Tyler Technologies TYL · USD

SEGMENT AND RELATED INFORMATIONReportable operating segments are determined based on the Company’s management approach. The management approach, as defined by FASB ASC 280 “Segment Reporting,” is based on the way that the Chief Operating Decision Maker (“CODM”) organizes the segments within an enterprise for making decisions about resources to be allocated and assessing their performance. Our CODM, for purposes of FASB ASC 280, is our chief executive officer.We report our results in two reportable segments. Our reportable segments are organized on the basis of a combination of the products and services they deliver to clients and the function that the public sector client performs. Operating segments that have met the aggregation criteria have been combined into our two reportable segments. The Enterprise Software (“ES”) reportable segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: public administration solutions, courts and public safety solutions, education solutions, and property and recording solutions. The Platform Technologies (“PT”) reportable segment provides public sector entities with platform and transformative solutions including digital solutions, payment processing, streamlined data processing, and improved operations and workflows.The CODM uses segment operating income or loss to assess performance and to allocate resources (including employees, property, and financial or capital resources) for each segment, predominantly in the annual budget and forecasting process. During the fiscal periods presented, we had no significant transactions between reportable segments. Corporate unallocated amounts are comprised of non-cash amortization of intangible assets associated with acquisitions, depreciation associated with unallocated property and equipment assets, compensation costs for the executive management team and certain shared services staff, and share-based compensation expense for the entire company. Corporate unallocated amounts also include incidental revenues and expenses related to a company-wide user conference and rental income. The accounting policies of the reportable segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.

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

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

COMMITMENTS AND CONTINGENCIESLitigationDuring the first quarter of 2022, we received a notice of termination for convenience under a contractual arrangement with a state government client. Upon receipt of the termination notice, we ceased performing services under the contractual arrangement and sought payment of contractually owed fees in connection with the termination for convenience. The client was unresponsive to our outreach for several months, and on August 23, 2022, we filed a lawsuit to enforce our rights and remedies under the applicable contractual arrangement. The client subsequently asked us to negotiate directly with the client to attempt to resolve the dispute. The negotiations were not successful, and on March 20, 2024, we reinitiated our lawsuit. A December 2025 mediation did not result in a resolution of the dispute. Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time the matter remains unresolved. Amounts reserved related to this matter are included in our allowance for losses and sales adjustments as of December 31, 2025. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contract.Purchase CommitmentsWe have contractual obligations for third-party technology used in our solutions and for other services that we purchase as part of our normal operations. In certain cases, these arrangements require a minimum annual purchase commitment by us. As of December 31, 2025, the remaining aggregate minimum purchase commitment under these arrangements was approximately $569 million through 2031.

DEBTThe following table summarizes our total outstanding borrowings:RateMaturity DateDecember 31, 2025December 31, 20242024 Credit Agreement - Revolving credit facilityS + 1.125%September 2029$— $— Convertible Senior Notes due 20260.25%March 2026600,000 600,000 Total borrowings600,000 600,000 Less: unamortized debt discount and debt issuance costs(337)(2,066)Total borrowings, net599,663 597,934 Current portion of convertible senior notes due 2026, net 599,663 — Long Term - convertible senior notes due 2026, net — 597,934 Total Debt$599,663 $597,934 2024 Credit Agreement On September 25, 2024, the Company entered into a $700.0 million credit agreement with the various lender parties thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender (the “2024 Credit Agreement”). The 2024 Credit Agreement provides for an unsecured revolving credit facility in an aggregate principal amount of up to $700.0 million, including sub-facilities for standby letters of credit and swingline loans. The 2024 Credit Agreement matures on September 25, 2029, and loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any SOFR breakage costs. The 2024 Credit Agreement replaced Tyler’s previous $500.0 million unsecured credit facility under the credit agreement dated April 21, 2021, among the Company and various lenders party thereto (the “2021 Credit Agreement”), which was scheduled to mature in April 2026. The 2024 Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and defined events of defaults. The 2024 Credit Agreement requires us to maintain certain financial ratios and other financial conditions and limits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of December 31, 2025, we had no outstanding borrowings, and we were in compliance with all covenants.Loans under the revolving credit facility will bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) plus a margin of 0.125% to 0.75% or (2) the one-, three-, or six-month SOFR rate plus a margin of 1.125% to 1.75%. The margin in each case is based upon Tyler’s total net leverage ratio, as determined pursuant to the 2024 Credit Agreement.

INCOME TAX We adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" on a prospective basis beginning with the year ended December 31, 2025. Income before provision for income taxes was as follows: Years Ended December 31, 202520242023United States $387,841 $306,402 $196,538 Foreign 2,477 1,765 1,698 Income before income taxes$390,318 $308,167 $198,236 Income tax provision on income from operations consists of the following: Years Ended December 31, 202520242023Current: Federal$10,053 $60,612 $85,715 State20,004 14,807 19,803 Foreign807 385 503 Total current provision for taxes30,864 75,804 106,021 DeferredFederal41,996 (27,089)(63,649)State1,855 (3,574)(10,055)Total deferred provision for (benefit from) taxes43,851 (30,663)(73,704)Income tax provision$74,715 $45,141 $32,317 A reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. statutory income tax rate to our effective income tax expense rate for operations after the adoption of ASU 2023-09 is as follows: Years Ended December 31, 2025%U.S. federal statutory tax rate$81,967 21.0 %State and local income taxes. net of federal income tax effect117,658 4.5 Foreign tax effects287 0.1 Effect of cross-border tax laws(121)— Tax credits(18,398)(4.7)Nontaxable or nondeductible itemsExcess tax benefits of share-based compensation(15,047)(3.9)Executive compensation4,009 1.0 Other 2,222 0.6 Changes in uncertain tax positions2,138 0.5 Effective tax rate$74,715 19.1 %A reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S.

SHARE-BASED COMPENSATIONShare-Based Compensation PlanIn May 2024, stockholders approved the Tyler Technologies, Inc. amended and restated 2018 Stock Incentive Plan (“the Amended and Restated 2018 Plan”) which amended and restated the existing Tyler Technologies, Inc. 2018 Stock Option Plan (“the 2018 Plan”). Upon stockholder approval of the Amended and Restated 2018 Stock Incentive Plan, the remaining shares available for grant under the 2018 Plan were added to the shares authorized for grant under the Amended and Restated 2018 Stock Incentive Plan. Additionally, any awards previously granted under the 2018 Plan that expire unexercised or are forfeited are added to the shares authorized for grant under the Amended and Restated 2018 Stock Incentive Plan.We grant stock awards under the Amended and Restated 2018 Stock Incentive Plan in the form of stock options, restricted stock units and performance share units. Stock options generally vest after three to five years of continuous service from the date of grant and have a contractual term of 10 years. Once options become exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option. Restricted stock unit grants generally vest ratably over three to five years of continuous service from the date of grant. Each performance share unit represents the right to receive one share of our common stock based on our achievement of certain financial performance targets during applicable performance periods. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation.As of December 31, 2025, there were 3.9 million shares available for future grants under the Amended and Restated 2018 Stock Incentive Plan from the 27.5 million shares previously approved by the shareholders.Determining Fair Value of Stock CompensationValuation and Amortization Method. We estimate the fair value of stock option awards granted using the Black-Scholes option valuation model. For restricted stock unit and performance stock unit awards, we estimate fair value as market value on the date of grant. 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.

LEASESWe lease office facilities, transportation and other equipment for use in our operations. Most of our leases are non-cancelable operating lease agreements with remaining terms of one to 10 years. Some of these leases include options to extend for up to six years. We have no finance leases as of December 31, 2025. Right-of-use lease assets and lease liabilities for our operating leases are recorded in the consolidated balance sheets. We incurred no lease restructuring costs during 2025 and 2024, and $6.4 million in 2023, respectively. The components of operating lease expense were as follows:Lease CostsYears ended December 31,202520242023Operating lease cost$10,958 $9,166 $19,468 Short-term lease cost2,046 2,124 2,121 Variable lease cost952 768 1,009 Net lease cost$13,956 $12,058 $22,598 Supplemental information related to leases is as follows:Other InformationYears ended December 31,202520242023Cash flows:Cash paid amounts included in the measurement of lease liabilities:Operating cash outflows from operating leases$12,368 $12,578 $12,555 Right-of-use assets obtained in exchange for lease obligations (non-cash):Operating leases$13,318 $4,404 $3,383 Lease term and discount rate:Weighted average remaining lease term (years)667Weighted average discount rate3.60 %3.22 %1.59 %As of December 31, 2025, maturities of lease liabilities were as follows:Year ending December 31,Amount2026$10,602 202710,278 20286,719 20295,602 20305,132 Thereafter9,526 Total lease payments47,859 Less: Interest(4,914)Present value of operating lease liabilities$42,945 Rental income from third partiesWe own office buildings in Falmouth, Yarmouth and Orono, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; Moraine, Ohio; and Kingston Springs, Tennessee. We lease space in some of these buildings to third-party tenants. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between 2026 and 2035, and some have options to extend the lease for up to 10 years. We determine if an arrangement is a lease at inception. None of our leases allow the lessee to purchase the leased asset.Rental income from third-party tenants was $2.7 million in 2025, $3.2 million in 2024, and $2.1 million in 2023.