Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Tables in thousands, except per share data)
(1) Basis of Presentation
We prepared the accompanying condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States, or GAAP, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted for interim periods. Balance sheet amounts are as of March 31, 2021, and December 31, 2020, and operating result amounts are for the three months ended March 31, 2021, and 2020, respectively, and include all normal and recurring adjustments that we considered necessary for the fair summarized presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes included in our latest Form 10-K for the year ended December 31, 2020. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Certain amounts for the previous year have been reclassified to conform to the current year presentation.
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). We had no items of other comprehensive income (loss) for the three months ended March 31, 2021, and 2020.
(2) Accounting Standards and Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except for the January 1, 2021, adoption of ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"), there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 19, 2021, that have had a material impact on our condensed consolidated financial statements and related notes. See recently adopted accounting pronouncements below.
Impacts of the COVID-19 Pandemic
The pandemic continues to delay some government procurement processes and is expected to impact our ability to complete certain implementations, negatively impacting our revenue. Because an increasing portion of our revenues are recurring, the effect of COVID-19 on our results of operations may also not be fully reflected for some time. It could also negatively impact the timing of client payments to us. We continue to monitor these trends in order to respond to the ever-changing impact of COVID-19 on our clients and Tyler’s operations.
For the three months ended March 31, 2021, the impact of the COVID-19 pandemic resulted in lower revenues from software licenses and software services. Lower software licenses compared to prior periods are attributed to slower sales cycles as government procurement processes are delayed and contract signings have been pushed to future periods. The software services revenue decline is attributed to delays in implementations caused by travel restrictions in effect during the period. Lower revenues compared to prior periods were partially offset by cost savings attributed to lower spend on travel, user conferences and trade show expenses, health claims and other employee-related expenses. As travel restrictions are relaxed, we expect software services and appraisal services revenues to increase as the limited number of our clients who require that all or a portion of their services be delivered onsite will be able to receive those services. Also, we are adapting the way we do business by encouraging web and video conferencing, conducting virtual sales demonstrations and delivering professional services remotely, which result in increases in staff utilization rates and billable time.
Recurring revenues from subscriptions and maintenance comprised 75% of our total consolidated revenue for the three months ended March 31, 2021, and include transaction-based revenue streams such as e-filing and online payments. On March 9, 2021, we issued 0.25% Convertible Senior Notes due 2026 (the "Convertible Senior Notes") in the aggregate principal amount of $600 million. The net proceeds from the issuance of the Convertible Senior Notes of $594 million were used as one of the funding sources to complete the acquisition of NIC Inc ("NIC"), see Note 16 Subsequent Events. As of March 31, 2021, we had $1.4 billion in cash and investments and no outstanding borrowings under our credit facility.
On April 21, 2021, Tyler Technologies, Inc ("the Company") consummated the acquisition of NIC contemplated by the Agreement and Plan of Merger dated February 9, 2021. In connection with the completion of the acquisition, the Company, as borrower, entered into a new $1.4 billion Credit Agreement with the various lenders consisting of a revolving credit facility of up to $500 million and aggregate term loans totaling $900 million. On the April 21, 2021, the Company paid approximately $2.3 billion in cash for the purchase of NIC. The proceeds from the term loans and a portion of the proceeds from the revolving credit facility were used as sources of funding for the purchase of NIC. For more information on the acquisition of NIC and New Credit Agreement, see Note 16 Subsequent Events.
We have recorded no impairment to goodwill or other assets as of the balance sheet date, as no triggering events or changes in circumstances indicating a potential impairment have occurred as of period-end to require such an impairment; however, due to significant uncertainty surrounding the pandemic and market conditions, management’s judgment regarding this could change in the future.
USE OF ESTIMATES
The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue recognition, determining the nature and timing of satisfaction of performance obligations, determining the standalone selling price ("SSP") of performance obligations, variable consideration, and other obligations such as returns and refunds; loss contingencies; the estimated useful life of deferred commissions; the carrying amount of goodwill; the carrying amount and estimated useful lives of intangible assets; the carrying amount of operating lease right-of-use assets and operating lease liabilities; determining share-based compensation expense; the valuation allowance for receivables; and determining the potential outcome of future tax consequences of events that have been recognized on our consolidated financial statements or tax returns. Actual results could differ from estimates.
REVENUE RECOGNITION
Nature of Products and Services:
We earn revenue from software licenses, royalties, subscription-based services, software services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We determine revenue recognition through the following steps:
•Identification of the contract, or contracts with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy a performance obligation
Most of our software arrangements with customers contain multiple performance obligations that range from software licenses, installation, training, and consulting to software modification and customization to meet specific customer needs (services), hosting, and PCS. For these contracts, we account for individual performance obligations separately when they are distinct. We evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include software services, such as training or installation, are evaluated to determine whether the customer can benefit from the services either on their own or together with other resources readily available to the customer and whether the services are separately identifiable from other promises in the contract. The transaction price is allocated to the distinct performance obligations on a relative SSP basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. Revenue is recognized net of allowances for sales adjustments and any taxes collected from customers, which are subsequently remitted to governmental authorities.
Significant Judgments:
Our contracts with customers often include multiple performance obligations to a customer. When a software arrangement (license or subscription) includes both software licenses and software services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the software services and recognized over time.
The transaction price is allocated to the separate performance obligations on a relative SSP basis. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the applications sold, customer demographics, and the number and types of users within our contracts. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine SSP using the expected cost-plus margin approach.
For arrangements that involve significant production, modification or customization of the software, or where software services otherwise cannot be considered distinct, we recognize revenue as control is transferred to the customer over time using progress-to-completion methods. Depending on the contract, we measure progress-to-completion primarily using labor hours incurred, or value added. The progress-to-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we can provide reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit margin in the range of estimates is used until the results can be estimated more precisely. These arrangements are often implemented over an extended time period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent.
Typically, the structure of our arrangements does not give rise to variable consideration. However, in those instances whereby variable consideration exists, we include in our estimates additional revenue for variable consideration when we believe we have an enforceable right, the amount can be estimated reliably and its realization is probable.
Refer to Note 13 - "Disaggregation of Revenue" for further information, including the economic factors that affect the nature, amount, timing, and uncertainty of revenue and cash flows of our various revenue categories.
Contract Balances:
Accounts receivable and allowance for losses and sales adjustments
Timing of revenue recognition may differ from the timing of invoicing to customers. We record an unbilled receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period. We record an unbilled receivable related to revenue recognized for on-premises licenses as we have an unconditional right to invoice and receive payment in the future related to those licenses.
At March 31, 2021, and December 31, 2020, total current and long-term accounts receivable, net of allowance for losses and sales adjustments, was $354.6 million and $403.7 million, respectively. We have recorded unbilled receivables of $145.7 million and $140.8 million at March 31, 2021, and December 31, 2020, respectively. Included in unbilled receivables are retention receivables of $10.4 million and $13.1 million at March 31, 2021, and December 31, 2020, respectively, which become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables expected to be collected within one year have been included with accounts receivable, current portion in the accompanying condensed consolidated balance sheets. Unbilled receivables and retention receivables expected to be collected past one year have been included with accounts receivable, long-term portion in the accompanying condensed consolidated balance sheets.
We maintain allowances for losses and sales adjustments, which losses are recorded against revenue at the time the loss is incurred. Since most of our clients are domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payments. Events or changes in circumstances that indicate the carrying amount for the allowances for losses and sales adjustments may require revision, include, but are not limited to, managing our client’s expectations regarding the scope of the services to be delivered and defects or errors in new versions or enhancements of our software products. Our allowance for losses and sales adjustments of $8.2 million at March 31, 2021, does not include provisions for credit losses. As of January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses, and primarily evaluated our historical experience with credit losses related to trade and other receivables. Because we have not experienced any historical credit losses with the majority of our clients, we have no basis to record a reserve for credit losses as defined by the standard.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
We assess goodwill for impairment annually, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. We begin with the qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value before applying the quantitative assessment described below. If it is determined through the evaluation of events or circumstances that the carrying value may not be recoverable, we perform a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities of that unit. If the sum of the carrying value of the assets and liabilities of a reporting unit exceeds the estimated fair value of that reporting unit, the carrying value of the reporting unit's goodwill is reduced to its fair value through an adjustment to the goodwill balance, resulting in an impairment charge. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization.
As part of our annual impairment test in fiscal year 2020, we performed qualitative assessments for all reporting units except for the data and insights reporting unit. As a result of these qualitative assessments, we determined that it was not more likely than not that an impairment existed; therefore, we did not perform a Step 1 quantitative impairment test. We did perform a quantitative assessment for goodwill of $75.7 million associated with our data and insights business unit and concluded no impairment existed as of our annual assessment date. For most of our reporting units, goodwill relates to a combination of legacy and acquired businesses and as a result those units have fair values that substantially exceed their underlying carrying values. For other reporting units, in particular our platform technologies and data and insights units, goodwill entirely relates to recently acquired businesses and as a result those units do not have significant excess fair values over carrying values. The platform technologies and data and insights business units combined goodwill was $158.6 million, or 19%, of total goodwill as of March 31, 2021. Since our assessment in the second quarter of 2020, we have recorded no impairment to goodwill as no triggering events or changes in circumstances indicating a potential impairment have occurred as of period-end.
Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Changes in market conditions or other factors outside of our control, such as the COVID-19 pandemic, could cause us to change key assumptions and our judgment about a reporting unit’s prospects. Similarly, in a specific period, a reporting unit could significantly underperform relative to its historical or projected future operating results. Either situation could result in a meaningfully different estimate of the fair value of our reporting units and a consequent future impairment charge.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These changes will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was bifurcated according to previously existing rules. ASU 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. This standard will be effective for the Company’s fiscal years beginning in the first quarter of 2022, with early adoption permitted. The Company has elected to early adopt this standard as of January 1, 2021. Our accounting and disclosures related to our convertible senior notes issued on March 9, 2021, reflect the requirements of this standard. For further information, please refer to Note 7, Debt.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, ("ASU 2019-12") which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new standard is effective for fiscal years beginning after December 15, 2020. We adopted ASU 2019-12 as of January 1, 2021. The adoption of this standard did not have a material impact on our consolidated financial statements.
(3) Acquisitions
On March 31, 2021, we acquired all the equity interest of Glass Arc, Inc. (dba ReadySub). Readysub is a cloud-based platform that assists school districts with absence tracking, filling substitute teacher assignments, and automating essential payroll processes. The total purchase price was approximately $6.3 million, net of cash acquired, of which $6.2 million was paid in cash and approximately $98,000 was accrued for a working capital holdback subject to certain post-closing adjustments.
On March 31, 2021, we acquired substantially all assets of DataSpec, Inc. ("DataSpec"), a provider of a software-as-a-service (SaaS) solution that allows for secure electronic claims submission to the federal Department of Veterans Affairs (VA) and reporting capabilities, in addition to scheduling, calendaring, and payments. The total purchase price was approximately $5.9 million of which $5.8 million was paid in cash and approximately $63,000 was accrued for a working capital holdback, subject to certain post-closing adjustments.
Our balance sheet as of March 31, 2021, reflects the allocation of the purchase price to the assets acquired based on their fair value at the date of each acquisition, subject to post closing adjustments. The fair value of the assets acquired and liabilities assumed are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The operating results for ReadySub and DataSpec are included in the ES segment.
(4) Shareholders’ Equity
The following table details activity in our common stock:
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Three Months Ended March 31,
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2021
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2020
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Shares
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Amount
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Shares
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Amount
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Purchases of treasury shares
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—
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$
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—
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(59)
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$
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(15,482)
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Stock option exercises
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120
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18,102
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481
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46,236
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Employee stock plan purchases
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8
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3,038
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10
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2,469
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Restricted stock units vested, net of withheld shares upon award settlement
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56
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$
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(8,958)
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10
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$
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(2,301)
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As of March 31, 2021, we have authorization from our board of directors to repurchase up to 2.5 million additional shares of our common stock.
(5) Deferred Commissions
Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized commensurate with the recognition of associated revenue over a period of benefit that we have determined to be three to seven years. Deferred commissions were $32.6 million and $32.3 million as of March 31, 2021, and December 31, 2020, respectively. Amortization expense was $3.0 million for both the three months ended March 31, 2021, and March 31, 2020. There were no indicators of impairment in relation to the costs capitalized for the periods presented. Deferred commissions have been included with prepaid expenses for the current portion and non-current other assets for the long-term portion in the accompanying condensed consolidated balance sheets. Amortization expense related to deferred commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.
(6) Other Assets
As of March 31, 2021, we have $171.9 million in investment grade corporate and municipal bonds with varying maturity dates through 2026. We intend to hold these bonds to maturity and have classified them as such. It is not more than likely that these bonds will be required to sell before recovery of their amortized costs. We believe cost approximates fair value given the portfolio consists of fixed income and high credit investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or other observable market data. These investments are presented at amortized cost and are included in short-term investments and non-current investments in the accompanying condensed consolidated balance sheets. As of March 31, 2021, we have an accrued interest receivable balance of $1.0 million which is included in accounts receivable, net. We do not measure an allowance for credit losses for accrued interest receivables. We record any losses within the maturity period of the investment and any write-offs to accrued interest receivables are recorded as a reduction to interest income in the period of the loss. During the three months ended March 31, 2021, we have recorded no credit losses for accrued interest receivables. Interest income and amortization of discounts and premiums are included in other income, net in the accompanying condensed consolidated statements of income.
In 2020, we purchased $10 million in common stock representing a 18% interest in BFTR, LLC., a wholly owned subsidiary of Bison Capital Partners V L.P. BFTR, LLC, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in common stock is accounted under the cost method because we do not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values. Our investment is carried at cost less any impairment write-downs. Annually, our cost method investments are assessed for impairment. We do not reassess the fair value of cost method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. No events or changes in have occurred during the period that require reassessment. This investment is included in other non-current assets in the accompanying condensed consolidated balance sheets.
(7) Debt
Revolving Line of Credit
On September 30, 2019, we entered into a $400 million credit agreement with various lender parties and Wells Fargo Bank, National Association, as Administrative Agent (the “Credit Facility”). The Credit Facility provides for a revolving credit line up to $400 million, including a $25 million sublimit for letters of credit. The Credit Facility matures on September 30, 2024.
Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.125% to 0.75% or (2) the one-, two-, three-, or six-month LIBOR rate plus a margin of 1.125% to 1.75%. As of March 31, 2021, the interest rates were 3.38% under the Wells Fargo Bank's prime rate and approximately 1.24% under the 30-day LIBOR option. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of March 31, 2021, we were in compliance with those covenants.
As of March 31, 2021, we had no outstanding borrowings under the Credit Facility, and available borrowing capacity was $400 million. In addition, as of March 31, 2021 we had one outstanding standalone letter of credit totaling $2 million. The letter of credit guarantees our performance under a client contract and expires in third quarter of 2021.
Convertible Senior Notes due 2026
On March 9, 2021, we issued 0.25% Convertible Senior Notes due 2026 in the aggregate principal amount of $600 million ("the Convertible Senior Notes" or "the Notes"). The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 9, 2021, with U.S. Bank National Association, as trustee. The net proceeds from the issuance of the Convertible Senior Notes were $591.4 million, net of initial purchasers’ discounts of $6.0 million and debt issuance costs of $2.6 million.
The Convertible Senior Notes are senior, unsecured obligations and are (i) equal in right of payment with our future senior, unsecured indebtedness; (ii) senior in right of payment to our future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to our future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.
The Convertible Senior Notes accrue interest at a rate of 0.25% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Convertible Senior Notes mature on March 15, 2026, unless earlier repurchased, redeemed or converted.
Before September 15, 2025, holders of the Convertible Senior Notes have the right to convert their Convertible Senior Notes only upon the occurrence of certain events. Under the terms of indenture, the Convertible Senior Notes are convertible into common stock of Tyler Technologies, Inc. (referred to as "our common stock" herein) at the following times or circumstances:
•during any calendar quarter commencing after the calendar quarter ended June 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
•during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the "Measurement Period") if the trading price per $1,000 principal amount of Convertible Senior Notes, as determined following a request by their holder in accordance with the procedures in the indenture, for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;
•upon the occurrence of certain corporate events or distributions on our common stock, including but not limited to a “Fundamental Change” (as defined in the indenture governing the notes);
•upon the occurrence of specified corporate events; or
•on or after September 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, March 15, 2026.
•With certain exceptions, upon a Change of Control or other Fundamental Change (both as defined in the indenture governing the Convertible Senior Notes), the holders of the Convertible Senior Notes may require us to repurchase all or part of the principal amount of the Convertible Senior Notes at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes, plus any accrued and unpaid interest to, but excluding, the redemption date.
As of March 31, 2021, none of the conditions allowing holders of the Convertible Senior Notes to convert have been met.
From and including September 15, 2025, holders of the Convertible Senior Notes may convert their Convertible Senior Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. We will settle any conversions of the Convertible Senior Notes either entirely in cash or in a combination of cash and shares of common stock, at our election. However, upon conversion of any Convertible Senior Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted.
The initial conversion rate is 2.0266 shares of common stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $493.44 per share of common stock. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Convertible Senior Notes are redeemable, in whole or in part, at our option at any time, and from time to time, on or after March 15, 2024 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price of the Notes on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (ii) the trading day immediately before the date we send such notice. In addition, calling any Note for redemption constitutes a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.
The net carrying value of the Convertible Senior Notes, net of unamortized debt discount and unamortized debt issuance costs were as follows (in thousands):
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March 31, 2021
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Convertible Senior Notes due 2026
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$
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600,000
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Less unamortized debt discount
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(5,934)
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Less unamortized debt issuance costs
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(2,583)
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Carrying value as of March 31, 2021
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$
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591,483
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The carrying amount is the par value of the Convertible Senior Notes less the debt discount and debt issuance costs that are amortized to interest expense using the effective interest method over the term of the Convertible Senior Notes.
The effective interest rate for the Convertible Senior Notes is 0.36%. The following sets forth the interest expense recognized related to the Convertible Senior Notes (in thousands):
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Three Months Ended March 31,
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2021
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Contractual interest expense
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$
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83
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Amortization of debt discount
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66
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Amortization of debt issuance costs
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29
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Total
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$
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178
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New 2021 Credit Agreement
On April 21, 2021, the Company consummated the acquisition of NIC contemplated by the Agreement and Plan of Merger dated February 9, 2021. In connection with the completion of the acquisition, the Company, as borrower, entered into a new $1.4 billion Credit Agreement with the various lenders consisting of a revolving credit facility of up to $500 million and aggregate term loans of $900 million. The proceeds from the term loans and a portion of the proceed from the revolving credit facility were used a source of funding for the purchase of NIC. For more information on the New Credit Agreement, see Note 16 Subsequent Events.
(8) Income Tax Provision
We had an effective income tax rate of 3.4% for the three months ended March 31, 2021, compared to negative 36.3% for the three months ended March 31, 2020. The higher effective tax rate for the three months ended March 31, 2021, as compared to the same period in 2020, was principally driven by a decrease in the excess tax benefits related to stock incentive awards.
The effective income tax rates for the periods presented were different from the statutory United States federal income tax rate of 21% primarily due to excess tax benefits related to stock incentive awards and the tax benefit of research tax credits offset by state income taxes and non-deductible business expenses. The excess tax benefits related to stock incentive awards realized were $8.8 million for the three months ended March 31, 2021, compared to $22.1 million for the three months ended March 31, 2020. Excluding the excess tax benefits, the effective tax rate was 26.4% for the three months ended March 31, 2021, compared to 27% for the three months ended March 31, 2020.
We made tax payments of $59,000 and $176,000 in the three months ended March 31, 2021, and 2020, respectively.
(9) Earnings Per Share
The following table details the reconciliation of basic earnings per share to diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
36,976
|
|
|
$
|
47,550
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average basic common shares outstanding
|
|
40,611
|
|
|
39,500
|
|
|
|
|
|
Assumed conversion of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock awards
|
|
1,445
|
|
|
1,644
|
|
|
|
|
|
Convertible senior notes
|
|
—
|
|
|
—
|
|
|
|
|
|
Denominator for diluted earnings per share
- Adjusted weighted-average shares
|
|
42,056
|
|
|
41,144
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.91
|
|
|
$
|
1.20
|
|
|
|
|
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
1.16
|
|
|
|
|
|
For the three months ended March 31, 2021 and 2020, stock awards, representing the right to purchase common stock of approximately 141,000 shares and 79,000 shares, respectively, were not included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.
We have used the if-converted method for calculating any potential dilutive effect of these notes on our diluted net income per share. Under the if-converted method, the Convertible Senior Notes are assumed to be converted at the beginning of the period and the resulting common shares are included in the denominator of the diluted earnings per share calculation for the entire period being presented and interest expense, net of tax, recorded in connection with the Convertible Senior Notes is added back to the numerator, only in the periods in which such effect is dilutive. The approximately 1.2 million resulting common shares related to the Convertible Senior Notes are not included in the dilutive weighted-average common shares outstanding calculation for the three months ended March 31, 2021, respectively, as their effect would be anti-dilutive given none of the conversion features have been triggered. See Note 7, Debt for discussion on the conversion features related to the Convertible Senior Notes.
(10) Leases
We lease office facilities for use in our operations, as well as transportation and other equipment. Most of our leases are non-cancelable operating lease agreements with original maturities between one to eight years from the execution date. Some of these leases include options to extend for up to 10 years. We have no finance leases and no related party lease agreements as of March 31, 2021. Operating lease costs were approximately $2.6 million for both the three months ended March 31, 2021, and March 31, 2020, respectively.
The components of operating lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Costs
|
|
Financial Statement Classification
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
Operating lease cost
|
|
Selling, general and administrative expenses
|
|
$
|
1,722
|
|
|
$
|
1,666
|
|
|
|
|
Short-term lease cost
|
|
Selling, general and administrative expenses
|
|
481
|
|
|
574
|
|
|
|
|
Variable lease cost
|
|
Selling, general and administrative expenses
|
|
431
|
|
|
394
|
|
|
|
|
Net lease cost
|
|
|
|
$
|
2,634
|
|
|
$
|
2,634
|
|
|
|
|
Right-of-use lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Assets:
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
19,192
|
|
|
$
|
18,734
|
|
Liabilities:
|
|
|
|
|
Operating leases, short-term
|
|
5,913
|
|
|
5,904
|
|
Operating leases, long-term
|
|
16,636
|
|
|
16,279
|
|
Total lease liabilities
|
|
$
|
22,549
|
|
|
$
|
22,183
|
|
Supplemental information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Cash flows:
|
|
|
|
|
Cash amounts paid included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
1,829
|
|
|
$
|
1,873
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations (non-cash):
|
|
|
|
|
Operating leases
|
|
$
|
2,005
|
|
|
$
|
457
|
|
|
|
|
|
|
Lease term and discount rate:
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
4.6
|
|
4
|
Weighted average discount rate
|
|
2.69
|
%
|
|
4.00
|
%
|
As of March 31, 2021, maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Amount
|
2021 (Remaining 2021)
|
|
$
|
5,537
|
|
2022
|
|
5,220
|
|
2023
|
|
4,197
|
|
2024
|
|
3,712
|
|
2025
|
|
2,576
|
|
Thereafter
|
|
2,545
|
|
Total lease payments
|
|
23,787
|
|
Less: Interest
|
|
(1,238)
|
|
Present value of operating lease liabilities
|
|
$
|
22,549
|
|
Rental Income from third parties
We own office buildings in Bangor, Falmouth and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; and Moraine, Ohio. We lease space in some of these buildings to third-party tenants. The property we lease to others under operating leases consists primarily of specific facilities where one tenant obtains substantially all of the economic benefit from the asset and has the right to direct the use of the asset. These non-cancelable leases expire between 2021 and 2025, and some have options to extend the lease for up to five years. We determine if an arrangement is a lease at inception. None of our leases allow the lessee to purchase the leased asset.
Rental income from third-party tenants for the three months ended March 31, 2021, totaled $294,000 and for the three months ended March 31, 2020, totaled $274,000. Rental income is included in hardware and other revenue on the condensed consolidated statements of income. As of March 31, 2021, future minimum operating rental income based on contractual agreements is as follows:
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
Amount
|
2021 (Remaining 2021)
|
|
$
|
1,068
|
|
2022
|
|
1,449
|
|
2023
|
|
1,479
|
|
2024
|
|
1,510
|
|
2025
|
|
966
|
|
Thereafter
|
|
—
|
|
Total
|
|
$
|
6,472
|
|
As of March 31, 2021, we had no additional significant operating or finance leases that had not yet commenced.
(11) Share-Based Compensation
The following table summarizes share-based compensation expense related to share-based awards recorded in the condensed consolidated statements of income, pursuant to ASC 718, Stock Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
Cost of subscriptions, software services and maintenance
|
|
$
|
5,000
|
|
|
$
|
4,252
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
20,724
|
|
|
13,050
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
25,724
|
|
|
$
|
17,302
|
|
|
|
|
|
(12) Segment and Related Information
We provide integrated information management solutions and services for the public sector, with a focus on local governments.
We provide our software systems and services and appraisal services through six business units, which focus on the following products:
•financial management, education and planning, regulatory and maintenance software solutions;
•financial management, municipal courts, planning, regulatory and maintenance software solutions;
•courts and justice and public safety software solutions;
•data and insights solutions;
•platform technologies; and
•appraisal and tax software solutions, land and vital records management software solutions, and property appraisal services.
In accordance with ASC 280-10, Segment Reporting, we report our results in two segments. The financial management, education and planning, regulatory and maintenance software solutions unit; financial management, municipal courts, planning, regulatory and maintenance software solutions unit; courts and justice and public safety software solutions unit; the data and insights solutions unit; and platform technologies solutions unit meet the criteria for aggregation and are presented in one reportable segment, the Enterprise Software (“ES”). The ES segment provides public sector entities with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as: financial management and education, courts and justice, public safety, planning, regulatory and maintenance, data and insights, and platform technologies processes. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property, land and vital records management as well as provides property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction.
We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before non-cash amortization of intangible assets associated with their acquisitions, interest expense and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the contractual arrangement. Corporate segment operating income 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.
As of January 1, 2021, certain administrative costs related to information technology, which were previously allocated and reported in the ES and A&T segments, were moved to the Corporate segment to reflect changes in the way in which management makes operating decisions, allocates resources, and manages the growth and profitability of the Company. Prior year amounts for all segments have been adjusted to reflect the segment change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Software
|
|
Appraisal and Tax
|
|
Corporate
|
|
Totals
|
Revenues
|
|
|
|
|
|
|
|
|
Software licenses and royalties
|
|
$
|
13,047
|
|
|
$
|
1,886
|
|
|
$
|
—
|
|
|
$
|
14,933
|
|
Subscriptions
|
|
94,831
|
|
|
7,648
|
|
|
—
|
|
|
102,479
|
|
Software services
|
|
42,560
|
|
|
5,080
|
|
|
—
|
|
|
47,640
|
|
Maintenance
|
|
109,783
|
|
|
9,329
|
|
|
—
|
|
|
119,112
|
|
Appraisal services
|
|
—
|
|
|
6,465
|
|
|
—
|
|
|
6,465
|
|
Hardware and other
|
|
4,126
|
|
|
47
|
|
|
—
|
|
|
4,173
|
|
Intercompany
|
|
5,261
|
|
|
15
|
|
|
(5,276)
|
|
|
—
|
|
Total revenues
|
|
$
|
269,608
|
|
|
$
|
30,470
|
|
|
$
|
(5,276)
|
|
|
$
|
294,802
|
|
Segment operating income
|
|
$
|
92,874
|
|
|
$
|
9,259
|
|
|
$
|
(50,549)
|
|
|
$
|
51,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Software
|
|
Appraisal and Tax
|
|
Corporate
|
|
Totals
|
Revenues
|
|
|
|
|
|
|
|
|
Software licenses and royalties
|
|
$
|
15,951
|
|
|
$
|
2,786
|
|
|
$
|
—
|
|
|
$
|
18,737
|
|
Subscriptions
|
|
76,644
|
|
|
5,079
|
|
|
—
|
|
|
81,723
|
|
Software services
|
|
44,949
|
|
|
7,184
|
|
|
—
|
|
|
52,133
|
|
Maintenance
|
|
104,841
|
|
|
9,524
|
|
|
—
|
|
|
114,365
|
|
Appraisal services
|
|
—
|
|
|
5,763
|
|
|
—
|
|
|
5,763
|
|
Hardware and other
|
|
3,791
|
|
|
27
|
|
|
2
|
|
|
3,820
|
|
Intercompany
|
|
4,001
|
|
|
18
|
|
|
(4,019)
|
|
|
—
|
|
Total revenues
|
|
$
|
250,177
|
|
|
$
|
30,381
|
|
|
$
|
(4,017)
|
|
|
$
|
276,541
|
|
Segment operating income
|
|
$
|
73,667
|
|
|
$
|
8,541
|
|
|
$
|
(34,896)
|
|
|
$
|
47,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Reconciliation of reportable segment operating income to the Company's consolidated totals:
|
|
2021
|
|
2020
|
|
|
|
|
Total segment operating income
|
|
$
|
51,584
|
|
|
$
|
47,312
|
|
|
|
|
|
Amortization of acquired software
|
|
(7,964)
|
|
|
(8,027)
|
|
|
|
|
|
Amortization of customer and trade name intangibles
|
|
(5,412)
|
|
|
(5,392)
|
|
|
|
|
|
Other income, net
|
|
88
|
|
|
990
|
|
|
|
|
|
Income before income taxes
|
|
$
|
38,296
|
|
|
$
|
34,883
|
|
|
|
|
|
(13) Disaggregation of Revenue
The tables below show disaggregation of revenue into categories that reflect how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flows.
Timing of Revenue Recognition
Timing of revenue recognition by revenue category during the period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
|
Products and services transferred over time
|
|
Total
|
Revenues
|
|
|
|
|
|
|
Software licenses and royalties
|
|
$
|
12,058
|
|
|
$
|
2,875
|
|
|
$
|
14,933
|
|
Subscriptions
|
|
—
|
|
|
102,479
|
|
|
102,479
|
|
Software services
|
|
—
|
|
|
47,640
|
|
|
47,640
|
|
Maintenance
|
|
—
|
|
|
119,112
|
|
|
119,112
|
|
Appraisal services
|
|
—
|
|
|
6,465
|
|
|
6,465
|
|
Hardware and other
|
|
4,173
|
|
|
—
|
|
|
4,173
|
|
Total
|
|
$
|
16,231
|
|
|
$
|
278,571
|
|
|
$
|
294,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
|
Products and services transferred over time
|
|
Total
|
Revenues
|
|
|
|
|
|
|
Software licenses and royalties
|
|
$
|
16,066
|
|
|
$
|
2,671
|
|
|
$
|
18,737
|
|
Subscriptions
|
|
—
|
|
|
81,723
|
|
|
81,723
|
|
Software services
|
|
—
|
|
|
52,133
|
|
|
52,133
|
|
Maintenance
|
|
—
|
|
|
114,365
|
|
|
114,365
|
|
Appraisal services
|
|
—
|
|
|
5,763
|
|
|
5,763
|
|
Hardware and other
|
|
3,820
|
|
|
—
|
|
|
3,820
|
|
Total
|
|
$
|
19,886
|
|
|
$
|
256,655
|
|
|
$
|
276,541
|
|
Recurring Revenue
The majority of our revenue is comprised of revenues from maintenance and subscriptions, which we consider to be recurring revenue. Virtually all of our on-premises software clients contract with us for maintenance and support, which provides us with a significant source of recurring revenue. We generally provide maintenance and support for our on-premises clients under annual, or in some cases, multi-year contracts. The contract terms for subscription arrangements range from one to 10 years but are typically contracted for initial periods of three to five years, providing a significant source of recurring revenues on an annual basis. We consider all other revenue categories to be non-recurring revenues.
Recurring revenues and non-recurring revenues recognized during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Software
|
|
Appraisal and Tax
|
|
Corporate
|
|
Totals
|
|
|
|
|
|
|
|
|
|
Recurring revenues
|
|
$
|
204,614
|
|
|
$
|
16,977
|
|
|
$
|
—
|
|
|
$
|
221,591
|
|
Non-recurring revenues
|
|
59,733
|
|
|
13,478
|
|
|
—
|
|
|
73,211
|
|
Intercompany
|
|
5,261
|
|
|
15
|
|
|
(5,276)
|
|
|
—
|
|
Total revenues
|
|
$
|
269,608
|
|
|
$
|
30,470
|
|
|
$
|
(5,276)
|
|
|
$
|
294,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Software
|
|
Appraisal and Tax
|
|
Corporate
|
|
Totals
|
|
|
|
|
|
|
|
|
|
Recurring revenues
|
|
$
|
181,485
|
|
|
$
|
14,603
|
|
|
$
|
—
|
|
|
$
|
196,088
|
|
Non-recurring revenues
|
|
64,691
|
|
|
15,760
|
|
|
2
|
|
|
80,453
|
|
Intercompany
|
|
4,001
|
|
|
18
|
|
|
(4,019)
|
|
|
—
|
|
Total revenues
|
|
$
|
250,177
|
|
|
$
|
30,381
|
|
|
$
|
(4,017)
|
|
|
$
|
276,541
|
|
(14) Deferred Revenue and Performance Obligations
Total deferred revenue, including long-term, by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
Enterprise Software
|
|
$
|
395,374
|
|
|
$
|
422,742
|
|
Appraisal and Tax
|
|
23,551
|
|
|
36,945
|
|
Corporate
|
|
1,693
|
|
|
1,691
|
|
Totals
|
|
$
|
420,618
|
|
|
$
|
461,378
|
|
Changes in total deferred revenue, including long-term, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021
|
Balance as of December 31, 2020
|
|
$
|
461,378
|
|
Deferral of revenue
|
|
231,991
|
|
Recognition of deferred revenue
|
|
(272,751)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2021
|
|
$
|
420,618
|
|
Transaction Price Allocated to the Remaining Performance Obligations
The aggregate amount of transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized ("backlog"), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Backlog as of March 31, 2021, was $1.55 billion, of which we expect to recognize approximately 47% as revenue over the next 12 months and the remainder thereafter.
(15) Commitments and Contingencies
Security Incident
As previously disclosed, we experienced a security incident in September 2020 (the "Incident") involving ransomware disrupting access to some of our internal information technology (IT) systems and telephone systems. Although we believe we have contained and recovered from the Incident, and we have taken and will continue to take appropriate remediation steps, we are subject to risk and uncertainties as a result of the Incident. We have completed our investigation and remediation efforts related to the Incident. For the three months period ended March 31, 2021, we have recorded $215,000 of expenses and recorded approximately $573,000 of accrued insurance recoveries. The recorded costs consist primarily of payments to third-party service providers and consultants, including legal fees, and enhancements to our cybersecurity measures. We maintain cybersecurity insurance coverage in an amount that we believe is adequate.
Litigation
Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject.
(16) Subsequent Events
The following events or transactions have occurred subsequent to March 31, 2021:
On April 21, 2021, the Company consummated the acquisition of NIC contemplated by the Agreement and Plan of Merger dated February 9, 2021, (the “Merger Agreement”), by and among the Company, Topos Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and NIC. On April 21, 2021, Merger Sub merged with and into NIC, with NIC surviving as a wholly owned subsidiary of the Company (the “Merger”). As result of the Merger, NIC became a direct subsidiary of the Company and NIC’s subsidiaries became indirect subsidiaries of the Company.
In connection with the completion of the Merger and on the Closing Date, the Company, as borrower, entered into a new $1.4 billion Credit Agreement with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender. The New Credit Agreement provides for (1) a senior unsecured revolving credit facility in an aggregate principal amount of up to $500 million, including sub-facilities for standby letters of credit and swingline loans (the “Revolving Credit Facility”), (2) an amortizing five-year term loan in the aggregate amount of $600 million (the “Term Loan A-1”), and (3) a non-amortizing three-year term loan in the aggregate amount of $300 million (the “Term Loan A-2”) and, together (the “Term Loans”). The New Credit Agreement matures on April 21, 2026, and the loans may be prepaid at any time, without premium or penalty, subject to certain minimum amounts and payment of any LIBOR breakage costs. In addition to the required amortization payments on the Term Loan A-1 of 5% annually, certain mandatory quarterly prepayments of the Term Loans and the Revolving Credit Facility will be required (i) upon the issuance or incurrence of additional debt not otherwise permitted under the New Credit Agreement and (ii) upon the occurrence of certain asset sales and insurance and condemnation recoveries, subject to certain thresholds, baskets, and reinvestment provisions as provided in the New Credit Agreement. The New Credit Agreement replaces and terminates the Company’s existing $400 million credit facility pursuant to the Credit Agreement dated as of September 30, 2019 (the “2019 Credit Agreement”). The Company’s previously announced commitment from Goldman Sachs Bank USA for a $1.6 billion 364-day senior unsecured bridge loan facility also terminated on the Closing Date.
Borrowings under the Revolving Credit Facility and the Term Loan A-1 will bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) (the “Base Rate”) plus a margin of 0.125% to 0.75% or (2) the one-, three-, six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 1.125% to 1.75%. The Term Loan A-2 will bear interest, at the Company’s option, at a per annum rate of either (1) the Base Rate plus a margin of 0.00% to 0.50% or (2) the one-, three-, or six-, or, subject to approval by all lenders, twelve-month LIBOR rate plus a margin of 0.875% to 1.50%. The margin in each case is based upon the Company’s total net leverage ratio, as determined pursuant to the New Credit Agreement. The New Credit Agreement has customary benchmark replacement language with respect to the replacement of LIBOR once LIBOR becomes unavailable. In addition to paying interest on the outstanding principal of loans under the Revolving Credit Facility, the Company is required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility, initially 0.25% per annum, ranging from 0.15% to 0.30% based upon the Company’s total net leverage ratio.
On the Closing date, the Company paid approximately $2.3 billion in cash for the purchase of NIC. The Term Loans of $900 million and a portion of the proceeds of the Revolving Credit Facility, in the amount of $250 million, together with cash available to the Company of $609 million and the proceeds of its Convertible Senior Notes of $594 million, were used to complete the Merger, and pay fees and expenses in connection with the Merger and the New Credit Agreement. The remaining portion of the Revolving Credit Facility may be used for working capital requirements, acquisitions, and capital expenditures of the Company and its subsidiaries.
The foregoing is a summary of the material terms and conditions of the New Credit Agreement and not a complete description of the New Credit Agreement. Accordingly, the foregoing is qualified in its entirety by reference to the full text of the New Credit Agreement attached to the Current Report on Form 8-K as Exhibit 10.1, dated April 21, 2021, which is incorporated by reference herein.