance. These indicators include the following:
– Revenues – We derive our revenues from five primary sources: sale of software licenses and royalties; subscription-
based arrangements; software services; maintenance and appraisal services. Subscriptions and maintenance are
considered recurring revenue sources and comprised approximately 61% of our revenue in 2013. The number of new
SaaS customers and the number of existing customers who convert from our traditional software arrangements to
our SaaS model are a significant driver to our business, together with new software license sales and maintenance
rate increases. In addition, we also monitor our customer base and churn as we historically have experienced very
low customer turnover. During 2013, our customer turnover was approximately 2%.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report 22
– Cost of Revenues and Gross Margins – Our primary cost component is personnel expenses in connection with
providing software implementation, subscription-based services, maintenance and support, and appraisal services to
our customers. We can improve gross margins by controlling headcount and related costs and by expanding our
revenue base, especially from those products and services that produce incremental revenue with minimal incremental
cost, such as software licenses and royalties, subscription-based services, and maintenance and support. Our
appraisal projects are cyclical in nature, and we often employ appraisal personnel on a short-term basis to coincide
with the life of a project. As of December 31, 2013, our total employee count increased to 2,573 from 2,388
at December 31, 2012.
– Selling, General and Administrative (“SG&A”) Expenses – The primary components of SG&A expenses are
administrative and sales personnel salaries and commissions, share-based compensation expense, marketing expense,
rent and professional fees. Sales commissions typically fluctuate with revenues and share-based compensation
expense generally increases when the market price of our stock increases. Other administrative expenses tend to grow
at a slower rate than revenues.
– Liquidity and Cash Flows – The primary driver of our cash flows is net income. Uses of cash include acquisitions,
capital investments in property and equipment and discretionary purchases of treasury stock. During 2013,
we invested $26.9 million in property and equipment. Our investment in property and equipment included
$20.3 million in connection with the construction of an office building in Plano, Texas. Our working capital needs
are fairly stable throughout the year with the significant components of cash outflows being payment of personnel
expenses offset by cash inflows representing collection of accounts receivable and cash receipts from customers in
advance of revenue being earned.
– Balance Sheet – Cash, accounts receivable and days sales outstanding and deferred revenue balances are important
indicators of our business.
Outlook
We expect the trend of gradual improvements in the marketplace to continue in 2014. We have made significant
investments in our business that we believe will enhance our market leadership and improve long-term revenue and
margin growth.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of financial condition and results of operations is based upon our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues, cost of
revenues and expenses during the reporting period, and related disclosure of contingencies. The Notes to the
Financial Statements included as part of this Annual Report describe our significant accounting policies used in the
preparation of the financial statements. Significant items subject to such estimates and assumptions include the
application of the percentage-of-completion and proportional performance methods of revenue recognition, the carrying
amount and estimated useful lives of intangible assets, determination of share-based compensation expense and
valuation allowance for receivables. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies require significant judgments and estimates used in the preparation
of our financial statements.
Revenue Recognition. We recognize revenues in accordance with the provisions of Accounting Standards Codification
(“ASC”) 605, Revenue Recognition and ASC 985-605, Software Revenue Recognition. Our revenues are derived from
sales of software licenses and royalties, subscription-based services, appraisal services, maintenance and support, and
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations 23
services that typically range from installation, training and basic consulting to software modification and customization
to meet specific customer needs. For multiple element software arrangements, which do not entail the performance of
services that are considered essential to the functionality of the software, we generally record revenue when the delivered
products or performed services result in a legally enforceable and non-refundable claim. We maintain allowances for
doubtful accounts and sales adjustments, which are provided at the time the revenue is recognized. Because most of
our customers are governmental entities, we rarely incur a loss resulting from the inability of a customer to make
required payments. In a limited number of cases, we encounter a customer who is dissatisfied with some aspect of the
software product or our service, and we may offer a “concession” to such customer. In those limited situations where
we grant a concession, we rarely reduce the contract arrangement fee, but alternatively may perform additional services,
such as additional training or creating additional custom reports. These amounts have historically been nominal.
In connection with our customer contracts and the adequacy of related allowances and measures of progress towards
contract completion, our project managers are charged with the responsibility to continually review the status of
each customer on a specific contract basis. Also, we review, on at least a quarterly basis, significant past due accounts
receivable and the adequacy of related reserves. Events or changes in circumstances that indicate that the carrying
amount for the allowances for doubtful accounts and sales adjustments may require revision, include, but are not limited
to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the
scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products.
We use contract accounting, primarily the percentage-of-completion method, as discussed in ASC 605-35, Construction —
Type and Certain Production — Type Contracts, for those software arrangements that involve significant production,
modification or customization of the software, or where our software services are otherwise considered essential to the
functionality of the software. We measure progress-to-completion primarily using labor hours incurred, or value added.
In addition, we recognize revenue using the proportional performance method of revenue recognition for our property
appraisal projects, some of which can range up to five years. These methods rely on estimates of total expected
contract revenue, billings and collections and expected contract costs, as well as measures of progress toward completion.
We believe reasonably dependable estimates of revenue and costs and progress applicable to various stages of a
contract can be made. At times, we perform additional and/or non-contractual services for little to no incremental fee
to satisfy customer expectations. If changes occur in delivery, productivity or other factors used in developing our
estimates of expected costs or revenues, we revise our cost and revenue estimates, and any revisions are charged to income
in the period in which the facts that give rise to that revision first become known. In connection with these and certain
other contracts, we may perform the work prior to when the services are billable and/or payable pursuant to the contract.
The termination clauses in most of our contracts provide for the payment for the value of products delivered and
services performed in the event of an early termination.
For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software
at any time during the hosting period without significant penalty and whether the customer can feasibly maintain
the software on the customer’s hardware or enter into another arrangement with a third party to host the software. If we
determine that the customer has the contractual right to take possession of our software at any time during the
hosting period without significant penalty and can feasibly maintain the software on the customer’s hardware or enter
into another arrangement with a third party to host the software, we recognize the license, professional services and
hosting services revenues pursuant to ASC 985-605, Software Revenue Recognition. For SaaS arrangements that do not
meet the criteria for recognition under ASC 985-605, we account for the elements under ASC 605-25, Multiple
Element Arrangements using all applicable facts and circumstances, including whether (i) the element has stand-alone
value, (ii) there is a general right of return and (iii) the revenue is contingent on delivery of other elements. We
allocate the contract value to each element of the arrangement that qualifies for treatment as a separate element based
on vendor-specific objective evidence of fair value (“VSOE”), and if VSOE is not available, third party evidence, and if
third party evidence is unavailable, estimated selling price. For professional services associated with SaaS arrangements
that we determine do not have stand-alone value to the customer or are contingent on delivery of other elements,
we recognize the services revenue ratably over the remaining contractual period once hosting has gone live and we may
begin billing for the hosting services. 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.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report 24
In connection with certain of our contracts, we have recorded retentions receivable or unbilled receivables consisting
of costs and estimated profit in excess of billings as of the balance sheet date. Many of the contracts which give rise to
unbilled receivables at a given balance sheet date are subject to billings in the subsequent accounting period.
We review unbilled receivables and related contract provisions to ensure we are justified in recognizing revenue prior to
billing the customer and that we have objective evidence which allows us to recognize such revenue. In addition,
we have a sizable amount of deferred revenue which represents billings in excess of revenue earned. The majority of this
liability consists of maintenance billings for which payments are made in advance and the revenue is ratably earned
over the maintenance period, generally one year. We also have deferred revenue for those contracts in which we receive
a deposit and the conditions in which to record revenue for the service or product has not been met. On a periodic
basis, we review by customer the detail components of our deferred revenue to ensure our accounting remains appropriate.
Intangible Assets and Goodwill. Our business acquisitions typically result in the creation of goodwill and other
intangible asset balances, and these balances affect the amount and timing of future period amortization expense, as
well as expense we could possibly incur as a result of an impairment charge. The cost of acquired companies is
allocated to identifiable tangible and intangible assets based on estimated fair value, with the excess allocated to goodwill.
Accordingly, we have a significant balance of acquisition date intangible assets, including software, customer related
intangibles, trade name and goodwill. These intangible assets (other than goodwill) are amortized over their estimated
useful lives. We currently have no intangible assets with indefinite lives other than goodwill.
When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its
carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure
the amount of potential impairment. In the second step, we compare the implied fair value of reporting unit goodwill
with the carrying amount of the reporting unit’s goodwill. If the carrying amount of reporting unit goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment
tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used
are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We base
our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.
We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair
value of all of our reporting units to our total market capitalization.
Our annual goodwill impairment analysis, which we performed quantitatively during the second quarter of 2013,
did not result in an impairment charge. During 2013, we did not identify any triggering events which would require an
update to our annual impairment review.
All intangible assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of other intangible assets
is measured by comparison of the carrying amount to estimated undiscounted future cash flows. The assessment of
recoverability or of the estimated useful life for amortization purposes will be affected if the timing or the amount
of estimated future operating cash flows is not achieved. Such indicators may include, among others: a significant decline
in expected future cash flows; a sustained, significant decline in stock price and market capitalization; a significant
adverse change in legal factors or in the business climate; unanticipated competition; and reductions in growth rates.
In addition, products, capabilities, or technologies developed by others may render our software products obsolete or
non-competitive. Any adverse change in these factors could have a significant impact on the recoverability of goodwill
or other intangible assets.
Share-Based Compensation. We have a stock option plan that provides for the grant of stock options to key
employees, directors and non-employee consultants. We estimate the fair value of share-based awards on the date of
grant using the Black-Scholes option valuation model. Share-based compensation expense includes the estimated
effects of forfeitures, which will be adjusted over the requisite service period to the extent actual forfeitures differ, or are
expected to differ from such estimates. Changes in estimated forfeitures are recognized in the period of change and
will also impact the amount of expense to be recognized in future periods. Forfeiture rate assumptions are derived from
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations 25
historical data. We estimate stock price volatility at the date of grant based on the historical volatility of our common
stock. Estimated option life is determined using the weighted-average period the stock options are expected to be
outstanding based primarily on the options’ vesting terms, remaining contractual life and the employees’ expected
exercise based on historical patterns. Determining the appropriate fair-value model and calculating the fair value
of share-based awards at the grant date requires considerable judgment, including estimating stock price volatility,
expected option life and forfeiture rates.
ANALYSIS OF RESULTS OF OPERATIONS AND OTHER
The following discussion compares the historical results of operations on a basis consistent with GAAP for the years
ended December 31, 2013, 2012 and 2011.
Years ended December 31,
Revenue:
Software licenses and royalties
Subscriptions
Software services
Maintenance
Appraisal services
Hardware and other
Total revenue
Operating Expenses:
Cost of software licenses, royalties and acquired software
Cost of software services, maintenance and subscriptions
Cost of appraisal services
Cost of hardware and other
Selling, general and administrative expenses
Research and development expense
Amortization of customer base and trade name intangibles
Operating income
Other expense
Income before income taxes
Income tax provision
Net income
2013 Compared to 2012
Revenues
Software licenses and royalties.
Percentage of Total Revenue
2013
2012
2011
9.8%
9.3%
10.5%
14.8
22.4
46.0
5.0
2.0
12.3
23.0
47.3
6.2
1.9
10.1
22.5
47.4
7.5
2.0
100.0
100.0
100.0
1.1
47.9
3.3
1.3
23.6
5.6
1.1
16.1
0.3
15.8
6.4
1.1
47.2
4.1
1.4
23.9
5.5
1.2
15.6
0.8
14.8
5.7
1.3
46.5
4.7
1.6
24.5
5.3
1.1
15.0
0.7
14.3
5.4
9.4%
9.1%
8.9%
The following table sets forth a comparison of our software licenses and royalties revenues for the years ended
December 31:
($ in thousands)
ESS
ATSS
Total software licenses and royalties revenue
Change
2013
2012
$
%
$ 38,774
2,067
$ 40,841
$ 32,060
1,868
$ 33,928
$ 6,714
199
$ 6,913
21%
11
20%
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report
26
Since March 2012, we have acquired two companies which provide financial and human capital management software
solutions to the K-12 education market and one company that provides enterprise permitting, land management,
licensing and regulatory software solutions to governmental agencies. The results of these acquisitions are included in
our ESS segment from the dates of their acquisitions. Excluding the impact of acquisitions, total software licenses
and royalties revenue increased 12% compared to 2012. Approximately half of the growth was due to an increase of
$2.3 million in royalties on sales of Microsoft Dynamics AX by other Microsoft partners compared to the prior year.
We record royalty revenue when the fees are fixed or determinable, which is known when we receive notice of the
amounts earned pursuant to our royalty arrangements which are generally 30 to 60 days after each quarterly reporting
period. Royalty revenue is dependent upon sales volume from Microsoft partners, as well as the timing of maintenance
renewals, and can vary substantially from period to period. Excluding the impact of acquisitions, software licenses
grew 5% mainly due to increased investments in product development over the past few years. However, software
license growth was reduced somewhat because of a growing number of customers choosing our subscription-based
options, rather than purchasing the software under a traditional perpetual software license arrangement. Subscription-
based arrangements result in no software license revenues in the initial year as compared to traditional perpetual
software license arrangements but generate higher overall subscription-based services revenue over the term of the
contract. We had 100 new customers that entered into subscription-based arrangements in 2013 compared to
76 new customers in 2012.
Subscriptions.
The following table sets forth a comparison of our subscription revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total subscriptions revenue
Change
2013
2012
$
%
$ 59,070
2,794
$ 61,864
$ 43,319
1,299
$ 44,618
$ 15,751
1,495
$ 17,246
36%
115
39%
Subscription-based services revenue primarily consists of revenues derived from our SaaS arrangements, which
utilize the Tyler private cloud. As part of our subscription-based services, we also provide e-filing that simplify the filing
and management of court related documents for courts and law offices. Revenues for e-filing are derived from
transaction fees or in some cases fixed fee arrangements. The contract term for SaaS arrangements range from one to
10 years but are typically for a period of three to six years.
Excluding the impact of acquisitions, subscription-based services revenue increased 37% compared to 2012. New SaaS
customers as well as existing customers who converted to our SaaS model provided the majority of the subscription-
based revenue increase. In 2013, we added 100 new customers and 63 existing customers elected to convert to our
SaaS model. E-filing services also contributed approximately $5.0 million of the subscription revenue increase.
E-filing revenue included $3.8 million related to a new contract with the Texas Office of Court Administration for our
Odyssey File and Serve e-filing system for Texas courts (“e-File Texas.gov”), which was implemented in September 2013.
This contract is a fixed fee arrangement and we expect it will provide a long-term recurring revenue stream of
$17 million to $19 million annually when e-filing becomes mandatory in Texas in 2014. The remaining e-filing revenue
increase is mainly the result of existing clients expanding mandatory e-filing for court documents.
Software services.
The following table sets forth a comparison of our software services revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total software services revenue
Change
2013
2012
$
%
$ 85,459
7,808
$ 93,267
$ 76,103
7,305
$ 83,408
$ 9,356
503
$ 9,859
12%
7
12%
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations
27
Software services revenues primarily consist of professional services billed in connection with the installation of our
software, conversion of customer data, training customer personnel and consulting. New customers who purchase
our proprietary software licenses generally also contract with us to provide for the related software services. Existing
customers also periodically purchase additional training, consulting and minor programming services. Excluding
the impact of acquisitions, software services increased 7% compared to 2012. The increase is partly due to growth in
software license activity and due to contract arrangements that included more programming and other services.
Maintenance.
The following table sets forth a comparison of our maintenance revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total maintenance revenue
Change
2013
2012
$
%
$ 175,180
16,540
$ 191,720
$ 155,290
16,561
$ 171,851
$ 19,890
13%
(21)
—
$ 19,869
12%
We provide maintenance and support services for our software products and certain third party software. Excluding
the impact of acquisitions, maintenance revenue grew 9% from 2012. This increase was due to growth in our installed
customer base from new software license sales and maintenance rate increases.
Appraisal services.
The following table sets forth a comparison of our appraisal services revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total appraisal services revenue
Change
2013
2012
$
%
$
—
20,825
$ 20,825
$
—
22,543
$ 22,543
$ —
— %
(1,718)
$ (1,718)
(8)
(8)%
Appraisal services revenue declined 8% in 2013 compared to 2012. The appraisal services business is somewhat
cyclical and driven in part by statutory revaluation cycles in various states. The decline is mainly due to the completion
in mid-2012 of a large contract in Pennsylvania. We expect appraisal revenues for 2014 will increase slightly
compared to 2013.
Cost of Revenues and Gross Margins
The following table sets forth a comparison of the key components of our cost of revenues for the years ended
December 31:
($ in thousands)
Software licenses and royalties
Acquired software
2013
2012
$
%
$ 2,377
$ 1,983
$
394
20%
Change
2,078
1,888
190
Software services, maintenance and subscriptions
199,617
171,584
28,033
Appraisal services
Hardware and other
Total cost of revenues
13,809
14,889
5,559
5,258
(1,080)
301
$ 223,440
$ 195,602
$ 27,838
10
16
(7)
6
14%
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report
28
The following table sets forth a comparison of gross margin percentage by revenue type for the years ended
December 31:
Gross margin percentage
Software licenses, royalties and acquired software
Software services, maintenance and subscriptions
Appraisal services
Hardware and other
Overall gross margin
2013
2012
Change
89.1%
88.6%
0.5%
42.4
33.7
31.6
42.8
34.0
24.4
(0.4)
(0.3)
7.2
46.4%
46.2%
0.2%
Software licenses, royalties and acquired software. Costs of software licenses, royalties and acquired software are
primarily comprised of third party software costs and amortization expense for software acquired through acquisitions.
We do not have any direct costs associated with royalties. In 2013, our software licenses, royalties and acquired
software gross margin percentage increased compared to 2012 mainly due to higher revenues from royalties. The margin
also benefited from a product mix that included slightly more proprietary software revenues, which have a higher
gross margin than third party software.
Software services, maintenance and subscription-based services. Cost of software services, maintenance and
subscription-based services primarily consists of personnel costs related to installation of our software, conversion of
customer data, training customer personnel and support activities and various other services such as SaaS arrangements
and e-filing. Maintenance and various other services such as SaaS costs typically grow at a slower rate than related
revenues due to leverage in the utilization of our support and maintenance staff and economies of scale. However, we
accelerated hiring in 2013 to ensure that we were well-positioned to deliver our current backlog and anticipated
new business. In late 2012, we signed a contract with the Texas Office of Court Administration for e-FileTexas.gov to
manage e-filing of court documents. In early 2013, the state of Texas issued an order mandating e-filing in civil cases
beginning in January 2014. Mandatory e-filing will be phased in over a two and a half year period, beginning with
the largest counties in January 2014. We will be paid on a fixed fee basis but had very limited revenues in 2013 from
e-FileTexas.gov. However, during 2013, we incurred expenses of approximately $3.3 million in connection with
implementing the system in courts across the state. Excluding the limited revenues and cost incurred in connection with
implementing e-FileTexas.gov in 2013, our software services, maintenance and subscription services gross margin
would have been approximately 42.8%. Our implementation and support staff has increased by 202 employees since
2012. Most of these additions occurred mid-to late 2013.
Appraisal services. Appraisal services revenues are approximately 5% of total revenues. The appraisal services gross
margin declined slightly compared to 2012. A high proportion of the costs of appraisal services revenue are variable,
as we often hire temporary employees to assist in appraisal projects, whose term of employment generally ends with the
projects’ completion.
Our blended gross margin for 2013 increased 0.2% from 2012. The increase was due to higher royalty revenue and
also benefited from a product mix that included slightly higher proprietary software revenues than third party software.
Costs incurred related to our implementation of e-FileTexas.gov with minimal related revenues as well as increased
hiring of implementation and support staff in order to expand our capacity to implement our contract backlog offset
some of the positive impact of higher royalty and proprietary software revenue.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses consist primarily of salaries, employee benefits, travel, share-based
compensation expense, commissions and related overhead costs for administrative and sales and marketing employees
as well as, professional fees, trade show activities, advertising costs and other marketing related costs. The following
table sets forth a comparison of our SG&A expenses for the following years ended December 31:
($ in thousands)
2013
2012
$
%
Selling, general and administrative expenses
$ 98,289
$ 86,706
$ 11,583
13%
Change
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations
29
SG&A as a percentage of revenues was 23.6% in 2013 compared to 23.9% in 2012. Excluding costs from
acquisitions, almost half of the SG&A expense increase is due to increased stock compensation expense resulting from
the substantial increase in our stock price over the last twelve months and higher payroll taxes associated with
increased stock option exercise activity. Commission expense has also increased compared to the prior year periods
due to higher sales.
Research and Development Expense
Research and development expense consists primarily of salaries, employee benefits and related overhead costs
associated with product development. The following table sets forth a comparison of our research and development
expense for the years ended December 31:
($ in thousands)
2013
2012
$
%
Research and development expense
$ 23,269
$ 20,140
$ 3,129
16%
Change
Research and development expense consist mainly of costs associated with development of new products and new
software platforms from which we do not currently generate revenue. These include the next version of Microsoft Dynamics
AX project, as well as other new product development efforts. In 2007, we entered into a Software Development
and License Agreement, which provides for a strategic alliance with Microsoft Corporation (“Microsoft”) to jointly develop
core public sector functionality for Microsoft Dynamics AX to address the accounting needs of public sector
organizations worldwide. This agreement and subsequent amendments granted Microsoft intellectual property rights in
the software code provided and developed by Tyler into Microsoft Dynamics AX products to be marketed and sold
outside of the public sector in exchange for reimbursement payments to partially offset the research and development
costs and royalties on direct and indirect public-sector sales worldwide of the solutions co-developed under this
arrangement. In addition, Tyler has agreed to commit certain resources to the development of the next version of
Dynamics AX and will receive software and maintenance royalties on direct and indirect public-sector sales worldwide
of the solutions co-developed under this arrangement.
Our research and development expense increased $3.1 million in 2013 compared to 2012. In 2013 we did not
have any research and development expense offsets earned under the terms of our agreement with Microsoft compared
to $1.0 million in research and development expense offsets in 2012.
Amortization of Customer and Trade Name Intangibles
Acquisition intangibles are comprised of the excess of the purchase price over the fair value of net tangible assets
acquired that is allocated to acquired software and customer and trade name intangibles. The remaining excess
purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired
software is included with cost of revenues, while amortization expense of customer and trade name intangibles is recorded
as operating expense. The estimated useful lives of both customer and trade name intangibles are five to 25 years.
The following table sets forth a comparison of amortization of customer and trade name intangibles for the years ended
December 31:
($ in thousands)
2013
2012
$
%
Change
Amortization of customer and trade name intangibles
$ 4,517
$ 4,279
$ 238
6%
Estimated annual amortization expense relating to customer and trade name acquisition intangibles, excluding
acquired software for which the amortization expense is recorded as cost of revenues, for the next five years is as follows
(in thousands):
2014
2015
2016
2017
2018
$ 4,515
4,515
4,515
4,515
4,366
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report
30
Other
The following table sets forth a comparison of other expense, net for the years ended December 31:
($ in thousands)
Other expense, net
2013
2012
Change
$
%
$ 1,309
$ 2,709
$ (1,400)
(52)%
Other expense is primarily comprised of interest expense, non-usage and other fees associated with our revolving line
of credit agreement. Interest expense was lower in 2013 than 2012 because we maintained higher debt levels in 2012
associated primarily with several acquisitions completed from October 2011 through November 2012.
Income Tax Provision
The following table sets forth a comparison of our income tax provision for the years ended December 31:
($ in thousands)
Income tax provision
Effective income tax rate
Change
2013
2012
$
%
$ 26,718
$ 20,874
$ 5,844
28%
40.6%
38.8%
The effective income tax rates were different from the statutory United States federal income tax rate of 35% due to
state income taxes, non-deductible share-based compensation expense, the qualified manufacturing activities deduction,
disqualifying incentive stock option dispositions and non-deductible meals and entertainment costs. We experienced
significant stock option exercise activity in 2013 that generated $28.2 million excess tax benefits. Excess tax benefits
reduce tax payments but do not significantly reduce the effective tax rate and can result in limitations on other
deductions. In 2013, limitations resulting from excess tax benefits eliminated the qualified manufacturing activities
deduction, which negatively impacted our effective tax rate.
2012 COMPARED TO 2011
Revenues
Software licenses and royalties.
The following table sets forth a comparison of our software licenses and royalties revenues for the years ended
December 31:
($ in thousands)
ESS
ATSS
Total software licenses and royalties revenue
Change
2012
2011
$
%
$ 32,060
1,868
$ 33,928
$ 30,194
2,400
$ 32,594
$ 1,866
(532)
$ 1,334
6%
(22)
4%
Excluding the impact of acquisitions, total software licenses and royalties revenue declined by 3% compared to 2011.
Most of the decline was due to fewer add-on sales to our existing customer base. In addition, software license growth
was reduced somewhat because of a growing number of customers choosing our subscription-based options, rather than
purchasing the software under a traditional perpetual software license arrangement. Subscription-based arrangements
result in no software license revenues in the initial year as compared to traditional perpetual software license arrangements
but generate higher overall subscription-based services revenue over the term of the contract. We had 76 new
customers that entered into subscription-based arrangements in 2012 compared to 47 new customers in 2011.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations
31
Subscriptions.
The following table sets forth a comparison of our subscription revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total subscriptions revenue
Change
2012
2011
$
%
$ 43,319
1,299
$ 44,618
$ 30,400
$ 12,919
760
539
$ 31,160
$ 13,458
42%
71
43%
Excluding the impact of acquisitions, subscription-based services revenue increased 40% compared to 2011.
New SaaS customers as well as existing customers who converted to our SaaS model provided the majority of the
subscription-based revenue increase. In 2012, we added 76 new customers and 68 existing customers elected to
convert to our SaaS model. E-filing services also contributed approximately $2.3 million of the subscription revenue
increase as a result of new clients implementing e-filing and several existing clients adopting or expanding mandatory
e-filing for court documents in the last half of 2011 and 2012.
Software services.
The following table sets forth a comparison of our software services revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total software services revenue
Change
2012
2011
$
%
$ 76,103
7,305
$ 83,408
$ 60,840
8,777
$ 69,617
$ 15,263
(1,472)
$ 13,791
25%
(17)
20%
Excluding the impact of acquisitions, software services increased 14% compared to 2011. The increase is due
partly to contract arrangements that included more programming services as well as several state-wide arrangements
that in addition to services, include more third party vendor services to build certain software interfaces.
Maintenance.
The following table sets forth a comparison of our maintenance revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total maintenance revenue
Change
2012
2011
$
%
$ 155,290
$ 130,999
16,561
15,499
$ 171,851
$ 146,498
$ 24,291
1,062
$ 25,353
19%
7
17%
Excluding the impact of acquisitions, maintenance revenue grew 9% from 2011. This increase was due to growth in
our installed customer base and maintenance rate increases on most of our product lines.
Appraisal services.
The following table sets forth a comparison of our appraisal services revenues for the years ended December 31:
($ in thousands)
ESS
ATSS
Total appraisal services revenue
Change
2012
2011
$
%
$
—
22,543
$ 22,543
$ —
23,228
$ 23,228
$ —
(685)
$ (685)
—%
(3)
(3)%
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report
32
Appraisal services revenue declined 3% in 2012 compared to 2011. The appraisal services business is somewhat
cyclical and driven in part by statutory revaluation cycles in various states. The decline is mainly due to the completion
in mid-2012, of a large contract in Pennsylvania offset slightly by the start-up of smaller projects, including several
in Ohio.
Cost of Revenues and Gross Margins
The following table sets forth a comparison of the key components of our cost of revenues for the years ended
December 31:
($ in thousands)
Software licenses and royalties
Acquired software
Appraisal services
Hardware and other
Total cost of revenues
2012
2011
$
%
$ 1,983
$ 3,034
$ (1,051)
(35)%
Change
1,888
1,125
763
14,889
14,550
5,258
4,994
339
264
$ 195,602
$ 167,479
$ 28,123
17%
68
19
2
5
Software services, maintenance and subscriptions
171,584
143,776
27,808
The following table sets forth a comparison of gross margin percentage by revenue type for the years ended
December 31:
Gross margin percentage
Software licenses, royalties and acquired software
Software services, maintenance and subscriptions
Appraisal services
Hardware and other
Overall gross margin
2012
2011
Change
88.6%
87.2%
1.4%
42.8
34.0
24.4
41.9
37.4
20.7
0.9
(3.4)
3.7
46.2%
45.9%
0.3%
Software licenses, royalties and acquired software. In 2012, our software license gross margin percentage increased
compared to 2011 due to higher royalties and because our product mix included less third party software which offset
higher amortization expense associated with acquisitions.
Software services, maintenance and subscription-based services. In 2012, the software services, maintenance and
subscriptions gross margin increased compared to the prior year partly because we improved our utilization of our
support and maintenance staff and due to annual rate increases on certain services. Excluding 147 employees added
with acquisitions, our implementation and support staff has increased by 103 employees since 2011. Most of these
additions occurred mid-to late 2012.
Appraisal services. Appraisal services revenues are approximately 6% of total revenues. The appraisal services gross
margin declined compared to 2011. The appraisal services gross margin in 2011 was also favorably impacted by
operational efficiencies associated with a large revaluation contract, which began in mid-2010 and was substantially
complete by mid-2011.
Our blended gross margin for 2012 increased 0.3% from 2011 mainly due to leverage in the utilization of our support,
maintenance and subscription-based services staff and economies of scale and slightly higher rates on certain services.
The gross margin also benefited from lower third party software costs and higher royalties.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations
33
Selling, General and Administrative Expenses
The following table sets forth a comparison of our SG&A expenses for the following years ended December 31:
($ in thousands)
2012
2011
$
%
Selling, general and administrative expenses
$ 86,706
$ 75,650
$ 11,056
15%
Change
Excluding the impact of acquisitions, SG&A increased approximately 11% compared to 2011. SG&A as a percentage of
revenues was 23.9% in 2012 compared to 24.5% in 2011. SG&A expenses increased due to higher commission
expense in connection with increased sales; increased headcount in sales and related expenses to support geographic
expansion; and increased incentive compensation costs due to improved results and higher stock compensation
expense because our company stock price has increased substantially over the last few years.
Research and Development Expense
The following table sets forth a comparison of our research and development expense for the years ended December 31:
($ in thousands)
2012
2011
$
%
Research and development expense
$ 20,140
$ 16,414
$ 3,726
23%
Change
Our research and development expense increased $3.7 million in 2012 compared to 2011. The increase is mainly due
to lower reimbursements from Microsoft in 2012. In 2012, we had $1.0 million in research and development
expense offsets compared to $3.5 million in 2011, which were the amounts earned under the terms of our agreement
with Microsoft. Under our amended agreement with Microsoft, the project included offsets to research and development
expense, varying in amount from quarter to quarter from 2009 through 2012 for a total of approximately $6.2 million.
As of September 30, 2012, we received the final $1.0 million under the agreement.
Amortization of Customer and Trade Name Intangibles
The following table sets forth a comparison of amortization of customer and trade name intangibles for the years ended
December 31:
($ in thousands)
2012
2011
$
%
Change
Amortization of customer and trade name intangibles
$ 4,279
$ 3,331
$ 948
28%
In 2012, we completed four acquisitions that increased amortizable customer and trade name intangibles by approximately
$11.1 million. This amount is being amortized over a weighted average period of 11.8 years.
Other
The following table sets forth a comparison of other expense, net for the years ended December 31:
($ in thousands)
Other expense, net
2012
2011
$
%
$ 2,709
$ 2,404
$ 305
13%
Change
Interest expense was higher in 2012 than 2011 due to higher debt levels associated with several acquisitions
completed since October 2011 and stock repurchases in the last half of 2011. The effective interest rate in 2012 was
3.4% compared to 3.3% in 2011.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report
34
Income Tax Provision
The following table sets forth a comparison of our income tax provision for the years ended December 31:
($ in thousands)
Income tax provision
Effective income tax rate
Change
2012
2011
$
%
$ 20,874
$ 16,556
$ 4,318
26%
38.8%
37.5%
The effective income tax rates for both years were different from the statutory United States federal income tax rate of
35% due to state income taxes, non-deductible share-based compensation expense, the qualified manufacturing
activities deduction, disqualifying incentive stock option dispositions and non-deductible meals and entertainment costs.
The effective income tax rate in 2011 was also reduced by a research and development tax credit. The qualified
manufacturing activities deduction declined in 2012 contributing to a higher effective tax rate.
FINANCIAL CONDITION AND LIQUIDITY
As of December 31, 2013, we had cash and cash equivalents of $78.9 million and investments available-for-sale of
$1.3 million, compared to cash and cash equivalents of $6.4 million and investments available-for-sale of $2.0 million
at December 31, 2012. As of December 31, 2013, we had no outstanding borrowings and an outstanding letter of
credit totaling $2.0 million. Some of our customers require a letter of credit in connection with our contracts. The notional
amount of performance guarantees outstanding secured by letter of credit as of December 31, 2013 was estimated
to be approximately $29.0 million. We do not believe this letter of credit will be required to be drawn upon. We believe
that cash from operating activities, cash on hand and access to the credit markets provides us with sufficient
flexibility to meet our long-term financial needs.
The following table sets forth a summary of cash flows for the years ended December 31:
($ in thousands)
Cash flows provided (used) by:
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
2013
2012
2011
$ 66,090
$ 58,668
$ 56,435
(25,658)
(34,736)
(28,809)
32,038
(18,852)
(28,414)
$ 72,470
$ 5,080
$
(788)
Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and
capital expenditures. Other potential capital resources include cash on hand, public and private issuances of debt
or equity securities, and bank borrowings. It is possible that our ability to access the capital and credit markets in the
future may be limited by economic conditions or other factors. We currently believe that cash provided by operating
activities, cash on hand and access to the credit markets are sufficient to fund our working capital requirements, capital
expenditures, income tax obligations, and share repurchases for at least the next twelve months.
In 2013, operating activities provided net cash of $66.1 million, primarily generated from net income of $39.1 million,
non-cash depreciation and amortization charges of $13.8 million and non-cash share-based compensation expense of
$11.7 million. Cash from operations also benefited from timing of payments on wages and bonuses. In addition, deferred
revenue balances were higher than 2012 due to an increase in annual software maintenance billings as a result of
growth in our installed customer base and growth in subscription-based arrangements. These increases in liabilities were
offset somewhat by higher accounts receivable balances from annual software maintenance billings, progress billings
associated with large contracts and prepaid commissions on large contracts.
In general, changes in the balance of deferred revenue are cyclical and primarily driven by the timing of our
maintenance renewal billings. Our renewal dates occur throughout the year but our heaviest renewal cycles occur in the
second and fourth quarters.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual ReportManagement’s Discussion and Analysis of Financial Condition and Results of Operations
35
At December 31, 2013, our days sales outstanding (“DSOs”) were 87 days compared to DSOs of 95 days at
December 31, 2012. DSOs are calculated based on accounts receivable (excluding long-term receivables, but including
unbilled receivables) divided by the quotient of annualized quarterly revenues divided by 360 days. Accounts
receivable at December 31, 2012 included several large billings for retentions associated with appraisal contracts.
Investing activities used cash of $25.7 million in 2013 compared to $34.7 million in 2012. Investing activities in
2013 include $20.3 million paid in connection with the construction of an office building in Plano, Texas compared to
$2.3 million in 2012. In 2012, we completed the acquisitions of Akanda Innovations, Inc., UniFund, L.L.C.,
Computer Software Associates, Inc. and EnerGov Solutions, L.L.C. The combined cash purchase prices paid in 2012,
net of cash acquired was approximately $25.7 million. In May 2012, we purchased land and a building in Moraine,
Ohio to support our appraisal and tax operations for a purchase price of $2.6 million, which was comprised of $1.7 million
in cash and land and a building valued at $900,000. These expenditures were funded from cash generated from
operations and borrowings under our revolving credit line.
In 2011, we completed the acquisition of Windsor. The purchase price, net of cash acquired, was approximately
$16.4 million. In March 2011, we paid $6.6 million for approximately 27 acres of land and a building in Plano, Texas.
Financing activities in 2013 provided cash of $32.0 million compared to cash used by financing activities of $18.9 million
in 2012. Financing activities in 2013 were comprised of $18.0 million in net payments on our revolving line of
credit offset by collections of $21.8 million from stock option exercises and employee stock purchase plan activity and
$28.2 million excess tax benefit from exercises of share-based arrangements. Cash used in financing activities in
2012 was mainly comprised of $42.7 million in payments on our revolving line of credit offset by collections of
$15.1 million from stock option exercises and contributions from the employee stock purchase plan and $8.8 million
excess tax benefit from exercises of share-based arrangements.
In 2011, cash used in financing activities was primarily comprised of purchases of treasury shares, net of proceeds
from stock option exercises, borrowings and payments on our revolving credit line and contributions from our employee
stock purchase plan. During 2011, we purchased 3.0 million shares of our common stock for an aggregate purchase
price of $71.8 million.
The share repurchase program, which was approved by our board of directors, was announced in October 2002, and was
amended in April 2003, July 2003, October 2004, October 2005, May 2007, May 2008, October 2008, May 2009,
July 2010, October 2010 and September 2011. As of December 31, 2013, we had remaining authorization to
repurchase up to 1.7 million additional shares of our common stock. Our share repurchase program allows us to repurchase
shares at our discretion and market conditions influence the timing of the buybacks and the number of shares
repurchased, as well as the volume of employee stock option exercises. These share repurchases are funded using our
existing cash balances and borrowings under our revolving credit agreement and may occur through open market
purchases and transactions structured through investment banking institutions, privately negotiated transactions and/
or other mechanisms. There is no expiration date specified for the authorization and we intend to repurchase stock
under the plan from time to time.
In 2013, we issued 1.4 million shares of common stock and received $18.3 million in aggregate proceeds upon
exercise of stock options. In 2012 we issued 1.2 million shares of common stock and received $12.4 million in
aggregate proceeds upon exercise of stock options. In 2011 we received $3.6 million from the exercise of options to
purchase approximately 582,000 shares of our common stock under our employee stock option plan. In 2013, 2012
and 2011 we received $3.5 million, $2.6 million and $2.0 million, respectively, from contributions to the Tyler
Technologies, Inc. Employee Stock Purchase Plan.
We have a $150.0 million Credit Agreement (the “Credit Facility”) and a related pledge and security agreement with a
group of seven financial institutions, with Bank of America, N.A., as Administrative Agent. The Credit Facility provides
for a revolving credit line of $150.0 million (which may be increased up to $200.0 million subject to our obtaining
commitments for such increase), with a $25.0 million sublimit for letters of credit. The Credit Facility matures on
August 11, 2014. Borrowings under the Credit Facility may be used for general corporate purposes, including working
capital requirements, acquisitions and share repurchases.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report 36
Borrowings under the Credit Facility bear interest at a rate of either (1) the Bank of America’s prime rate plus a margin
of 1.50% to 2.75% or (2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 2.50% to 3.75%, with the margin
determined by our consolidated leverage ratio. The Credit Facility is secured by substantially all of our assets, excluding
real property. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and
prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional
indebtedness and liens. As of December 31, 2013, we were in compliance with those covenants.
As of December 31, 2013, we had no outstanding borrowings and unused available borrowing capacity of
$148.0 million under the Credit Facility. In addition, as of December 31, 2013, our bank had issued an outstanding
letter of credit totaling $2.0 million. This letter of credit reduces our available borrowing capacity and expires in 2014.
We paid income taxes, net of refunds received, of $9.3 million in 2013, $13.1 million in 2012 and $13.4 million in
2011. We experienced significant stock option exercise activity in 2013 that generated $28.2 million excess tax
benefits. Excess tax benefits reduce tax payments but do not significantly reduce the effective tax rate and can result in
limitations on other deductions. The majority of this excess tax benefit was generated in the last half of 2013 and
as a result we anticipate a tax refund in 2014 for approximately $9.7 million. In 2012 and 2011, excess tax benefits
were $8.8 million and $3.6 million, respectively.
Excluding acquisitions, we anticipate that 2014 capital spending will be between $12.0 million and $13.0 million.
We expect the majority of this capital spending will consist of computer equipment and software for infrastructure
replacements and expansion. We currently do not expect to capitalize significant amounts related to software development
in 2014, but the actual amount and timing of those costs, and whether they are capitalized or expensed may result
in additional capitalized software development. Capital spending is expected to be funded from existing cash balances
and cash flows from operations.
From time to time we engage in discussions with potential acquisition candidates. In order to pursue such opportunities,
which could require significant commitments of capital, we may be required to incur debt or to issue additional
potentially dilutive securities in the future. No assurance can be given as to our future acquisition opportunities and
how such opportunities will be financed.
We lease office facilities, as well as transportation, computer and other equipment used in our operations under
non-cancelable operating lease agreements expiring at various dates through 2021. Most leases contain renewal options
and some contain purchase options.
Summarized in the table below are our obligations to make future payments under our long-term revolving credit
agreement and lease obligations at December 31, 2013 (in thousands):
Lease obligations
$ 5,680
$ 4,677
$ 4,415
$ 3,880
$ 1,731
$ 2,339
$ 22,722
2014
2015
2016
2017
2018
Thereafter
Total
As of December 31, 2013, we do not have any off-balance sheet arrangements, guarantees to third parties or material
purchase commitments, except for the operating lease commitments listed.
CAPITALIZATION
At December 31, 2013, our capitalization consisted of no outstanding borrowings and $246.3 million of
shareholders’ equity.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may affect us due to adverse changes in financial market prices and interest
rates. As of December 31, 2013 we had no outstanding borrowings under the Credit Facility. Borrowings under the
Credit Facility bear interest at a rate of either (1) the Bank of America’s prime rate plus a margin of 1.50% to 2.75% or
(2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 2.50% to 3.75%, with the margin determined by our
consolidated leverage ratio.
Management’s Discussion and Analysis of Financial Condition and Results of OperationsTyler Technologies 2013 Annual Report
Tyler Technologies 2013 Annual Report
37
Controls and Procedures
CONTROLS AND PROCEDURES
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 Securities and Exchange Commission’s rules and forms. These
include controls and procedures designed to ensure that this information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosures. 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, 2013. 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, 2013.
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). Tyler’s internal control over financial reporting is designed to provide reasonable assurance to Tyler’s
management and board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management assessed the effectiveness of Tyler’s internal control over financial reporting as of December 31, 2013.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control — Integrated Framework (1992 framework). Based on our assessment,
we concluded that, as of December 31, 2013, Tyler’s internal control over financial reporting was effective based on
those criteria.
Tyler’s internal control over financial reporting as of December 31, 2013 has been audited by Ernst & Young LLP, the
independent registered public accounting firm who also audited Tyler’s financial statements. Ernst & Young’s attestation
report on Tyler’s internal control over financial reporting appears on page 38 hereof.
Changes in Internal Control Over Financial Reporting — During the quarter ended December 31, 2013, there were
no changes in our internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f), that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
Tyler Technologies 2013 Annual Report
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Tyler Technologies, Inc.
We have audited Tyler Technologies, Inc.’s internal control over financial reporting as of December 31, 2013,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) (the COSO Criteria). Tyler Technologies, Inc.’s
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report
on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, Tyler Technologies, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Tyler Technologies, Inc. as of December 31, 2013 and 2012,
and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2013 and our report dated February 19, 2014 expressed an
unqualified opinion thereon.
Dallas, Texas
February 19, 2014
Tyler Technologies 2013 Annual Report
39
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Tyler Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Tyler Technologies, Inc. as of December 31, 2013
and 2012, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of Tyler Technologies, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2013, 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), Tyler Technologies, Inc.’s internal control over financial reporting as of December 31, 2013, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) and our report dated February 19, 2014 expressed an
unqualified opinion thereon.
Dallas, Texas
February 19, 2014
40
Tyler Technologies 2013 Annual Report
Consolidated Statements of Comprehensive Income
CONSOLIDATED STATEMENTS OF C OMPREHENSIVE INCOME
For the years ended December 31,
In thousands, except per share amounts
Revenues:
Software licenses and royalties
Subscriptions
Software services
Maintenance
Appraisal services
Hardware and other
Total revenues
Cost of revenues:
Software licenses and royalties
Acquired software
Software services, maintenance and subscriptions
Appraisal services
Hardware and other
Total cost of revenues
Gross profit
Selling, general and administrative expenses
Research and development expense
Amortization of customer and trade name intangibles
Operating income
Other expense, net
Income before income taxes
Income tax provision
Net income
Earnings per common share:
Basic
Diluted
Unrealized gains (losses) on investment securities available-for-sale
Income tax expense (benefit) related to components of other
comprehensive income (loss)
Other comprehensive income (loss), net of tax
Comprehensive income
See accompanying notes.
2013
2012
2011
$ 40,841
$ 33,928
$ 32,594
61,864
44,618
31,160
93,267
83,408
69,617
191,720
171,851
146,498
20,825
22,543
23,228
8,126
6,956
6,294
416,643
363,304
309,391
2,377
2,078
1,983
1,888
3,034
1,125
199,617
171,584
143,776
13,809
14,889
14,550
5,559
5,258
4,994
223,440
195,602
167,479
193,203
167,702
141,912
98,289
86,706
75,650
23,269
20,140
16,414
4,517
4,279
3,331
67,128
56,577
46,517
1,309
2,709
2,404
65,819
53,868
44,113
26,718
20,874
16,556
$ 39,101
$ 32,994
$ 27,557
$
$
$
$
1.23
1.13
341
119
222
$
$
$
$
1.09
1.00
134
47
87
$
$
$
$
0.88
0.83
(123)
(43)
(80)
$ 39,323
$ 33,081
$ 27,477
CONSOLIDATED BALANCE SHEETS
December 31,
In thousands, except share and per share amounts
ASSETS
Current assets:
Cash and cash equivalents
Tyler Technologies 2013 Annual Report
41
Consolidated Balance Sheets
2013
2012
$ 78,876
$ 6,406
Accounts receivable (less allowance for losses of $1,113 in 2013 and $1,621 in 2012)
106,570
99,212
Prepaid expenses
Income tax receivable
Other current assets
Deferred income taxes
Total current assets
Accounts receivable, long-term portion
Property and equipment, net
Non-current investments available-for-sale
Other assets:
Goodwill
Other intangibles, net
Sundry
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Total current liabilities
Revolving line of credit
Deferred income taxes
Commitments and contingencies
Shareholders’ equity:
13,522
9,721
787
7,759
9,000
406
1,074
5,955
217,235
122,053
588
1,187
64,844
45,381
1,288
2,037
121,011
121,011
38,986
45,800
536
1,197
$ 444,488
$ 338,666
$ 2,533
$ 3,167
32,839
26,018
156,738
140,550
192,110
169,735
—
18,000
6,059
5,632
Preferred stock, $10.00 par value; 1,000,000 shares authorized, none issued
—
—
Common stock, $0.01 par value; 100,000,000 shares authorized;
48,147,969 shares issued in 2013 and 2012
Additional paid-in capital
Accumulated other comprehensive loss, net of tax
Retained earnings
481
481
182,176
154,018
(46)
(268)
202,210
163,109
Treasury stock, at cost; 15,309,940 and 16,816,903 shares in 2013 and 2012, respectively
(138,502)
(172,041)
Total shareholders’ equity
See accompanying notes.
246,319
145,299
$ 444,488
$ 338,666
42
Tyler Technologies 2013 Annual Report
Consolidated Statements of Shareholders’ Equity
CONSOLIDATED STATEMENTS OF S HAREHOLDERS’ EQUITY
For the years ended December 31, 2013, 2012 and 2011
Common Stock
Shares
Amount
Additional
Accumulated
Other
Paid-in Comprehensive Retained
Earnings
Income (Loss)
Capital
Treasury Stock
Total
Shareholders’
Shares
Amount
Equity
In thousands
Balance at December 31, 2010
48,148 $ 481 $ 153,576 $ (275) $ 102,558 (15,854) $ (149,368) $ 106,972
Net Income
—
—
—
—
27,557
Unrealized loss on investment
securities, net of tax
Issuance of shares pursuant
to stock compensation plan
Stock compensation
Treasury stock purchases
Issuance of shares pursuant to
—
—
—
(80)
—
(10,352)
—
6,253
—
—
—
—
—
—
—
—
—
27,557
—
(80)
582
13,905
—
—
3,553
6,253
—
—
—
—
—
—
(3,004)
(71,802)
(71,802)
Employee Stock Purchase Plan
—
—
(230)
—
—
100
2,275
2,045
Federal income tax benefit related
to exercise of stock options
—
—
3,612
—
—
—
—
3,612
Balance at December 31, 2011
48,148
481
152,859
(355)
130,115 (18,176)
(204,990)
78,110
Net Income
—
—
—
—
32,994
Unrealized gain on investment
securities, net of tax
Issuance of shares pursuant
to stock compensation plan
Stock compensation
Issuance of shares pursuant to
—
—
—
87
—
—
—
(17,018)
—
—
7,411
—
—
—
—
—
—
—
32,994
—
87
1,218
29,461
12,443
—
—
7,411
Employee Stock Purchase Plan
—
—
639
—
—
81
2,002
2,641
Federal income tax benefit related
to exercise of stock options
Issuance of shares for acquisition
—
—
—
—
8,798
—
1,329
—
—
—
—
60
—
1,486
8,798
2,815
Balance at December 31, 2012
48,148
481
154,018
(268)
163,109 (16,817)
(172,041)
145,299
Net Income
—
—
—
—
39,101
Unrealized gain on investment
securities, net of tax
Issuance of shares pursuant
to stock compensation plan
Stock compensation
Issuance of shares pursuant to
—
—
—
222
—
—
—
(13,742)
—
—
11,653
—
—
—
—
—
—
—
39,101
—
222
1,443
32,031
18,289
—
—
11,653
Employee Stock Purchase Plan
—
—
2,034
—
—
64
1,508
3,542
Federal income tax benefit related
to exercise of stock options
—
—
28,213
—
—
—
—
28,213
Balance at December 31, 2013
48,148 $ 481 $ 182,176 $ (46) $ 202,210 (15,310) $ (138,502) $ 246,319
See accompanying notes.
Tyler Technologies 2013 Annual Report
43
Consolidated Statements of Cash Flows
CONSOLIDATED STATEMENTS OF C ASH FLOWS
For the years ended December 31,
In thousands
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization
Share-based compensation expense
Provision for losses – accounts receivable
Excess tax benefit from exercises of share-based arrangements
Deferred income tax benefit
Changes in operating assets and liabilities, exclusive of effects of
acquired companies:
Accounts receivable
Income tax receivable
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from sale of investments
Cost of acquisitions, net of cash acquired
Additions to property and equipment
Decrease (increase) in other
Net cash used by investing activities
Cash flows from financing activities:
2013
2012
2011
$ 39,101
$ 32,994
$ 27,557
13,786
12,711
10,676
11,653
7,411
6,253
729
961
(28,207)
(8,764)
(1,497)
(215)
805
(3,590)
(2,916)
(7,488)
(6,825)
(8,544)
18,898
7,791
6,084
(4,154)
(574)
7,655
110
(369)
(530)
(214)
575
4,887
16,188
13,393
14,862
66,090
58,668
56,435
1,090
75
50
(181)
(25,680)
(17,298)
(26,858)
(9,102)
(12,278)
291
(29)
717
(25,658)
(34,736)
(28,809)
(Decrease) increase in net borrowings on revolving line of credit
(18,000)
(42,700)
34,200
Purchase of treasury shares
Contributions from employee stock purchase plan
Proceeds from exercise of stock options
—
—
(71,802)
3,542
2,641
2,045
18,289
12,443
3,553
Excess tax benefit from exercises of share-based arrangements
28,207
8,764
3,590
Net cash provided (used) by financing activities
32,038
(18,852)
(28,414)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See accompanying notes.
72,470
5,080
(788)
6,406
1,326
2,114
$ 78,876
$ 6,406
$ 1,326
44
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
(Tables in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide integrated software systems and related services for the public sector, with a focus on local governments.
We develop and market a broad line of software solutions and services to address the information technology (“IT”)
needs of cities, counties, schools and other local government entities. In addition, we provide professional IT services,
including software and hardware installation, data conversion, training, and for certain customers, product modifications,
along with continuing maintenance and support for customers using our systems. We also provide subscription-
based services such as software as a service (“SaaS”) arrangements, which utilize the Tyler private cloud, and electronic
document filing solutions (“e-filing”). In addition, we also provide property appraisal outsourcing services for
taxing jurisdictions.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our parent company and a subsidiary, which is wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with a bank. Cash and cash equivalents are stated at cost, which
approximates market value.
INVESTMENTS
Investments consist of auction rate municipal securities. These investments are classified as available-for-sale
securities and are stated at fair value in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value
Measurements and Disclosures. Unrealized holding gains and losses, net of the related tax effect, if any, are not
reflected in earnings but are reported as a separate component of accumulated other comprehensive income until realized.
The cost basis of securities sold is the specific cost of the auction rate municipal security. We account for the
transactions as “proceeds from sales of investments” for the security relinquished, and a “purchases of investments”
for the security purchased, in the accompanying Consolidated Statements of Cash Flows.
REVENUE RECOGNITION
We earn revenue from software licenses, royalties, subscriptions, software services, post-contract customer support
(“PCS” or “maintenance”), hardware and appraisal services.
Software Arrangements:
For the majority of our software arrangements, we provide services that range from installation, training, and basic
consulting to software modification and customization to meet specific customer needs. If the arrangement does not
require significant production, modification or customization or where the software services are not considered essential
to the functionality of the software, revenue is recognized when all of the following conditions are met:
i. persuasive evidence of an arrangement exists;
ii. delivery has occurred;
iii. our fee is fixed or determinable; and
iv. collectability is probable.
For multiple element arrangements, each element of the arrangement is analyzed and we allocate a portion of the
total arrangement fee to the elements based on the relative fair value of the element using vendor-specific objective
evidence of fair value (“VSOE”), regardless of any separate prices stated within the contract for each element. Fair value
is considered the price a customer would be required to pay if the element was sold separately based on our historical
Notes to Consolidated Financial Statements Tyler Technologies 2013 Annual Report
45
Notes to Consolidated Financial Statements
experience of stand-alone sales of these elements to third parties. For PCS, we use renewal rates for continued support
arrangements to determine fair value. For software services, we use the fair value we charge our customers when
those services are sold separately. We monitor our transactions to determine that we maintain and periodically revise
VSOE to reflect fair value. In software arrangements in which we have the fair value of all undelivered elements
but not of a delivered element, we apply the “residual method,” in compliance with ASC 985-605, Software Revenue
Recognition. Under the residual method, if the fair value of all undelivered elements is determinable, the fair value
of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered
element(s) and is recognized as revenue assuming the other revenue recognition criteria are met. In software
arrangements in which we do not have VSOE for all undelivered elements, revenue is deferred until fair value is determined
or all elements for which we do not have VSOE have been delivered. Alternatively, if sufficient VSOE does not exist
and the only undelivered element is services that do not involve significant modification or customization of the software,
the entire fee is recognized over the period during which the services are expected to be performed.
Software Licenses and Royalties
We recognize the revenue allocable to software licenses and specified upgrades upon delivery of the software product
or upgrade to the customer, unless the fee is not fixed or determinable or collectability is not probable. If the fee is
not fixed or determinable, software license revenue is generally recognized as payments become due from the customer.
If collectability is not considered probable, revenue is recognized when the fee is collected. Arrangements that
include software services, such as training or installation, are evaluated to determine whether those services are essential
to the product’s functionality.
A majority of our software arrangements involve “off-the-shelf” software. We consider software to be off-the-shelf
software if it can be added to an arrangement with minor changes in the underlying code and it can be used by the
customer for the customer’s purpose upon installation. For off-the-shelf software arrangements, we recognize the
software license fee as revenue after delivery has occurred, customer acceptance is reasonably assured, that portion of
the fee represents a non-refundable enforceable claim and is probable of collection, and the remaining services such
as training are not considered essential to the product’s functionality.
For arrangements that involve significant production, modification or customization of the software, or where software
services are otherwise considered essential, we recognize revenue using contract accounting and apply the provisions of the
Construction — Type and Production — Type Contracts as discussed in ASC 605-35, Multiple Elements Arrangements.
We generally use the percentage-of-completion method to recognize revenue from these arrangements. We measure
progress-to-completion primarily using labor hours incurred, or value added. The percentage-of-completion method
generally results in the recognition of reasonably consistent profit margins over the life of a contract because we have
the ability to produce reasonably dependable estimates of contract billings and contract costs. We use the level of profit
margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the
lowest probable level of profit in the range of estimates is used until the results can be estimated more precisely. These
arrangements are often implemented over an extended time period and occasionally require us to revise total cost
estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving
effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the
period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first
determine that a loss is apparent. For arrangements that include new product releases for which it is difficult to
estimate final profitability except to assume that no loss will ultimately be incurred, we recognize revenue under the
completed contract method. Under the completed contract method, revenue is recognized only when a contract is
completed or substantially complete. Historically these amounts have been immaterial.
We recognize royalty revenue when earned under the terms of our third party royalty arrangements, provided the fees
are considered fixed or determinable and realization of payment is probable. Currently, our third party royalties are
variable in nature and such amounts are not considered fixed or determinable until we receive notice of amounts earned.
Typically, we receive notice of royalty revenues earned on a quarterly basis in the immediate quarter following the
royalty reporting period.
Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements
46
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Software Services
Some of our software arrangements include services considered essential for the customer to use the software for the
customer’s purposes. For these software arrangements, both the software license revenue and the services revenue are
recognized as the services are performed using the percentage-of-completion contract accounting method. When
software services are not considered essential, the fee allocable to the service element is recognized as revenue as we
perform the services.
Computer Hardware Equipment
Revenue allocable to computer hardware equipment is recognized when we deliver the equipment and collection
is probable.
Post-Contract Customer Support
Our customers generally enter into PCS agreements when they purchase our software licenses. PCS includes
telephone support, bug fixes, and rights to upgrades on a when-and-if available basis. Our PCS agreements are typically
renewable annually. Revenue allocated to PCS is recognized on a straight-line basis over the period the PCS is
provided. All significant costs and expenses associated with PCS are expensed as incurred.
Subscription-Based Services:
Subscription-based services consist of revenues derived from SaaS arrangements, which utilize the Tyler private cloud,
and electronic filing transactions.
For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software
at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the
software on the customer’s hardware or enter into another arrangement with a third party to host the software. In cases
where the customer has the contractual right to take possession of our software at any time during the hosting period
without significant penalty and the customer can feasibly maintain the software on the customer’s hardware or enter into
another arrangement with a third party to host the software, we recognize the license, professional services and
hosting services revenues pursuant to ASC 985-605, Software Revenue Recognition.
For SaaS arrangements that do not meet the criteria for recognition under ASC 985-605, we account for the elements
under ASC 605-25, Multiple Element Arrangements, using all applicable facts and circumstances, including whether
(i) the element has stand-alone value, (ii) there is a general right of return and (iii) the revenue is contingent on delivery
of other elements. We allocate contract value to each element of the arrangement that qualifies for treatment as
a separate element based on VSOE, and if VSOE is not available, third party evidence, and if third party evidence is
unavailable, estimated selling price. We recognize hosting services ratably over the term of the arrangement, which
range from one to 10 years but are typically for a period of three to six years. For professional services associated with
SaaS arrangements that we determine do not have stand-alone value to the customer or are contingent on delivery
of other elements, we recognize the services revenue ratably over the remaining contractual period once we have provided
the customer access to the software and we may begin billing for hosting services. We record amounts that have been
invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition
criteria have been met.
Electronic filing transaction fees primarily pertain to documents filed with the courts by attorneys and other third parties
via our e-filing services and retrieval of filed documents via our access services. The elements for these arrangements
are accounted for under ASC 605-25. For each document filed with a court, the filer generally pays a transaction fee
and a court filing fee to us and we remit a portion of the transaction fee and the filing fee to the court. We record as
revenue the transaction fee, while the portion of the transaction fee remitted to the courts is recorded as cost of sales as
we are acting as a principal in the arrangement. Court filing fees collected on behalf of the courts and remitted to
the courts are recorded on a net basis and thus do not affect the statement of comprehensive income. In some cases,
we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period.
Notes to Consolidated Financial Statements Tyler Technologies 2013 Annual Report
47
Notes to Consolidated Financial Statements
Costs of performing services under subscription-based arrangements are expensed as incurred, except for certain direct
and incremental contract origination and set-up costs associated with SaaS arrangements. Such direct and incremental
costs are capitalized and amortized ratably over the related SaaS hosting term.
Appraisal Services:
For our property appraisal projects, we recognize revenue using the proportional performance method of revenue
recognition since many of these projects are implemented over one to three year periods and consist of various unique
activities. Under this method of revenue recognition, we identify each activity for the appraisal project, with a typical
project generally calling for bonding, office set up, training, routing of map information, data entry, data collection, data
verification, informal hearings, appeals and project management. Each activity or act is specifically identified and
assigned an estimated cost. Costs which are considered to be associated with indirect activities, such as bonding costs
and office set up, are expensed as incurred. These costs are typically billed as incurred and are recognized
as revenue equal to cost. Direct contract fulfillment activities and related supervisory costs such as data collection,
data entry and verification are expensed as incurred. The direct costs for these activities are determined and the
total contract value is then allocated to each activity based on a consistent profit margin. Each activity is assigned a
consistent unit of measure to determine progress towards completion and revenue is recognized for each activity
based upon the percentage complete as applied to the estimated revenue for that activity. Progress for the fulfillment
activities is typically based on labor hours or an output measure such as the number of parcel counts completed for
that activity. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a
loss is apparent.
Allocation of Revenue in Statements of Comprehensive Income
In our statements of comprehensive income, we allocate revenue to software licenses, software services, maintenance
and hardware and other based on the VSOE of fair value for elements in each revenue arrangement and the application
of the residual method for arrangements in which we have established VSOE of fair value for all undelivered elements.
In arrangements where we are not able to establish VSOE of fair value for all undelivered elements, revenue is first
allocated to any undelivered elements for which VSOE of fair value has been established. We then allocate revenue to
any undelivered elements for which VSOE of fair value has not been established based upon management’s best
estimate of fair value of those undelivered elements and apply a residual method to determine the license fee.
Management’s best estimate of fair value of undelivered elements for which VSOE of fair value has not been
established is based upon the VSOE of similar offerings and other objective criteria.
Other
The majority of deferred revenue consists of unearned support and maintenance revenue that has been billed based on
contractual terms in the underlying arrangement with the remaining balance consisting of payments received in advance
of revenue being earned under software licensing, subscription-based services, software and appraisal services and
hardware installation. Unbilled revenue is not billable at the balance sheet date but is recoverable over the remaining
life of the contract through billings made in accordance with contractual agreements. The termination clauses in our
contracts generally provide for the payment for the value of products delivered and services performed in the event of an
early termination.
Prepaid expenses and other current assets include direct and incremental costs such as commissions associated with
arrangements for which revenue recognition has been deferred. Such costs are expensed at the time the related revenue
is recognized.
USE OF ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the
United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and
Notes to Consolidated Financial Statements 48
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
assumptions include the application of the percentage-of-completion and proportional performance methods of
revenue recognition, the carrying amount and estimated useful lives of intangible assets, determination of share-based
compensation expense and valuation allowance for receivables. Actual results could differ from estimates.
PROPERTY AND EQUIPMENT, NET
Property, equipment and purchased software are recorded at original cost and increased by the cost of any significant
improvements after purchase. We expense maintenance and repairs when incurred. Depreciation and amortization is
calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in
the case of leasehold improvements. For income tax purposes, we use accelerated depreciation methods as allowed
by tax laws.
RESEARCH AND DEVELOPMENT COSTS
We expensed research and development costs of $23.3 million during 2013, $20.1 million during 2012 and
$16.4 million during 2011.
We reduced our research and development expense by approximately $1.0 million in 2012 and, $3.5 million in 2011,
which was the amount earned under the terms of our strategic alliance with a development partner.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred taxes arise because of different treatment
between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax
effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or
credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which
have not yet been recorded in the income statement). The deferred tax assets and liabilities are measured using enacted
tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered
or settled. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a
deferred tax asset will not be realized.
SHARE-BASED COMPENSATION
We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee
consultants. Stock options generally vest after three to six years of continuous service from the date of grant and
have a contractual term of ten years. We account for share-based compensation utilizing the fair value recognition
pursuant to ASC 718, Stock Compensation. See Note 10 — “Share-Based Compensation” for further information.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identifiable
intangible assets, in connection with our business combinations. Upon acquisition, goodwill is assigned to the reporting
unit that is expected to benefit from the synergies of the business combination, which is the reporting unit to which
the related acquired technology is assigned. A reporting unit is the operating segment, or a business unit one level below
that operating segment, for which discrete financial information is prepared and regularly reviewed by executive
management. We assess goodwill for impairment annually as of April, or more frequently whenever events or changes in
circumstances indicate its carrying value may not be recoverable.
When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its
carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure
the amount of potential impairment. In the second step, we compare the implied fair value of reporting unit goodwill
with the carrying amount of the reporting unit’s goodwill. If the carrying amount of reporting unit goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment
Notes to Consolidated Financial Statements Tyler Technologies 2013 Annual Report
49
Notes to Consolidated Financial Statements
tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used
are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We evaluate
the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of
our reporting units to our total market capitalization.
Our annual goodwill impairment analysis, which we performed quantitatively during the second quarter of 2013, did not
result in an impairment charge.
Other Intangible Assets
We make judgments about the recoverability of purchased intangible assets other than goodwill whenever events or
changes in circumstances indicate that an impairment may exist. Customer base constitutes approximately 80% of our
purchased intangible assets other than goodwill. We review our customer turnover each year for indications of
impairment. Our customer turnover has historically been very low. If indications of impairment are determined to exist,
we measure the recoverability of assets by a comparison of the carrying amount of the asset to the estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds their
estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of
the assets exceeds the fair value of the assets. There have been no significant impairments of intangible assets in any
of the periods presented.
IMPAIRMENT OF LONG-LIVED ASSETS
We periodically evaluate whether current facts or circumstances indicate that the carrying value of our property and
equipment or other long-lived assets to be held and used may not be recoverable. If such circumstances are determined
to exist, we measure the recoverability of assets to be held and used by a comparison of the carrying amount of the
asset or appropriate grouping of assets and the estimated undiscounted future cash flows expected to be generated by
the assets. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is
recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as
held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There
have been no significant impairments of long-lived assets in any of the periods presented.
COSTS OF COMPUTER SOFTWARE
We capitalize software development costs upon the establishment of technological feasibility and prior to the availability
of the product for general release to customers. Software development costs primarily consist of personnel costs and
rent for related office space. We begin to amortize capitalized costs when a product is available for general release to
customers. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis
over the product’s remaining estimated economic life, but not to exceed five years. We have not capitalized any internal
software development costs in any of the periods presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivables, accounts payables, short-term obligations and certain other assets at
cost approximate fair value because of the short maturity of these instruments. Our investments available-for-sale
are recorded at fair value as of December 31, 2013 based upon the level of judgment associated with the inputs used
to measure their fair value. See Note 3 — “Fair Value of Financial Instruments” for further information.
CONCENTRATIONS OF CREDIT RISK AND UNBILLED RECEIVABLES
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash
and cash equivalents, investments available-for-sale and accounts receivable from trade customers. Our cash and
cash equivalents primarily consists of operating account balances, which are maintained at one major financial institution
Notes to Consolidated Financial Statements 50
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
and the balances often exceed insured amounts. As of December 31, 2013 we had cash and cash equivalents of
$78.9 million. We perform periodic evaluations of the credit standing of this financial institution.
Concentrations of credit risk with respect to receivables are limited due to the size and geographical diversity of our
customer base. Historically, our credit losses have not been significant. As a result, we do not believe we have any
significant concentrations of credit risk as of December 31, 2013.
We maintain allowances for doubtful accounts and sales adjustments, which are provided at the time the revenue is
recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the
inability of a customer to make required payments. Events or changes in circumstances that indicate that the carrying
amount for the allowances for doubtful accounts and sales adjustments may require revision, include, but are not
limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the
scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products.
The following table summarizes the changes in the allowances for doubtful accounts and sales adjustments:
Years ended December 31,
Balance at beginning of year
Provisions for losses – accounts receivable
Collection of accounts previously reserved
Deductions for accounts charged off or credits issued
Balance at end of year
2013
2012
2011
$ 1,621
729
—
(1,237)
$ 1,113
$ 990
$ 1,603
961
—
805
(142)
(330)
(1,276)
$ 1,621
$ 990
The termination clauses in most of our contracts provide for the payment for the value of products delivered or services
performed in the event of early termination. Our property appraisal outsourcing service contracts can range up to
three years and, in a few cases, as long as five years, in duration. In connection with these contracts, as well as certain
software service contracts, we may perform work prior to when the software and services are billable and/or payable
pursuant to the contract. We have historically recorded such unbilled receivables (costs and estimated profit in excess
of billings) in connection with (1) property appraisal services contracts accounted for using proportional performance
accounting in which the revenue is earned based upon activities performed in one accounting period but the billing
normally occurs subsequently and may span another accounting period; (2) software services contracts accounted for
using the percentage-of-completion method of revenue recognition using labor hours as a measure of progress towards
completion in which the services are performed in one accounting period but the billing for the software element
of the arrangement may be based upon the specific phase of the implementation; (3) software revenue for which we
have objective evidence that the customer-specified objective criteria has been met but the billing has not yet been
submitted to the customer; (4) some of our contracts provide for an amount to be withheld from a progress billing
(generally a 10% retention) until final and satisfactory project completion is achieved; and (5) in a limited number of
cases, we may grant extended payment terms generally to existing customers with whom we have a long-term relationship
and favorable collection history.
In connection with this activity, we have recorded unbilled receivables of $10.8 million and $11.8 million at December 31,
2013 and 2012, respectively. We also have recorded retention receivables of $2.6 million and $1.3 million at
December 31, 2013 and 2012, respectively, and these retentions become payable upon the completion of the contract
or completion of our field work and formal hearings. Unbilled receivables and retention receivables expected to be
collected in excess of one year have been included with accounts receivable, long-term portion in the accompanying
consolidated balance sheets.
INDEMNIFICATION
Most of our software license agreements indemnify our customers in the event that the software sold infringes upon the
intellectual property rights of a third party. These agreements typically provide that in such event we will either modify
or replace the software so that it becomes non-infringing or procure for the customer the right to use the software. We
Notes to Consolidated Financial Statements
Tyler Technologies 2013 Annual Report
51
Notes to Consolidated Financial Statements
have recorded no liability associated with these indemnifications, as we are not aware of any pending or threatened
infringement actions that are possible losses. We believe the estimated fair value of these intellectual property
indemnification clauses is minimal.
We have also agreed to indemnify our officers and board members if they are named or threatened to be named
as a party to any proceeding by reason of the fact that they acted in such capacity. We maintain directors’ and officers’
insurance coverage to protect against any such losses. We have recorded no liability associated with these
indemnifications. Because of our insurance coverage, we believe the estimated fair value of these indemnification
agreements is minimal.
RECLASSIFICATIONS
Certain amounts for previous years have been reclassified to conform to the current year presentation.
(2) ACQUISITIONS
2012
In November 2012, we acquired all of the capital stock of EnerGov Solutions, L.L.C. (“EnerGov”) that develops and
sells enterprise permitting, land management, licensing and regulatory software solutions to governmental agencies.
The purchase price, net of cash acquired of $15,000 was $10.5 million in cash and 60,000 shares of Tyler common
stock valued at $2.8 million, based on the stock price on the acquisition date. As of December 31, 2012 the
purchase price allocation was not yet complete. In March 2013, we finalized the purchase price allocation, which resulted
in additional goodwill of $1.1 million and a corresponding reduction in tangible assets. The balance sheet at
December 31, 2012 has been retrospectively revised to include this adjustment.
In April 2012, we acquired all of the capital stock of Computer Software Associates, Inc. (“CSA”) for a cash purchase
price of $9.4 million, net of cash acquired of $437,000. CSA is a reseller of Tyler’s Infinite Visions school enterprise
solution, and sells proprietary CSA tax and recording solutions to county governments, primarily in the Northwest.
In March 2012, we acquired all the capital stock of UniFund, L.L.C. (“UniFund”) for a cash purchase price of
$4.6 million, net of cash acquired of $780,000. UniFund provides enterprise resource planning solutions to schools
and local governments, primarily in the Northeast. UniFund is also a reseller of Tyler’s Infinite Visions school
enterprise solution.
In January 2012, we acquired substantially all of the assets of Akanda Innovation, Inc., (“Akanda”) a provider of
web-based solutions to the public sector, which are integrated, with our property tax software, for a total purchase price
of $2.9 million. The purchase price included certain liabilities we assumed of approximately $800,000, resulting
in net cash paid to the sellers of $2.1 million, of which $900,000 was paid prior to December 31, 2011.
2011
In October 2011, we acquired all of the capital stock of Windsor Management Group, L.L.C. for a cash purchase
price of $16.4 million, net of cash acquired of $7.4 million. Windsor provides Infinite Visions suite of school enterprise
solutions for the K-12 education market, primarily in the Southwest.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
Assets recorded at fair value in the balance sheet as of December 31, 2013 are categorized based upon the level of
judgment associated with the inputs used to measure their fair value as defined by ASC 820, Fair Value Measurements
and Disclosures. We have investments available-for-sale (consisting of auction rate securities) that are considered
to be Level 3 assets for which little or no market data exist and are required to be measured at fair value on a recurring
basis. The fair value of our investments available-for-sale as of December 31, 2013 and December 31, 2012 was
$1.3 million and $2.0 million, respectively. As of December 31, 2013 the par value of our investments available-for-
sale was $1.4 million and the related temporary impairment was $72,000, based on our estimate of the related fair
value using a discounted trinomial model.
Notes to Consolidated Financial Statements 52
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
In association with this estimate of fair value, we have recorded an after-tax temporary unrealized gain on our investments
available-for-sale of $222,000, net of related tax effects of $119,000 in 2013, which is included in accumulated
other comprehensive loss on our balance sheet. The unrealized gain includes the impact of adjusting previously
recorded unrealized losses of approximately $138,000 net of related tax effects of $74,000 as of December 31, 2013
for one security, which was partially redeemed at par during 2013.
The following table reflects the activity for assets measured at fair value using Level 3 inputs for the years ended
December 31:
Balance as of December 31, 2010
Transfers into level 3
Transfers out of level 3
Purchases, sales issuances and settlements
Unrealized losses included in accumulated loss
Balance as of December 31, 2011
Transfers into level 3
Transfers out of level 3
Purchases, sales issuances and settlements
Unrealized gains included in accumulated loss
Balance as of December 31, 2012
Transfers into level 3
Transfers out of level 3
Purchases, sales issuances and settlements
Unrealized gains included in accumulated loss
Balance as of December 31, 2013
$ 2,126
—
(25)
(25)
(123)
1,953
—
—
(50)
134
2,037
—
—
(1,090)
341
$ 1,288
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at December 31:
Land
Building and leasehold improvements
Computer equipment and purchased software
Furniture and fixtures
Transportation equipment
Accumulated depreciation and amortization
Property and equipment, net
Useful Lives
(Years)
2013
2012
—
5-39
3-5
5
5
$ 7,800
50,523
27,071
10,834
241
$ 7,800
33,299
24,036
8,108
274
96,469
73,517
(31,625)
(28,136)
$ 64,844
$ 45,381
Depreciation expense was $6.4 million during 2013, $5.6 million during 2012 and $5.3 million during 2011.
We own office buildings in Yarmouth, Maine, Lubbock and Plano, Texas, and Moraine, Ohio. We lease some space in
these buildings to third-party tenants. These leases expire between 2014 and 2017 and are expected to provide
rental income of approximately $834,000 during 2014, $685,000 during 2015, $319,000 during 2016 and $46,000
during 2017. Rental income associated with third party tenants was $704,000 in 2013, $586,000 in 2012 and
$1.2 million in 2011, and was included as a reduction of selling, general and administrative expenses.
Notes to Consolidated Financial Statements
Tyler Technologies 2013 Annual Report
53
Notes to Consolidated Financial Statements
(5) GOODWILL AND OTHER INTANGIBLE ASSETS
Other intangible assets and related accumulated amortization consists of the following at December 31:
Gross carrying amount of acquisition intangibles:
Customer related intangibles
Software acquired
Trade name
Lease acquired
Accumulated amortization
Acquisition intangibles, net
Post acquisition software development costs
Accumulated amortization
Post acquisition software costs, net
Total other intangibles
2013
2012
$ 60,547
32,003
3,109
1,387
$ 60,547
32,003
3,272
1,387
97,046
97,209
(58,060)
(51,489)
$ 38,986
$ 45,720
$ 36,701
$ 36,701
(36,701)
(36,621)
$
—
$
80
$ 38,986
$ 45,800
Total amortization expense, for acquisition related intangibles and post acquisition software development costs, was
$6.8 million in 2013, $6.5 million during 2012, and $4.9 million during 2011.
The allocation of acquisition intangible assets is summarized in the following table:
December 31, 2013
December 31, 2012
Gross
Carrying
Amount
Weighted
Average
Amortization
Period
Accumulated
Amortization
Gross
Carrying
Amount
Weighted
Average
Amortization Accumulated
Amortization
Period
$ 121,011
—
$ —
$ 121,011
—
$ —
Non-amortizable intangibles:
Goodwill
Amortizable intangibles:
Customer related intangibles
60,547
15 years
28,864
60,547
15 years
Software acquired
32,003
5 years
26,584
32,003
5 years
Trade name
Lease acquired
3,109
1,387
15 years
5 years
1,225
1,387
3,272
1,387
15 years
5 years
24,554
24,505
1,182
1,248
The changes in the carrying amount of goodwill for the two years ended December 31, 2013 are as follows:
Balance as of December 31, 2011
Goodwill acquired during 2012 related to the purchase of Akanda
Goodwill acquired during 2012 related to the purchase of UniFund
Goodwill acquired during 2012 related to the purchase of CSA
Goodwill acquired during 2012 related to the purchase of EnerGov
Enterprise
Software
Solutions
Appraisal and Tax
Software Solutions
and Services
Total
$ 100,504
$ 5,590
$ 106,094
—
1,055
4,634
8,261
967
—
—
—
967
1,055
4,634
8,261
Balance as of December 31, 2012 and December 31, 2013
$ 114,454
$ 6,557
$ 121,011
Notes to Consolidated Financial Statements
54
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Estimated annual amortization expense relating to acquisition intangibles, including acquired software for which the
amortization expense is recorded as cost of revenues is as follows:
Years ending December 31,
2014
2015
2016
2017
2018
(6) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
Accrued wages, bonuses and commissions
Other accrued liabilities
(7) REVOLVING LINE OF CREDIT
$ 6,308
6,128
6,039
5,042
4,366
2013
2012
$ 25,471
$ 17,875
7,368
8,143
$ 32,839
$ 26,018
On August 11, 2010, we entered into a new $150.0 million Credit Agreement (the “Credit Facility”) and a related
pledge and security agreement with a group of seven financial institutions, with Bank of America, N.A., as
Administrative Agent. The Credit Facility provides for a revolving credit line of $150.0 million (which may be increased
up to $200.0 million subject to our obtaining commitments for such increase), with a $25.0 million sublimit for
letters of credit. The Credit Facility matures on August 11, 2014. Borrowings under the Credit Facility may be used for
general corporate purposes, including working capital requirements, acquisitions and share repurchases.
Borrowings under the Credit Facility bear interest at a rate of either (1) the Bank of America’s prime rate plus a margin
of 1.50% to 2.75% or (2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 2.50% to 3.75%, with the margin
determined by our consolidated leverage ratio. The Credit Facility is secured by substantially all of our assets, excluding
real property. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and
prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional
indebtedness and liens. As of December 31, 2013, we were in compliance with those covenants.
As of December 31, 2013, we had no outstanding borrowings and unused available borrowing capacity of $148.0 million
under the Credit Facility. In addition, as of December 31, 2013, we had an outstanding letter of credit totaling
$2.0 million. Some of our customers require a letter of credit guaranteeing performance in connection with our contracts.
The notional amount of performance guarantees outstanding as of December 31, 2013 was estimated to be
approximately $29.0 million. This letter of credit is issued under our revolving line of credit and reduces our available
borrowing capacity. We do not believe this letter of credit will be required to be drawn upon. The letter of credit
expires in 2014.
We paid interest of $899,000 in 2013 and $2.0 million in 2012.
Notes to Consolidated Financial Statements
Tyler Technologies 2013 Annual Report
55
Notes to Consolidated Financial Statements
(8) INCOME TAX
The income tax provision (benefit) on income from operations consists of the following:
Years ended December 31,
2013
2012
2011
Current:
Federal
State
Deferred
$ 25,625
2,590
28,215
(1,497)
$ 19,113
$ 17,239
1,976
21,089
2,233
19,472
(215)
(2,916)
$ 26,718
$ 20,874
$ 16,556
Reconciliation of the U.S. statutory income tax rate to our effective income tax expense rate for operations follows:
Years ended December 31,
Federal income tax expense at statutory rate
State income tax, net of federal income tax benefit
Non-deductible business expenses
Qualified manufacturing activities
Research and development credit
Other, net
2013
2012
2011
$ 23,037
2,371
1,110
$ 18,854
1,365
1,087
—
—
200
(717)
—
285
$ 15,440
1,238
918
(840)
(177)
(23)
$ 26,718
$ 20,874
$ 16,556
The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:
Deferred income tax assets:
Operating expenses not currently deductible
Stock option and other employee benefit plans
Capital loss and credit carryforward
Property and equipment
Total deferred income tax assets
Deferred income tax liabilities:
Intangible assets
Other
Total deferred income tax liabilities
Net deferred income tax asset
2013
2012
$ 7,360
$ 5,372
7,089
6,097
185
149
275
570
14,783
12,314
(12,910)
(11,838)
(173)
(153)
(13,083)
(11,991)
$ 1,700
$
323
At December 31, 2013, we had approximately $650,000 of net operating loss carryforwards for Federal income tax
reporting purposes available to offset future taxable income. The $650,000 was attributable to excess tax benefits
related to share-based arrangements for which authoritative guidance prohibits the recognition of a deferred tax asset.
The $650,000 tax benefit will be accounted for as an increase to shareholders’ equity and a reduction in income
tax payable when realized. This carryforward expires in 2034. We recognized approximately $28.2 million excess tax
benefits related to share-based arrangements in 2013 as a credit to shareholders’ equity and a reduction in income
taxes payable.
Although realization is not assured, we believe it is more likely than not that all the deferred tax assets at December 31,
2013 and 2012 will be realized. Accordingly, we believe no valuation allowance is required for the deferred tax
assets. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates
of reversing taxable temporary differences are revised.
No reserves for uncertain income tax positions have been recorded pursuant to ASC 740-10, Income Taxes.
Notes to Consolidated Financial Statements
56
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The Internal Revenue Service (“IRS”) is examining our U.S. income tax return for the year 2010. We are unable to make
a reasonable estimate as to when cash settlements related to the examination, if any, will occur.
We are subject to U.S. federal tax as well as income tax of multiple state and local jurisdictions. We are no longer
subject to United States federal income tax examinations for years before 2009. We are no longer subject to state and
local income tax examinations by tax authorities for the years before 2008.
We paid income taxes, net of refunds received, of $9.3 million in 2013, $13.1 million in 2012, and $13.4 million
in 2011.
(9) SHAREHOLDERS’ EQUITY
The following table details activity in our common stock:
Years ended December 31,
2013
2012
2011
Shares
Amount
Shares
Amount
Shares
Amount
Stock option exercises
1,443
$ 18,289
1,218
$ 12,443
582
$ 3,553
Purchases of common stock
Employee stock plan purchases
Shares issued for acquisition
—
64
—
—
3,542
—
—
81
60
—
(3,004)
(71,802)
2,641
2,815
100
—
2,045
—
As of February 19, 2014 we had authorization from our board of directors to repurchase up to 1.7 million additional
shares of our common stock.
(10) SHARE-BASED COMPENSATION
Share-Based Compensation Plan
We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee
consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a
contractual term of ten years. Once options become exercisable, the employee can purchase shares of our common
stock at the market price on the date we granted the option. We account for share-based compensation utilizing the fair
value recognition pursuant to ASC 718, Stock Compensation.
As of December 31, 2013, there were 1.1 million shares available for future grants under the plan from the 16.0 million
shares previously approved by the stockholders.
Determining Fair Value of Stock Compensation
Valuation and Amortization Method. We estimate the fair value of share-based awards granted using the Black-Scholes
option valuation model. We amortize the fair value of all awards on a straight-line basis over the requisite service
periods, which are generally the vesting periods.
Expected Life. The expected life of awards granted represents the period of time that they are expected to be
outstanding. The expected life represents the weighted-average period the stock options are expected to be outstanding
based primarily on the options’ vesting terms, remaining contractual life and the employees’ expected exercise based
on historical patterns.
Expected Volatility. Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at
the date of grant based on the historical volatility of our common stock.
Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option valuation model on
the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to
the expected life of the award.
Notes to Consolidated Financial Statements
Tyler Technologies 2013 Annual Report
57
Notes to Consolidated Financial Statements
Expected Dividend Yield. We have not paid any cash dividends on our common stock in the last ten years and we do
not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of
zero in the Black-Scholes option valuation model.
Expected Forfeitures. We use historical data to estimate pre-vesting option forfeitures. We record share-based
compensation only for those awards that are expected to vest.
The following weighted average assumptions were used for options granted:
Years ended December 31,
Expected life (in years)
Expected volatility
Risk-free interest rate
Expected forfeiture rate
2013
6.4
2012
6.7
32.4%
32.6%
1.4%
3%
1.0%
3%
2011
6.7
33.1%
1.7%
3%
The following table summarizes share-based compensation expense related to share-based awards which is recorded in
the statements of comprehensive income:
Years ended December 31,
Cost of software services, maintenance and subscriptions
Selling, general and administrative expense
Total share-based compensation expense
Tax benefit
Net decrease in net income
Stock Option Activity
Options granted, exercised, forfeited and expired are summarized as follows:
Outstanding at December 31, 2010
Granted
Exercised
Forfeited
Outstanding at December 31, 2011
Granted
Exercised
Forfeited
Outstanding at December 31, 2012
Granted
Exercised
Forfeited
Outstanding at December 31, 2013
Exercisable at December 31, 2013
Number of
Shares
5,836
831
(582)
(26)
6,059
930
(1,218)
(60)
5,711
1,453
(1,443)
(1)
5,720
1,971
2013
2012
2011
$ 1,509
10,144
11,653
$ 1,084
6,327
7,411
$ 871
5,382
6,253
(3,363)
(2,040)
(1,545)
$ 8,290
$ 5,371
$ 4,708
Weighted
Average
Exercise Price
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
$ 12.74
26.83
6.10
15.78
15.31
43.53
10.22
28.07
20.86
67.08
12.68
68.17
34.66
$ 15.41
7
5
$ 385,868
$ 170,956
We had unvested options to purchase 3.5 million shares with a weighted average grant date exercise price of $44.55
as of December 31, 2013 and unvested options to purchase 2.8 million shares with a weighted average grant date
exercise price of $27.20 as of December 31, 2012. As of December 31, 2013, we had $48.3 million of total unrecognized
compensation cost related to unvested options, net of expected forfeitures, which is expected to be amortized over a
weighted average amortization period of four years.
Notes to Consolidated Financial Statements
58
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Other information pertaining to option activity was as follows during the twelve months ended December 31:
Weighted average grant-date fair value of stock options granted
Total intrinsic value of stock options exercised
Employee Stock Purchase Plan
2013
2012
2011
$ 23.27
$ 15.24
99,393
40,589
$ 9.91
12,289
Under our Employee Stock Purchase Plan (“ESPP”) participants may contribute up to 15% of their annual compensation
to purchase common shares of Tyler. The purchase price of the shares is equal to 85% of the closing price of
Tyler shares on the last day of each quarterly offering period. As of December 31, 2013, there were 1.0 million shares
available for future grants under the ESPP from the 2.0 million shares previously approved by the stockholders.
(11) EARNINGS PER SHARE
Basic earnings and diluted earnings per share data were computed as follows:
Years Ended December 31,
2013
2012
2011
Numerator for basic and diluted earnings per share:
Net income
Denominator:
$ 39,101
$ 32,994
$ 27,557
Weighted-average basic common shares outstanding
31,891
30,327
31,267
Assumed conversion of dilutive securities:
Stock options
2,699
2,589
Denominator for diluted earnings per share – Adjusted weighted-average shares
34,590
32,916
1,887
33,154
Earnings per common share:
Basic
Diluted
$ 1.23
$ 1.09
$ 0.88
$ 1.13
$ 1.00
$ 0.83
Stock options representing the right to purchase common stock of 62,000 shares in 2013, 463,000 shares in 2012,
and 714,000 shares in 2011 were not included in the computation of diluted earnings per share because their
inclusion would have had an anti-dilutive effect.
(12) LEASES
We lease office facilities for use in our operations, as well as transportation, computer and other equipment. We also
have an office facility lease agreement with an entity owned by an executive’s father and brother. The executive does not
have an interest in the entity that leases the property to us and the lease arrangement existed at the time we acquired
the business unit that occupies this property. Most of our leases are non-cancelable operating lease agreements and
they expire at various dates through 2021. In addition to rent, the leases generally require us to pay taxes, maintenance,
insurance and certain other operating expenses.
Rent expense was approximately $7.5 million in 2013, $7.2 million in 2012, and $5.9 million in 2011, which
included rent expense associated with related party lease agreements of $1.7 million in 2013, $1.7 million in 2012,
and $1.8 million in 2011.
Notes to Consolidated Financial Statements
Tyler Technologies 2013 Annual Report
59
Notes to Consolidated Financial Statements
Future minimum lease payments under all non-cancelable leases at December 31, 2013 are as follows:
Years ending December 31,
2014
2015
2016
2017
2018
Thereafter
$ 5,680
4,677
4,415
3,880
1,731
2,339
$ 22,722
Included in future minimum lease payments are non-cancelable payments due to related parties of $1.7 million in 2014,
$1.7 million in 2015, $1.7 million in 2016 and $1.7 million in 2017.
(13) EMPLOYEE BENEFIT PLANS
We provide a defined contribution plan for the majority of our employees meeting minimum service requirements. The
employees can contribute up to 30% of their current compensation to the plan subject to certain statutory limitations.
We contribute up to a maximum of 3% of an employee’s compensation to the plan. We made contributions to the
plan and charged operating results $3.8 million during 2013, $3.3 million during 2012, and $2.9 million during 2011.
(14) COMMITMENTS AND CONTINGENCIES
Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are
party or to which any of our properties are subject.
(15) SEGMENT AND RELATED INFORMATION
We are a major provider of integrated information management solutions and services for the public sector, with a focus
on local and state governments.
We provide our software systems and services and appraisal services through four business units which focus on the
following products:
– financial management and education software solutions;
– financial management and municipal courts, and land and vital records software solutions;
– courts and justice software solutions; and
– appraisal and tax software solutions and property appraisal services.
In accordance with ASC 280-10, Segment Reporting, the financial management and education software solutions unit,
financial management and municipal courts and land and vital records software solutions unit and the courts and justice
software solutions unit meet the criteria for aggregation and are presented in one reportable segment, Enterprise
Software Solutions (“ESS”). The ESS segment provides municipal and county governments and schools with software
systems and services to meet their information technology and automation needs for mission-critical “back-office”
functions such as financial management and courts and justice processes. The Appraisal and Tax Software Solutions
and Services (“ATSS”) segment provides systems and software that automate the appraisal and assessment of real
and personal property as well as property appraisal outsourcing services for local governments and taxing authorities.
Property appraisal outsourcing services include: the physical inspection of commercial and residential properties;
data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education;
and arbitration between taxpayers and the assessing jurisdiction.
Notes to Consolidated Financial Statements
60
Tyler Technologies 2013 Annual Report
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
We evaluate performance based on several factors, of which the primary financial measure is business segment
operating income. We define segment operating income for our business units as income before noncash amortization of
intangible assets associated with their acquisition, interest expense and income taxes. Segment operating income
includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than
one unit and are valued based on the contractual arrangement. Segment operating income for corporate primarily
consists of compensation costs for the executive management team and certain accounting and administrative staff and
share-based compensation expense for the entire company. Corporate segment operating income also includes
revenues and expenses related to a company-wide user conference. The accounting policies of the reportable segments
are the same as those described in Note 1, “Summary of Significant Accounting Policies.”
Segment assets include net accounts receivable, prepaid expenses and other current assets and net property and
equipment. Corporate assets consist of cash and investments, prepaid insurance, intangibles associated with
acquisitions, deferred income taxes and net property and equipment mainly related to unallocated information and
technology assets.
ESS segment capital expenditures in 2013, 2012 and 2011 included $19.6 million, $3.0 million and $6.6 million,
respectively for the construction of a new building and purchase of an existing building and land in connection with
plans to consolidate workforces and support long-term growth. ATSS segment capital expenditures in 2012 included
$2.6 million for the purchase of a building and land to support long-term growth.
As of and year ended December 31, 2013
Revenues
Enterprise
Software
Solutions
Appraisal and Tax
Software Solutions
and Services
Corporate
Totals
Software licenses and royalties
$ 38,774
$ 2,067
$
Subscriptions
Software services
Maintenance
Appraisal services
Hardware and other
Intercompany
Total revenues
Depreciation and amortization expense
Segment operating income
Capital expenditures
Segment assets
As of and year ended December 31, 2012
Revenues
Subscriptions
Software services
Maintenance
Appraisal services
Hardware and other
Intercompany
Total revenues
Depreciation and amortization expense
Segment operating income
Capital expenditures
Segment assets
59,070
85,459
175,180
2,794
7,808
16,540
—
20,825
6,342
2,899
$ 367,724
10,569
85,045
22,457
—
—
$ 50,034
1,028
9,428
250
—
—
—
—
—
1,784
(2,899)
$ 40,841
61,864
93,267
191,720
20,825
8,126
—
$ (1,115)
$ 416,643
2,189
13,786
(20,750)
73,723
3,438
26,145
$ 161,923
$ 16,244
$ 266,321
$ 444,488
Enterprise
Software
Solutions
Appraisal and Tax
Software Solutions
and Services
Corporate
Totals
43,319
76,103
155,290
—
5,297
2,249
1,299
7,305
16,561
22,543
—
—
—
—
—
—
—
1,659
(2,249)
$ 33,928
44,618
83,408
171,851
22,543
6,956
—
$ 314,318
$ 49,576
$
(590)
$ 363,304
9,929
71,135
5,469
$ 134,160
958
8,498
3,382
$ 18,464
1,824
12,711
(16,889)
62,744
1,865
10,716
$ 186,042
$ 338,666
Software licenses and royalties
$ 32,060
$ 1,868
$
Notes to Consolidated Financial Statements
Tyler Technologies 2013 Annual Report
61
Notes to Consolidated Financial Statements
Enterprise
Software
Solutions
Appraisal and Tax
Software Solutions
and Services
Corporate
Totals
As of and year ended December 31, 2011
Revenues
Software licenses and royalties
$ 30,194
$ 2,400
$
Subscriptions
Software services
Maintenance
Appraisal services
Hardware and other
Intercompany
Total revenues
30,400
60,840
130,999
—
5,199
2,103
760
8,777
15,499
23,228
—
—
—
—
—
—
—
1,095
(2,103)
$ 32,594
31,160
69,617
146,498
23,228
6,294
—
$ 259,735
$ 50,664
$ (1,008)
$ 309,391
Depreciation and amortization expense
8,516
650
1,510
10,676
Segment operating income
Capital expenditures
Segment assets
56,856
9,786
(15,669)
50,973
11,143
137
998
12,278
$ 119,595
$ 20,535
$ 155,261
$ 295,391
Reconciliation of reportable segment operating
income to the Company’s consolidated totals:
Total segment operating income
Amortization of acquired software
Amortization of customer and trade name intangibles
Other expense, net
Income before income taxes
2013
2012
2011
$ 73,723
(2,078)
(4,517)
(1,309)
$ 65,819
$ 62,744
$ 50,973
(1,888)
(4,279)
(2,709)
(1,125)
(3,331)
(2,404)
$ 53,868
$ 44,113
(16) QUARTERLY FINANCIAL INFORMATION (unaudited)
The following table contains selected financial information from unaudited statements of income for each quarter of
2013 and 2012.
2013
2012
Quarters ended
Dec. 31
Sept. 30
June 30 Mar. 31
Dec. 31
Sept. 30
June 30
Mar. 31
Revenues
Gross profit
$ 110,735 $ 107,021 $ 103,088 $ 95,799 $ 95,368 $ 93,845 $ 91,368
$ 82,723
52,767
49,549
47,042
43,845
44,640
44,944
40,699
37,419
Income before income taxes
19,062
17,572
15,053
14,132
15,035
17,810
11,682
9,341
Net income
10,512
11,049
9,047
8,493
9,376
10,832
7,105
5,681
Earnings per diluted share
0.30
0.32
0.26
0.25
0.28
0.33
0.22
0.17
Shares used in computing
diluted earnings per share
35,348
34,764
34,290
33,948
33,421
32,986
32,769
32,530
Notes to Consolidated Financial Statements
62
Tyler Technologies 2013 Annual Report
Performance Graph
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, 2008. Each of the three measures of cumulative total return assumes reinvestment of dividends.
The stock performance shown on the graph below is not necessarily indicative of future price performance.
COMPARISON OF C UMULATIVE FIVE YEAR TOTAL RETURN
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
2008
2009
2010
2011
2012
2013
100
100
100
166.19
126.46
148.16
173.29
145.51
184.60
251.34
148.59
177.17
404.34
172.37
198.48
852.50
228.19
287.61
Tyler Technologies, Inc.
S&P 500 Index
S&P 600 Information
Technology Index
Board of Directors
John M. Yeaman1
Chairman of the Board
Tyler Technologies, Inc.
John S. Marr Jr.1
President and Chief Executive Officer
Tyler Technologies, Inc.
Donald R. Brattain2,3
President
Brattain and Associates, LLC
J. Luther King Jr.2,4
Chief Executive Officer
Luther King Capital Management
G. Stuart Reeves2,3,4
Retired Executive Vice President
Electronic Data Systems Corporation
Michael D. Richards3,4
Chief Operating Officer
Republic Title of Texas, Inc.
Dustin R. Womble1
Executive Vice President
Tyler Technologies, Inc.
1 Executive Committee
2 Audit Committee
3 Nominating and Governance Committee
4 Compensation Committee
Corporate Officers
John M. Yeaman
Chairman of the Board
John S. Marr Jr.
President and Chief Executive Officer
Dustin R. Womble
Executive Vice President
Brian K. Miller
Executive Vice President
Chief Financial Officer and Treasurer
H. Lynn Moore Jr.
Executive Vice President
General Counsel and Secretary
Matthew B. Bieri
Vice President
Chief Information Officer
Samantha B. Crosby
Vice President
Chief Marketing Officer
Robert J. Sansone
Vice President
Human Resources
W. Michael Smith
Vice President
Chief Accounting Officer
Terri L. Alford
Controller
Division Leadership
Andrew D. Teed
President
Appraisal & Tax and
ERP & School Divisions
Bruce Graham
President
Courts & Justice Division
Christopher P. Hepburn
Senior Vice President
ERP & School Division
Brett Cate
President
Local Government Division
Note: Richard E. Peterson Jr., president, ERP &
School Division, retired on December 31, 2013.
Corporate Headquarters
5101 Tennyson Parkway
Plano, Texas 75024
972.713.3700
www.tylertech.com
Transfer Agent and Registrar
American Stock Transfer
& Trust Company
59 Maiden Lane
Plaza Level
New York, New York 10038
800.937.5449
718.236.2641 fax
www.amstock.com
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Dallas, Texas
Annual Meeting of Stockholders
Our annual meeting will be held on
Wednesday, May 14, 2014, at 9:30 a.m.
CDT at The Westin Stonebriar, 1549
Legacy Drive, Frisco, Texas 75034.
Certifications
We submitted an unqualified Annual
CEO Certification to the New York Stock
Exchange (NYSE) as required by the
NYSE Listed Company rules. We also
filed with the Securities and Exchange
Commission the Chief Executive Officer
and Chief Financial Officer certifications
required under Section 302 of the
Sarbanes-Oxley Act as exhibits to our
Annual Report on Form 10-K.
Investor Information
Our annual report on Form 10-K is
available on the company’s website at
www.tylertech.com.
A copy of the Form 10-K or other
information may also be obtained
by contacting the Investor Relations
Department at corporate headquarters.
Investor Relations
972.713.3714
info@tylertech.com
Common Stock
Listed on the New York Stock Exchange
under the symbol “TYL”
Design by Eisenberg And Associates
4
5101 Tennyson Parkway | Plano, TX 75024
972.713.3700 | www.tylertech.com