TYL Tyler Technologies Inc - 10-K

ITEM 1A.    RISK FACTORS.

An investment in our common stock involves a high degree of risk. Investors evaluating our company should carefully consider the factors described below and all other information contained in this Annual Report. These disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. Additional factors and uncertainties not currently known to us or that we currently consider immaterial could also harm our business, operating results, and financial condition. This section should be read in conjunction with the Financial Statements and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report. We may make forward-looking statements from time to time, both written and oral. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements. Our actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this Annual Report.

Risks Associated with Our Business, Including Our Software Products

Cyber-attacks, the use of artificial intelligence and security vulnerabilities can disrupt our business and harm our competitive position.

Threats to IT security can take, and have in the past taken, a variety of forms. Individuals, groups of hackers, and sophisticated organizations, including state-sponsored organizations, may take steps that pose threats to our clients and our IT. Bad actors have in the past and may in the future develop and deploy malicious software to gain access to our internal networks, and/or to attack our products and services, gain access to data centers we use to host client deployments, or act in a coordinated manner to launch distributed denial of service or other coordinated attacks. Cyber threats are constantly evolving, thereby increasing the difficulty of detecting and successfully defending against them. Cyber threats can have cascading impacts that unfold with increasing speed across our internal networks and systems and those of our partners and clients. Breaches of our internal network have disrupted and could in the future disrupt the security of our internal systems and business applications, and could impair our ability to provide services to our clients and protect the privacy of their data, result in product development delays, compromise confidential or technical business information harming our competitive position, result in theft or misuse of our intellectual property or other assets, require us to allocate more resources to improve technologies, or otherwise adversely affect our business. Our business policies and internal security controls may not keep pace with these evolving threats. For example, the evolving use of artificial intelligence (“AI”) increases the risk of cyberattacks and data breaches, which themselves can evolve more rapidly when artificial intelligence is used to facilitate the attack. Despite our network and application security, threat intelligence services, internal control measures, and physical security procedures we employ to safeguard our systems, we may still be vulnerable to a security breach, intrusion, or loss or theft of confidential client data, transaction data, or proprietary company information, which may harm our business, reputation and future financial results. Use of artificial intelligence by our team members, whether authorized or unauthorized, could increase the risk that our intellectual property and other proprietary information may be unintentionally disclosed. In addition, vulnerabilities in our clients’ on-premises infrastructure have in the past and may in the future be exploited by a bad actor, with the resulting impacts being linked to or attributed to, correctly or incorrectly, our software or services, which could also harm our business, reputation, and future financial results, even if our software or services were not the cause of the exploitation. The lost revenue, containment, remediation, investigation, legal and other costs could be significant and may exceed our insurance policy limits or may not be covered by insurance at all. Further, we may be subject to regulatory enforcement actions and litigation that could result in financial judgments, the payment of settlement amounts and/or disputes with insurance carriers concerning coverage.

Disclosure of personally identifiable information and/or other sensitive client data could result in liability and harm our reputation.

We store and process increasingly large amounts of personally identifiable information and other confidential information of our clients. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. Despite our efforts to improve security controls, it is possible our security controls over personal data, our training of employees on data security, and other practices we follow may not prevent the improper disclosure of sensitive client data that we store and manage. The evolving threat landscape, including new technologies that leverage artificial intelligence, may increase the external threats to the data we store and process. Disclosure of personally identifiable information and/or other sensitive client data has resulted in the past, and may result in the future, in obligations to send “data breach” notifications under applicable state laws, or to assist our clients in doing so, which could result in liability and harm our reputation.

We depend on third parties with whom we engage or collaborate for certain projects, deliverables, and/or financial transaction processes. If these parties fail to satisfy their obligations to us or we are unable to maintain these relationships, our operating results and business prospects could be adversely affected.

To satisfy our obligations under client contracts, we often engage third parties to provide certain deliverables or fulfill certain software or services requirements. We may also use third parties to ensure that our services and solutions integrate with the software, systems, or infrastructure requirements of other vendors and service providers used by us internally or by our clients. Our ability to operate our internal systems and/or to serve our clients and deliver our solutions in a timely manner depends on our ability to retain and maintain relationships, including contractual arrangements, with third-party vendors and service providers and the ability of these third parties to meet their obligations in a timely manner, as well as on our effective oversight of their performance. If any third party fails to perform on a timely basis the agreed-upon services, our ability to fulfill our obligations may be jeopardized. Third-party performance deficiencies could result in breaches of our obligations under, or terminations for defaults of, one or more of our client contracts. A breach or termination for default could expose us to liability for damages and have an adverse effect on our business prospects, results of operations, cash flows and financial condition and our ability to compete for future contracts and orders. A global economic slowdown, a pandemic, or similar circumstances could also adversely affect the businesses of our third-party providers, hindering their ability to provide the services on which we rely. Our agreements with third parties typically are non-exclusive and do not prohibit them from working with our competitors or from engaging with our clients directly. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired, and our business, operating results or financial condition could be adversely affected.

In addition, we may act as a subcontractor to a third-party prime contractor to secure new projects. Subcontracting arrangements where we are not the prime contractor pose unique risks to us because we may not have control over the client relationship, and our ability to generate revenues under such subcontracts may depend on the prime contractor, its performance and relationship with the client, and its relationship with us. We could suffer losses in the event a prime contract under which we serve as a subcontractor is terminated, whether for non-performance by the prime contractor or otherwise. Upon a termination of the prime contract, our subcontract would similarly terminate, and the resulting contract loss could have an adverse effect on our business prospects, results of operations, cash flows and financial condition and our ability to compete for future contracts and orders.

We rely on third-party providers—including Amazon Web Services (AWS)—for hosting services and other technology-related services needed to deliver certain of our cloud solutions and other functionality. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.

A material portion of our business is provided through software hosting services, which are generally hosted from and use computing infrastructure provided by third parties, including AWS. These hosting services depend on the uninterrupted operation of data centers and the ability to protect computer equipment and information stored in these data centers against damage that may be caused by natural disaster, fire, power loss, telecommunications or Internet failure, acts of terrorism, unauthorized intrusion, computer viruses, and other similar damaging events. Some of our hosting operations have in the past, and may in the future, become unavailable or inoperable for an extended period, harming our ability to fulfill our contractual commitments. Although we take what we believe to be reasonable precautions against such occurrences, we can give no assurance that damaging events such as these will not result in a prolonged interruption of our services, which could result in client dissatisfaction, loss of revenues, and damage to our business.

Third-party hosting service providers and other third-party vendors have no obligation to renew their agreements with us on commercially reasonable terms or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transition to a new provider and we may incur significant costs and possible service interruption or functional degradation in connection with doing so. In addition, such service providers could decide to close their facilities or change or suspend their service offerings without adequate notice to us. Moreover, any financial difficulties, such as bankruptcy, faced by such service providers may have negative effects on our business, the nature and extent of which are difficult to predict. Because we cannot easily switch third-party hosting service providers, and in certain instances other third-party vendor arrangements, any disruption with respect to our current providers would impact our operations and our business could be adversely impacted. Problems faced by our third-party providers could adversely affect the experience of our clients. For example, AWS has experienced significant service outages in the past and may do so again in the future. As we continue to migrate legacy solutions deployed on premises to the cloud, and to optimize our solutions for the cloud, we may be exposed to additional cybersecurity and artificial intelligence threats.

Material portions of our business require the Internet infrastructure to be reliable.

Significant part of our future success continues to depend on the use of the Internet as a means to access public information and perform transactions electronically, including, for example, electronic filing of court documents and electronic payment processing. This in part requires ongoing maintenance of the Internet infrastructure, especially to prevent interruptions in service, as well as additional development of that infrastructure. This requires a reliable network backbone with the necessary speed, data capacity, security, and timely development of complementary products for providing reliable Internet access and services. If this infrastructure fails to be sufficiently developed or be adequately maintained, our business would be harmed because users may not be able to access our solutions. To date, any such outages have been temporary, and any business interruptions were contained and immaterial.

We employ third-party licensed software and software components for use in or with our solutions, and the inability to maintain these licenses or the presence of errors or security vulnerabilities in the software we license could limit the functionality of our products and result in increased costs or reduced service levels, which would adversely affect our business.

We incorporate and include third-party software into and with certain of our products and solutions. We also use third-party software and tools in certain areas of the development process for our solutions. We anticipate that we will continue to rely on such third-party software and development tools in the future. There can be no assurance that these third parties will continue to make their software or tools available to us on acceptable terms, or at all, not make their products available to our competitors on more favorable terms, invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software, or remain in business. Any impairment in our relationship with these third parties or our ability to license or otherwise use their software or tools could have a material adverse effect on our business, results of operations, cash flow, and financial condition. Although we believe that there are commercially reasonable alternatives to the third-party software and tools we currently license, this may not always be the case, or they may be difficult, time-consuming, or costly to replace. In addition, although we maintain a supplier security evaluation process, if the third-party software or tools we use has or have errors, security vulnerabilities, or otherwise malfunctions, the functionality of our solutions may be negatively impacted, our clients may experience reduced service levels, and our business may suffer. To the extent a third-party relies on artificial intelligence, improper processing of data by those service providers could harm our reputation, business and clients, or expose us to legal liability.

Certain of our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could adversely affect our business.

Certain of our solutions include software covered by open source licenses. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions. It is possible under the terms of certain open source licenses, if we combine our proprietary software with open source software in a certain manner, that we could be required to release the source code of our proprietary software and make our proprietary software available under open source licenses. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our solutions, or otherwise be limited in the licensing of our solutions, each of which could reduce or eliminate the value of our solutions. In addition to risks related to license requirements, use of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with the use of open source software cannot be eliminated and could adversely affect our business.

We run the risk of errors or defects with new products or enhancements to existing products.

Our software products are complex and have in the past, and may in the future, contain errors or defects, especially when first introduced or when new versions or enhancements are released. Any such defects could result in a loss of revenues or delay market acceptance. Our agreements typically contain provisions designed to limit our exposure to potential liability. However, it is possible we may not always successfully negotiate such provisions in our client contracts or the limitation of liability provisions may not be effective due to existing or future federal, state, or local laws, ordinances, or judicial decisions. Although we maintain errors and omissions and general liability insurance, and we try to structure contracts to limit liability, we cannot guarantee that a successful claim could not be made or would not have a material adverse effect on our future operating results.

We must timely adapt to and implement technological changes to be remain competitive.

The market for our products is characterized by rapid technological change, evolving industry standards, ever-changing client requirements, and frequent new product introductions and enhancements. New products, technologies and industry standards can render our existing products obsolete and unmarketable. As a result, our future success will depend, in part, upon our ability to enhance existing products and develop and introduce new products that keep pace with technological developments, satisfy increasingly sophisticated client requirements, and achieve market acceptance. We cannot make assurances that we will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner. The products, capabilities, or technologies developed by others could also render our products or technologies outdated or noncompetitive. Our business may be adversely affected if we are unable to develop or acquire new software products or develop enhancements to existing products on a timely and cost-effective basis, or if such new products or enhancements are not adopted and purchased by the market.

As we assess the challenges and opportunities of incorporating AI technologies into our products and services, we may fail to enhance our offerings in alignment with market demands, timing or industry expectations at a pace that matches our competitors. Delays in our adoption or innovation could render our offerings less competitive or obsolete. AI technology is rapidly evolving. While we are prioritizing a measured approach based on known best practices, the investments required, the need for specialized skills and expertise, and the shifting legal and regulatory landscape may expose us to operational, financial, and reputational risks. Additionally, AI-generated outputs may be misleading, insecure, inaccurate, harmful, or otherwise flawed, potentially resulting in adverse consequences to our business.

We may be unable to protect our proprietary rights.

Many of our product and service offerings incorporate proprietary information, trade secrets, know-how, and other intellectual property rights. We rely on a combination of contract rights, copyrights, and trade secret laws to establish and protect our proprietary rights in our technology. We cannot be certain that we have taken all appropriate steps to deter misappropriation of our intellectual property, including to the extent our data is consumed by generative artificial intelligence technology. There has also been a recent change in the legal standards and regulations that courts and the U.S. patent office may apply in favorably evaluating software patent rights (see the United States Patent and Trademark Office Memorandum dated December 5, 2025 to the Patent Examining Corp from Charles Kim, Deputy Commissioner for Patents regarding the advance notice of change to the Manual of Patent Examining Procedure in light of Ex Parte Desjardins, Appeal No. 2024-000567 (PTAB September 26, 2025, Appeals Review Panel Decision)). We are not currently involved in any material intellectual property litigation; however, we may be a party to such litigation in the future to protect our proprietary information, trade secrets, know-how, and other intellectual property rights. We cannot provide assurance that third parties will not assert infringement or misappropriation claims against us with respect to current or future products. Any claims or litigation, with or without merit, could be time-consuming, costly, and divert the time and attention of management. Any such claims and litigation could also cause product shipment delays or require us to enter into royalty or licensing arrangements. Such royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. Therefore, litigation to defend and enforce our intellectual property rights could have a material adverse effect on our business, regardless of the final outcome of such litigation.

Clients may elect to terminate our recurring contracts and manage operations internally.

We provide annually recurring maintenance contracts for clients who are deployed on-premises and recurring software as a service contracts for clients who are deployed in the cloud. It is possible that our clients may elect to not renew recurring contracts for our software, trying instead to maintain and operate the software themselves using their perpetual license rights (excluding software applications that we provide on a hosted or software as a service basis) or migrating to a different cloud solution. Alternatively, clients may elect to drop maintenance on certain modules that they ultimately decide not to use. This could adversely affect our revenues and profits. Additionally, clients may inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors, which could adversely affect our business.

Risks Associated with Selling Products and Services into the Public Sector Marketplace

Selling products and services into the public sector poses unique challenges.

We derive substantially all of our revenues from sales of software and services to state, county, and city governments, other federal or municipal agencies, and other public entities. We expect that sales to public sector clients will continue to account for substantially all of our revenues in the future. We face many risks and challenges associated with contracting with governmental entities, including:

• Resource limitations caused by budgetary constraints, which may provide for a termination of executed contracts due to a lack of future funding

• Long and complex sales cycles

• Payment terms that are subject to achieving implementation milestones, which have in the past and may in the future create differences in opinion with clients as to whether milestones have been achieved

• Political resistance to the concept of contracting with third parties to provide IT solutions, or resistance to adopting cloud solutions

• Legislative changes affecting a local government’s authority to contract with third parties

• Varying bid procedures and internal processes for bid acceptance

• Various other political factors, including changes in governmental administrations and personnel or budget initiatives

Each of these risks is outside our control. If we fail to adequately adapt to these risks and uncertainties, our financial performance could be adversely affected.

Global health crises, such as a pandemic, may adversely affect our business and results of operations.

A public health crisis, such as a pandemic, may negatively impact our business and financial results. Certain infection rates or virus strains may result in government authorities imposing measures to contain the virus, including travel bans and restrictions, quarantines, and business limitations and shutdowns. While we are unable to accurately predict the full impact that a health crisis or pandemic would have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and associated compliance, a pandemic may negatively impact our revenues and other financial results. Because an increasing portion of our revenues are recurring, the effect of a public health-related shutdown on our results of operations may also not be fully reflected for some time.

A prolonged economic slowdown could harm our operations.

A prolonged economic slowdown or recession could reduce demand for our software products and services. Governments may face financial pressures that could in turn affect our growth rate and profitability in the future. There is no assurance that government spending levels will be unaffected by declining or stagnant general economic conditions, and if budget shortfalls occur, they may negatively impact government IT spending and could adversely affect our business.

The open bidding process creates uncertainty in predicting future contract awards.

Many governmental agencies purchase products and services through an open bidding process. Generally, a governmental entity will publish an established list of requirements requesting potential vendors to propose solutions for the established requirements. To respond successfully to these requests for proposals, we must accurately estimate our cost structure for servicing a proposed contract, the time required to establish operations for the prospective client, and the likely terms of any other third-party proposals submitted. We cannot guarantee that we will win any bids in the future through the request for proposal process, or that any winning bids will ultimately result in contracts on favorable terms. Our failure to secure contracts through the open bidding process, or to secure such contracts on favorable terms, may adversely affect our revenues and gross margins.

We face significant competition from other vendors and potential new entrants into our markets.

Our market is highly fragmented with a large number of competitors that vary in size, product platform, and product scope. Our competitors include consulting firms, publicly held companies that focus on selected segments of the public sector market, and a significant number of smaller, privately held companies. Certain competitors have greater technical, marketing, and financial resources than we do. We cannot assure investors that such competitors will not develop products or offer services that are superior to our products or services or that achieve greater market acceptance.

We also compete with internal, centralized IT departments of governmental entities, which requires us to persuade the end-user to stop the internal service and outsource to us. In addition, our clients and prospective clients could elect to provide information management services internally through new or existing departments, which could reduce the market for our services.

We could face additional competition as other established and emerging companies enter the public sector software market and new products and technologies are introduced. The development of next-generation solutions that utilize advanced features, including artificial intelligence and machine learning, may require us to make predictions about the willingness of the public sector market to adopt such offerings. As we choose to invest in such technologies, we may be required to commit significant resources to maintain the competitiveness of our offerings before knowing whether we have correctly predicted market receptiveness to them.

Increased competition could also result in pricing pressure, fewer client orders, reduced gross margins, and loss of market share. Current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing the ability of their products to address the needs of our prospective clients. It is possible that new competitors or alliances may emerge and rapidly gain significant market share. We cannot assure investors that we will be able to compete successfully against current and future competitors, and the failure to do so could have a material adverse effect upon our business.

Fixed-price contracts may affect our profits.

Some of our contracts are structured on a fixed-price basis, which can lead to various risks, including:

• The failure to accurately estimate the resources and time required for an engagement

• The failure to effectively manage our clients’ expectations regarding the scope of services delivered for a fixed fee

• The failure to timely and satisfactorily complete fixed-price engagements within budget

If we do not adequately assess and manage these and other risks, we may be subject to cost overruns and penalties, which may harm our financial performance.

Changes in the insurance markets may affect our business.

Some of our clients, primarily those for our property appraisal services, require that we secure performance bonds before they will select us as their vendor. In addition, we have in the past been required to provide letters of credit as security for the issuance of a performance bond. We cannot guarantee that we will be able to secure such performance bonds in the future on terms that are favorable to us, if at all. Our inability to obtain performance bonds on favorable terms or at all could impact our future ability to win some contract awards, particularly large property appraisal services contracts, which could negatively impact revenues. In addition, the general insurance markets may experience volatility and/or restrictive coverage trends, which may lead to future increases in our general and administrative expenses and negatively impact our operating results.

Risks Related to Our Indebtedness

Servicing our indebtedness requires a significant amount of cash. If a fundamental change occurs, we may not have sufficient cash flow from our business to pay our indebtedness, and we may not otherwise have the ability to raise the funds necessary to settle for cash conversions of the Convertible Senior Notes or to repurchase the Convertible Senior Notes, or to repay our indebtedness obligations under our 2024 Credit Agreement, each of which could adversely affect our business and results of operations.

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 subfacilities for standby letters of credit and swingline loans. On March 9, 2021, we issued 0.25% Convertible Senior Notes due in 2026 in the aggregate principal amount of $600.0 million (“the Convertible Senior Notes” or “the Notes”). The Convertible Senior Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 9, 2021, with U.S. Bank National Association as trustee.

As of December 31, 2025, we had outstanding an aggregate principal amount of $600 million of our Convertible Senior Notes and none under our 2024 Credit Agreement. Our indebtedness may increase our vulnerability to any generally adverse economic and industry conditions, and we and our subsidiaries may, subject to the limitations in the terms of our existing and future indebtedness, incur additional debt, secure existing or future debt or recapitalize our debt. If we incur additional indebtedness, the risks related to our business would increase and our ability to service or repay our indebtedness may be adversely impacted.

Holders may convert their Convertible Senior Notes at their option prior to the scheduled maturity date of the Convertible Senior Notes, March 15, 2026. Upon conversion of the Convertible Senior Notes, we elect to deliver shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share). In addition, holders of our Convertible Senior Notes will have the right to require us to repurchase their Convertible Senior Notes upon the occurrence of a fundamental change (as defined in the Indenture, dated as of March 9, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”) (the “Indenture”)), at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest, if any. Although it is our intention, and we currently expect to have the ability, to settle the Convertible Senior Notes in cash, there is a risk that we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Senior Notes surrendered or Convertible Senior Notes being converted. In addition, our ability to make payments may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Convertible Senior Notes at a time when the repurchase is required by the Indenture or to pay any cash payable on future conversions of the Convertible Senior Notes as required by the Indenture would constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other existing or future indebtedness. If the repayment of other indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the other indebtedness and repurchase the Convertible Senior Notes or make cash payments upon conversions thereof. We have elected net-share settlement related to the premium of the maturing Convertible Senior Note, we may settle our conversion obligation by delivering a potential number of shares of our common stock, which could cause dilution to our existing shareholders.

Our ability to make scheduled payments of the principal and interest on our indebtedness when due or to make payments upon conversion or repurchase demands with respect to our Convertible Senior Notes, or to refinance our indebtedness as we may need or desire, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to satisfy our obligations under our existing indebtedness, and any future indebtedness we may incur, and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance existing or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our existing or future indebtedness and have a material adverse effect on our business, results of operations, and financial condition.

Covenant restrictions under our indebtedness may limit our ability to operate our business and may adversely affect our financial condition, results of operations, and earnings per share.

The Indenture governing the Convertible Senior Notes and the 2024 Credit Agreement do contain, and our future indebtedness agreements may contain, covenants that restrict our ability to finance future operations or capital needs or to engage in other business activities. Subject to customary carve-outs, thresholds and baskets, the 2024 Credit Agreement (and the Indenture by means of a cross-default) restricts, absent consent of the agent and lenders under the 2024 Credit Agreement, our ability and the ability of our restricted subsidiaries to, among other things:

•    Incur additional indebtedness,

•    Permit liens on our assets,

•    Make certain investments, acquisitions and dispositions,

•    Make certain specified fundamental changes, and

•    Make certain restricted payments.

In addition, the 2024 Credit Agreement (and the Indenture by means of a cross-default) contains other customary affirmative and negative covenants, and events of default. The 2024 Credit Agreement is unsecured but requires us to maintain certain financial ratios regarding our total leverage and other financial conditions in addition to the restrictions described above. Events beyond our control, including changes in general economic and business conditions, may result in a breach of any of these covenants and result in a default under the 2024 Credit Agreement that may, in turn, result in a default under the Indenture. If an event of default under the 2024 Credit Agreement occurs, the lenders could terminate all commitments to lend and elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If we were unable to pay such amounts, the lenders could proceed against the guarantees by our direct and indirect material domestic subsidiaries. Should the lenders proceed against the guarantees, we cannot give assurance that we would have sufficient assets to pay amounts due on the 2024 Credit Agreement and the Convertible Senior Notes.

Variable rate indebtedness subjects the Company to interest rate risk, which could cause our debt service obligations to increase significantly.

Our borrowings under the 2024 Credit Agreement are, and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. Loans under the revolving credit facility will bear interest, at the Company’s option, at a per annum rate of either (1) the Administrative Agent’s prime commercial lending rate (subject to certain higher rate determinations) plus a margin of 0.125% to 0.75% or (2) the one-, three-, or six-month SOFR rate plus a margin of 1.125% to 1.75%. The margin in each case is based upon Tyler’s total net leverage ratio, as determined pursuant to the 2024 Credit Agreement. In addition to paying interest on the outstanding principal of loans under the revolving credit facility, the Company is required to pay a commitment fee initially in the amount of 0.125% per annum, which will subsequently range from 0.125% to 0.25% based upon the Company’s total net leverage ratio.

Fluctuation in inflation and interest rate could adversely affect our financial condition and results of operations.

Our liquidity and ongoing access to capital could be materially and negatively affected by volatility in the financial and securities markets, including increased inflation and interest rates. Our continued access to sources of liquidity depends on multiple factors, including global macroeconomic conditions, the condition of global financial markets, the availability of sufficient amounts of financing, the Federal Reserve’s monetary policy and our operating performance. There have been periods of increased volatility in the financial and securities markets, as well as increased inflation and interest rates, which generally have made access to capital less certain and have increased the cost of obtaining new capital, and future volatility may create similar risks. We may need to obtain equity, equity-linked, or debt financing in the future to fund our operations, including our acquisition strategy, and there is no guarantee that such debt financing will be available in the future, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding.

Risks Associated with Our Periodic Results and Stock Price

Fluctuations in quarterly revenues could adversely impact our operating results and stock price.

Our revenues and operating results can be difficult to predict and may fluctuate substantially from quarter to quarter for a variety of reasons, including:

• Clients may unexpectedly postpone or cancel procurement processes due to changes in strategic priorities, project objectives, budget, or personnel

• Client purchasing processes vary significantly and a client’s internal approval, expenditure authorization, and contract negotiation processes can be difficult and time consuming to complete, even after selection of a vendor

• The number, timing, and significance of software product enhancements and new software product announcements by us and our competitors may affect purchase decisions

• The size of license transactions can vary significantly

In each fiscal quarter, our expense levels, operating costs, and staffing levels are based to some extent on projections of future revenues and are relatively fixed. If our actual revenues fall below expectations, we could experience a reduction in earnings. Also, if actual revenues or earnings for any given quarter fall below expectations, it may lead to a decline in our stock price.

Increases in our investment in research and development could decrease overall margins.

An important element of our corporate strategy is to continue to dedicate a significant amount of resources to research and development and related product and service opportunities, both through internal investments and the acquisition of intellectual property from companies that we have acquired. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position, and research and development expense could adversely affect operating margins.

Our stock price may be volatile.

The market price of our common stock may be volatile. Examples of factors that may significantly impact our stock price include:

• Actual or anticipated fluctuations in our operating results

• Announcements of technological innovations, new products, or new contracts by us or our competitors, including uncertainties surrounding new and evolving artificial intelligence tools that could be perceived automate functions that may reduce the demand for certain products and services

• Developments with respect to patents, copyrights, or other proprietary rights

• Conditions and trends in the software and other technology industries

• Changes in financial estimates by securities analysts

• Changes in interest rates and Federal Reserve monetary policy

• General political, economic and market conditions and other factors

In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices of technology company stocks, which have in the past and may in the future adversely affect the market price of our stock. Sometimes, securities class action litigation is filed following periods of volatility in the market price of a particular company’s securities. We cannot assure investors that similar litigation will not occur in the future with respect to us. Such litigation could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect upon our financial performance.

Our financial outlook may not be realized.

From time to time, in press releases and otherwise, we may publish forecasts or other forward-looking statements regarding our results, including estimated revenues or earnings. Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and as a matter of course, any number of them may prove to be incorrect. Further, the achievement of any forecast depends on numerous risks and other factors (including those described in this discussion), many of which are beyond our control. As a result, we cannot be certain that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Current and potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information regarding us, our products and services, and the software industry when evaluating our prospective results of operations.

Risks Associated with Our Growth Strategy and Other General Corporate Risks

We may experience difficulties in executing our acquisition strategy.

A material portion of our historical growth has resulted from strategic acquisitions, and we expect to continue to identify and pursue strategic acquisitions with suitable candidates. These transactions involve significant challenges and risks, including risks that a transaction does not advance our business strategy; that we do not achieve the expected return on our investment; that we have difficulty integrating business systems and technology; that we have difficulty retaining or integrating new employees; that the transactions distract management from our other businesses; that we acquire unforeseen liabilities; and other unanticipated events. Our future success will depend, in part, on our ability to successfully integrate future acquisitions into our operations. It may take longer than expected to realize the full benefits of these transactions, such as increased revenue, enhanced efficiencies, or increased market share, or the benefits may be ultimately less than we expected. Although we conduct due diligence reviews of potential acquisition candidates, we may not identify all material liabilities or risks related to acquisition candidates. There can be no assurance that any such strategic acquisitions will be accomplished on favorable terms or will result in profitable operations.

Our failure to properly manage growth could adversely affect our business.

We continue to expand our operations by pursuing existing and potential market opportunities. This growth places significant demands on management and operational resources. In order to manage growth effectively, we must implement and improve our operational systems, procedures, and controls on a timely basis. If we fail to implement these systems, our business may be materially adversely affected.

Increases in labor costs, including wages, and an overall tightening of the U.S labor market, generally, or as the result of changing U.S. policy could adversely affect our business, results of operations or financial condition.

The labor costs associated with our business are subject to several external factors, including unemployment levels and the quality and the size of the labor market, prevailing wage rates, minimum wage laws, wages and other forms of remuneration and benefits offered to prospective employees by competitor employers, health insurance costs and other insurance costs, and changes in employment and labor legislation or other workplace regulation, such as changing immigration policies affecting the labor market. If we are unable to mitigate wage rate increases driven by increases to the competitive labor market through automation and other labor savings initiatives, our labor costs may increase. Furthermore, high inflation rates could also push up our labor costs. There is no assurance that our revenues will increase at the same rate as these labor cost increases to maintain the same level of profitability.

In the event we must offer increased wages or other competitive benefits and incentives to attract and retain qualified personnel and fail to do so, the quality of our workforce could decline, causing certain aspects of our business to suffer. Increases in labor costs could force us to increase our prices, which could adversely impact sales. Although we have not experienced any material labor shortage to date, we have observed an overall tightening and increasingly competitive labor market and have recently experienced and expect to continue to experience some labor cost pressures. If we are unable to hire and retain capable employees, manage labor cost pressures, or if mitigating measures we take in response to increased labor costs have unintended negative effects, including on client service or retention, our business would be adversely affected. If competitive pressures or other factors prevent us from offsetting increased labor costs, our profitability may decline and could have an adverse effect on our business, results of operations or financial condition.

We may be unable to hire, integrate, and retain qualified personnel.

Our continued success will depend upon the availability and performance of our key management, sales, marketing, client support, and product development personnel. The loss of key management or technical personnel could adversely affect us. We believe that our continued success will depend in large part upon our ability to attract, integrate, and retain such personnel. We have at times experienced and may continue to experience challenges in recruiting qualified personnel. Competition for qualified software development, sales, and other personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. In addition, competitive job markets may increase our costs relating to compensation packages due to higher salary expectations and pressures.

Compliance with changing regulation of corporate governance may result in additional expenses.

Changing laws, regulations, and standards relating to corporate governance, compliance, and public disclosure can create uncertainty for public companies. The costs required to comply with such evolving laws across the various states and at the federal level are difficult to predict and/or harmonize. To maintain high standards of corporate governance, compliance, and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. This investment may result in an unforeseen increase in general and administrative expense and a diversion of management’s time and attention from revenue-generating activities, which may harm our operating results.

Evolving legal and regulatory landscape over artificial intelligence technologies creates uncertainties.

There is uncertainty about the extent to which privacy and data protection laws apply to artificial intelligence technologies, and any delay in addressing those concerns may result in liability or regulatory investigations and fines, as well as harms to our business and reputation. In addition, issues related to intellectual property rights in artificial intelligence technologies have not been fully addressed by the courts or regulators. As such, to the extent we implement generative artificial intelligence technologies into our products and/or services, we may face resulting exposure to claims related to copyright infringement or other intellectual property misappropriation.

We do not foresee paying dividends on our common stock.

We have not declared nor paid a cash dividend since we entered the software business in 1998. We intend to retain earnings for use in the operation and expansion of our business. We do not anticipate paying cash dividends on our common stock in the foreseeable future.

Provisions in our certificate of incorporation, bylaws, and Delaware law could deter takeover attempts.

Our Board of Directors may issue up to 1,000,000 shares of preferred stock and may determine the price, rights, preferences, privileges, and restrictions, including voting and conversion rights, of these preferred shares. These determinations may be made without any further vote or action by our stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may make it more difficult for a third-party to acquire a majority of our outstanding voting stock. In addition, some provisions of our Certificate of Incorporation, Bylaws, and the Delaware General Corporation Law could also delay, prevent, or make more difficult a merger, tender offer, or proxy contest involving us.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. For a comparison of our Results of Operations for the years ended December 31, 2024, and 2023, and our Cash Flow discussion for the year ended December 2024, see “Part II, Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 19, 2025.

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, including local, state and federal government agencies, that could negatively impact information technology spending; (2) disruption to our business and harm to our competitive position resulting from cyber-attacks, evolving use of artificial intelligence (“AI”), security vulnerabilities and software updates, or changes in our ability to access third-party software and services; (3) our ability to protect client information from security breaches or misuse through AI and to provide uninterrupted operations of data centers; (4) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (5) material portions of our business require the Internet infrastructure to be adequately maintained; (6) our ability to actively monitor developments in AI regulation and ethical standards as we expect that future changes in the regulatory landscape may affect our product development timelines, compliance costs, and market opportunities related to AI; (7) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (8) general economic, political and market conditions, including inflation and changes in interest rates; (9) technological and market risks associated with the development of new technologies, products or services or of new versions of existing or acquired products or services; (10) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (11) the ability to attract and retain qualified personnel and dealing with rising labor costs, the loss or retirement of key members of management or other key personnel; and (12) costs of compliance and any failure to comply with government and stock exchange regulations. These factors and other risks that affect our business are described in Item 1A, “Risk Factors”. We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

OVERVIEW

General

We provide integrated information management solutions and services for the public sector. We develop and market a broad line of software products and services to address the information technology (“IT”) needs of public sector entities. We provide subscription-based services such as software as a service (“SaaS”) and transaction-based services primarily related to digital government services and payment processing. In addition, we provide professional IT services to our clients, including software and hardware installation, data conversion, training, and for certain clients, product modifications, along with continuing maintenance and support for clients using our systems. Additionally, we provide property appraisal services for taxing jurisdictions .

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 Chief Operating Decision Maker (“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

See Note 2, “Segment and Related Information,” in the notes to the financial statements for additional information.

Recent Acquisitions

On December 2, 2025, we acquired Edu.Link, Inc. (“Edulink”). Edulink is a SaaS company focused on educator evaluation, performance management, professional development, and compliance tracking geared specifically to the unique needs of K-12 schools. The total cash purchase price, net of cash acquired of $716,000, was approximately $37.3 million, subject to certain post-closing adjustments, including holdbacks of $2.5 million.

On November 19, 2025, we acquired CloudGavel, LLC (“CG”). CG is a SaaS company specializing in cloud electronic warrant solutions that allows for real time interaction for judges and law enforcement personnel. The total cash purchase price, net of cash acquired of $147,000, was approximately $16.6 million, subject to certain post-closing adjustments, including holdbacks of $2.9 million.

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

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

The actual operating results of Edulink,CG, EN, and MyGov, from their respective dates of acquisition, are included in the operating results of the ES segment.

We did not complete any acquisitions during the twelve months ended December 31, 2024.

2025 Operating Results

For the twelve months ended December 31, 2025, total revenues increased 9.1% compared to the prior period, primarily due to an increase in subscription revenue.

Subscriptions revenue grew 18.1% for the twelve months ended December 31, 2025, primarily due to an ongoing shift toward SaaS arrangements for both new and existing clients, along with growth in certain transaction-based revenues. 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 four primary sources: subscription-based arrangements from SaaS and transaction-based fees; maintenance; professional services; and software licenses and royalties. Subscriptions and maintenance are considered recurring revenue sources and comprised approximately 87% of our revenues in 2025. The number of new SaaS clients and the number of existing clients who convert from our traditional software arrangements to our SaaS model are a significant driver of our revenue growth, together with transaction-based revenues and maintenance rate increases. In addition, we also monitor our client base and attrition, which historically is very low. During 2025, based on our number of clients, attrition was approximately 2%.

Annualized Recurring Revenues (“ARR”) - Subscriptions and maintenance are considered recurring revenue sources. ARR is calculated by annualizing the current quarter ’ s recurring revenues from maintenance and subscriptions as reported in our statement of income. Management believes ARR is an indicator of the annual run rate of our recurring revenues, as well as a measure of the effectiveness of the strategies we deploy to drive revenue growth over time. ARR is a metric widely used by companies in the technology sector and by investors, which we believe offers insight into the stability of our maintenance and subscription revenues to be recognized within the year.

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. Transaction-based revenues are historically highest in the second quarter, which coincides with peak outdoor recreation seasons and statutory filing deadlines in many jurisdictions, and lowest in the fourth quarter due to fewer business days and lower transaction volumes around holidays. Because ARR is an annualized revenue amount, the metric can fluctuate from quarter to quarter due to this seasonality.

ARR was $2.06 billion and $1.86 billion for the periods ending December 31, 2025, and 2024, respectively. ARR increased approximately 11% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements for both new and existing clients and expansion in transaction-based fee arrangements.

Cost of Revenues and Gross Margins – Our primary cost components are hosting costs, merchant fees, and personnel expenses in connection with providing software implementation, subscription-based services and maintenance and support to our clients. 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 relatively low incremental cost, such as subscription-based services, maintenance and support and software licenses and royalties. Continued migration of clients to our SaaS products and consolidation of versions of on-premises software products with support obligations could decrease support costs with resources redeployed toward development. As of December 31, 2025, our total employee count included in cost of revenues declined to 5,073 from 5,250 at December 31, 2024.

Sales and Marketing (“S&M”) Expense – The primary components of S&M expense include sales personnel salaries and share-based compensation expense, sales commissions, travel-related expenses, advertising and marketing materials, and allocated depreciation, facilities, and IT support. Sales commissions typically fluctuate with revenues and share-based compensation expense generally increases based on increased levels of awards issued during the period and as the market price of our stock increases. Other S&M expenses tend to grow at a slower rate than revenues.

General and Administrative (“G&A”) Expense – The primary components of G&A expense include personnel salaries and share-based compensation expense for general corporate functions, including senior management, finance, accounting, legal, human resources and corporate development, third-party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, acquisition-related expenses and other administrative expenses. Share-based compensation expense generally increases based on increased level of awards issued during the period and as the market price of our stock increases. Other administrative expenses tend to grow at a slower rate than revenues.

Research and development (“R&D”) Expense – These costs include compensation costs and share-based compensation expense for engineering and product management personnel, third-party contractor expenses, software development tools and other expenses related to researching and developing new solutions or upgrading and enhancing existing solutions that do not qualify for capitalization, and allocated depreciation, facilities and IT support costs. Share-based compensation expense generally increases based on increased level of awards issued during the period and as the market price of our stock increases. As of December 31, 2025, our total employee count included in R&D expense increased to 1,368 from 870 at December 31, 2024.

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 software development, debt repayment and discretionary purchases of treasury stock. Our working capital needs are fairly stable throughout the year with the significant components of cash inflows representing collection of accounts receivable and cash receipts from clients in advance of revenue being earned, offset by cash outflows, primarily payment of personnel expenses. In recent years, we have also received significant amounts of cash from employees exercising stock options and contributing to our Employee Stock Purchase Plan.

Balance Sheet – Cash, accounts receivable and deferred revenue balances are important indicators of our business.

Outlook

ARR was $2.06 billion and $1.86 billion for the periods ending December 31, 2025, and 2024, respectively, an increase of approximately 11% compared to the prior period. The public sector software market continues to experience heightened activity. We expect to continue to achieve solid growth in revenues and earnings. With our strong financial position and cash flow, we plan to continue to make significant investments in product development and continue to accelerate our move to the cloud to better position us to continue to expand our addressable market and strengthen our competitive position over the long term.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements. These financial statements have been prepared following the requirements of accounting principles generally accepted in the United States (“GAAP”) and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. 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. The discussion below supplements Note 1, “Summary of Significant Accounting Policies,” within the notes to the consolidated financial statements.

Revenue Recognition. Our software arrangements with clients contain multiple performance obligations that include software license deliveries, installation, training, consulting, software modification and customization to meet specific client needs; hosting; and post-contract client support (“PCS”). For these contracts, we evaluate whether separate performance obligations can be distinct or should be accounted for as one performance obligation. Arrangements that include professional services, such as training or installation, are evaluated to determine whether those services are highly interdependent or interrelated to the product’s functionality.

Business Combinations. Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets acquired and liabilities assumed at their respective fair values. The determination of fair value requires the use of significant estimates and assumptions, and in making these determinations, we use all available information.

For tangible and identifiable intangible assets acquired in a business combination, management estimates the fair value of assets acquired, along with their useful lives, and liabilities assumed based on factors including quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. The assumptions made in performing these valuations include, but are not limited to, discount rates, future revenues and operating costs, projections of capital costs, and other assumptions believed to be consistent with those used by principal market participants.

We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date as we obtain new information about facts and circumstances that existed as of the closing date. If actual results are materially different than the assumptions we used to determine fair value of the assets acquired and liabilities assumed through a business combination as well as the estimated useful lives of the acquired intangible assets, it is possible that adjustments to the carrying values of such assets and liabilities will have a material impact on our financial position and results of operations.

Goodwill and Other Intangible Assets . We perform an impairment assessment annually on October 1, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of each reporting unit’s goodwill. Qualitative factors include general economic conditions, market conditions, actual or expected financial performance, a sustained decrease in share price or other changes in the reporting units that are judgmentally weighted. Quantitative factors may include estimates of future revenues, operating costs, and capital costs, growth rates, and discount rates reflecting the judgmental assessment of risk in those assumptions.

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, measured by comparison of the carrying amount to estimated undiscounted future cash flows. 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 or changes in estimates could have a significant impact on the recoverability of goodwill or other intangible assets.

RECENT ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In July 2025, the FASB issued ASU 2025-05 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. This guidance provides a practical expedient available to all entities to simplify the estimation of the expected credit losses for current accounts receivables and current contract assets arising from revenue contracts under ASC 606. It is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual reporting periods, with early adoption permitted. As of December 31, 2025, we adopted this standard. Due to most of our clients being domestic governmental entities, we rarely incur a credit loss resulting from the inability of a client to make required payment; as such, this standard did not have a material impact on the Company’s financial statements.

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

In December 2023, the FASB issued ASU 2023-09 - Income Taxes (Topic ASC 740) Income Taxes . The ASU improves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 with early adoption permitted. As of December 31, 2025, we adopted this standard and it has been applied prospectively. This change did not have a significant impact on the Company’s financial statements and disclosures. The Company’s income tax disclosures have been updated to comply with the new requirements, including enhanced disaggregation in the rate reconciliation and additional information regarding income taxes paid by jurisdiction. See Note 13, “Income Tax,” for further discussion.

RECENTLY PRONOUNCED ACCOUNTING STANDARDS

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

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

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, 2025 and 2024:

Percent of Total Revenues

Years Ended December 31,

Revenues:

Subscriptions

Maintenance

Professional services

Software licenses and royalties

Hardware and other

Total revenues

Cost of revenues:

Subscriptions, maintenance, and professional services

Software licenses, royalties, and amortization of acquired software

Amortization of software development

Hardware and other

Sales and marketing expense

General and administrative expense

Research and development expense

Amortization of other intangibles

Operating income

Interest expense

Other income, net

Income before income taxes

Income tax provision

Net income

2025 Compared to 2024

Revenues

Subscriptions

The following table sets forth a comparison of our subscriptions revenue for the listed years ended December 31 ($ in thousands):

Change

Total subscriptions revenue

Subscriptions revenue consists of revenues derived from our SaaS arrangements and transaction-based fees primarily related to digital government services and payment processing.

SaaS fees

The following table sets forth a comparison of our subscriptions revenue derived from SaaS fees for the listed years ended December 31 ($ in thousands):

Change

Total SaaS fees revenue

For the twelve months ended December 31, 2025, SaaS fees increased compared to the prior period. The growth is primarily attributable to new SaaS clients as well as existing on-premises clients who converted to our SaaS model. Since December 31, 2024, we have added 612 new SaaS clients, while 488 existing on-premises clients have converted to our SaaS offerings. Our new software contract mix for the twelve months ended December 31, 2025, was 11% perpetual software license arrangements and approximately 89% subscription-based arrangements, compared to approximately 12% perpetual software license arrangements and approximately 88% subscription-based arrangements for the twelve months ended December 31, 2024.

Transaction-based fees

The following table sets forth a comparison of our subscriptions revenue derived from transaction-based fees for the listed years ended December 31 ($ in thousands):

Change

Total transaction-based fees revenue

For the twelve months ended December 31, 2025, contributing to the growth in transaction-based fees compared to prior period are the new transaction clients, volume increases from online payments and e-filing services, and price increases by certain third-party processing partners from whom we receive a share of revenues.

Maintenance

The following table sets forth a comparison of our maintenance revenue for the listed years ended December 31 ($ in thousands):

Change

Total maintenance revenue

We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue decreased 4% compared to the prior period primarily due to the impact of 488 clients converting from on-premises license arrangements to SaaS, partially offset by maintenance price increases.

Professional services

The following table sets forth a comparison of our professional services revenue for the listed years ended December 31 ($ in thousands):

Change

Total professional services revenue

Professional services revenue primarily consists of professional services billed in connection with implementing our software, converting client data, training client personnel, custom development activities, consulting, and property appraisal services. New clients who implement our software generally contract with us to provide the related professional services. Existing clients also periodically purchase additional training, consulting and minor programming services.

Professional services revenue decreased 8% compared to the prior period. The decrease is primarily due to loss reserves related to agencies within two state governments. The remainder of the decrease in professional services revenues compared to the prior period is related to an intentional reduction in custom development work as well as efficiencies in the delivery of professional services.

Software licenses and royalties

The following table sets forth a comparison of our software licenses and royalties revenue for the listed years ended December 31 ($ in thousands):

Change

Total software licenses and royalties revenue

Software licenses and royalties revenue decreased 51% compared to the prior period primarily due to a loss reserve for remaining exposure related to a contract dispute previously disclosed. The remainder of the decline is due to the ongoing shift in the mix of new software contracts toward more SaaS offerings. Refer to the SaaS revenue section for further details on our revenue mix shift.

We expect that software license revenues will continue to decline as we shift our model away from perpetual software license to SaaS.

Cost of revenues and overall gross margins

The following table sets forth a comparison of the key components of our cost of revenues for the listed years ended December 31 ($ in thousands):

Change

Subscriptions, maintenance, and professional services

Software licenses and royalties

Amortization of software development

Amortization of acquired software

Hardware and other

Total cost of revenues

Subscriptions, maintenance, and professional services.

The following table sets forth a comparison of our costs of subscriptions, maintenance, and professional services for the listed years ended December 31 ($ in thousands):

Change

Subscriptions, maintenance, and professional services

Cost of subscriptions, maintenance and professional services primarily consist of personnel costs related to installation of our software, conversion of client data, training client personnel, public cloud hosting costs, support activities, and various other services such as custom development, ongoing operation of our SaaS solutions, property appraisal outsourcing activities, digital government services, and other transaction-based services such as e-filing. Other costs included are merchant and interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.

In 2025, the cost of subscriptions, maintenance and professional services grew 3% compared to the prior period. The increase is primarily due to a $25.4 million increase in merchant fees and other third-party fees related to higher transaction volumes, a $21.0 million increase in hosting costs, and a $4.8 million increase in stock-based compensation expense. The increase was partially offset by the redeployment of resources to research and development due to continued migration of clients to our SaaS products and the consolidation of versions of on-premises software products with support obligations.

Software licenses and royalties .

The following table sets forth a comparison of our costs of software licenses and royalties for the listed years ended December 31 ($ in thousands):

Change

Software licenses and royalties

Costs of software licenses and royalties primarily consist of direct third-party software costs. We do not have any direct costs associated with royalties. The cost of software licenses and royalties for the twelve months ended December 31, 2025, grew 28%, compared to the prior period due to higher third-party software costs.

Amortization of software development.

The following table sets forth a comparison of our amortization of software development for the listed years ended December 31 ($ in thousands):

Change

Amortization of software development

Amortization of software development costs included in cost of revenues primarily consist of personnel costs which were previously capitalized. We begin to amortize capitalized costs when a product is available for general release to clients. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the software’s remaining estimated economic life of, generally, three to seven years.

In 2025, amortization of software development costs increased 21% compared to the prior period due to new capitalized software development projects going into service in the past year.

Amortization of acquired software.

The following table sets forth a comparison of our amortization of acquired software for the listed years ended December 31 ($ in thousands):

Change

Amortization of acquired software

Amortization expense related to acquired software attributed to business combinations is included with cost of revenues. The estimated useful lives of acquired software range from five to 10 years.

In 2025, amortization of acquired software increased 1% compared to the prior period due to amortization of newly acquired software from recent acquisitions completed in fiscal year 2025.

The following table sets forth a comparison of gross profit and overall gross margin for the periods presented as of December 31:

Change

Total gross profit

Overall gross margin

Overall gross margin . Our 2025 blended gross margin increased 2.7% compared to 2024. The increase in overall gross margin compared to the prior period is primarily attributed to a shift in our revenue mix toward higher-margin SaaS revenues. Also contributing to the increase in overall gross margin in 2025 is the redeployment of resources to research and development due to continued migration of clients to our SaaS products and consolidation of versions of on-premises software products with support obligations. The increase is partially offset by declines in software licenses, maintenance and professional services revenues and increases in merchant fees, hosting costs, and software development amortization expense.

Sales and marketing expense

Sales and marketing (“S&M”) expense consists primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing costs. The following table sets forth a comparison of our S&M expense for the years ended December 31 ($ in thousands):

Change

Sales and marketing expense

S&M expense as a percentage of revenues was 6.4% in 2025 compared to 7.4% in 2024. S&M expense decreased 6% compared to the prior period. The decrease in S&M expense is primarily attributed to an increase in compensation capitalized as contract acquisition costs compared to the prior period.

General and administrative expense

General and administrative (“G&A”) expense consists primarily of personnel salaries and share-based compensation expense for general corporate functions including senior management, finance, accounting, legal, human resources and corporate development, as well as third-party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, amortization of software development for internal use, acquisition-related expenses and other administrative expenses. The following table sets forth a comparison of our G&A expense for the listed years ended December 31 ($ in thousands):

Change

General and administrative expense

G&A expense as a percentage of revenue was 13.6% in 2025 compared to 14.1% in 2024. G&A expense increased 5% compared to the prior period. The increase in G&A expense is primarily attributed to a $8.7 million increase in personnel expenses, a $4.9 million increase in professional fees expense, and a $4.4 million increase in share-based compensation expense due to the higher stock price for share-based awards issued in the current period. These increases are partially offset by a decline in bonus expense due to greater outperformance related to targets in 2024, compared to 2025.

Research and development expense

Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development. Research and development expense consists mainly of costs associated with development of new products and new functionality in our current SaaS products. The following table sets forth a comparison of our research and development expense for the listed years ended December 31 ($ in thousands):

Change

Research and development expense

Research and development expense as a percentage of revenue was 8.8% in 2025 compared to 5.5% in 2024. Research and development expense increased 73% in 2025 compared to the prior period, with the majority of the increase due the redeployment of resources to research and development resulting from the continued migration of clients to our SaaS products and version consolidation of on-premises software products with support obligations, together with increased investments in a number of new Tyler product development initiatives across our product suites including investments in artificial intelligence. The remainder of the increase is attributed to a $16.7 million increase in share-based compensation expense in 2025 compared to the prior period.

Amortization of other intangibles

Other intangibles represents the portion of the purchase price allocated to the identified intangible assets for client-related intangibles, trade names, and leases acquired. 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 other intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years. The following table sets forth a comparison of amortization of other intangibles for the listed years ended December 31 ($ in thousands):

Change

Amortization of other intangibles

In 2025, amortization of other intangibles decreased 5% compared to the prior period due to the impact of certain trade name intangible assets becoming fully amortized as a result of accelerated amortization expense in 2024, partially offset by the impact of amortization of new other intangibles from acquisitions completed in 2025.

Estimated annual amortization expense relating to client related, trade name, and leases acquired intangibles, excluding acquired software for which the amortization expense is recorded as cost of revenues, for the next five years and thereafter is as follows (in thousands):

Thereafter

Segment Operating Income

The following table sets forth a comparison of the operating income by reportable segments for the listed years ended December 31 ($ in thousands):

Segment Operating Income (loss):

Change

The increase of 21% in the ES segment operating income in 2025 is primarily due to the $215.0 million increase in subscription revenues as a result of the ongoing shift toward SaaS arrangements for both new and existing clients, along with growth in certain transaction-based revenues from new and existing customers. The increase is partially offset by lower revenues of $34.0 million compared to prior period from software licenses, maintenance, and professional services, including a loss reserve of approximately $9.7 million of remaining exposure related to a contract dispute previously disclosed. Also partially offsetting the increase in segment operating income is an increase in total personnel expense of $22.1 million and an increase in total hosting costs of $18.2 million compared to the prior period.

The decrease of 9% in the PT segment operating income in 2025 is primarily due to loss reserves of approximately $10.7 million for two state contracts, primarily impacting lower revenue from professional services, as well as higher merchant fees. Somewhat offsetting the decline in the PT segment operating income is an increase in subscription revenues compared to prior period.

See Note 2 “Segment and Related Information” for a reconciliation between our operating segment and consolidated financial results for the periods presented.

Interest expense

The following table sets forth a comparison of our interest expense for the listed years ended December 31 ($ in thousands):

Change

Interest expense

Interest expense is comprised of interest expense and non-usage and other fees associated with our borrowings . Interest expense decreased 16% compared to the prior period primarily due to a reduction in interest incurred as a result of our repayment of the Term Loans in early 2024.

Other income, net

The following table sets forth a comparison of our other income, net for the listed years ended December 31 ($ in thousands):

Change

Other income, net

Other income, net, is primarily comprised of interest income from invested cash. The change in other income, net, compared to the prior period is due to increased interest income generated from higher invested cash balances in 2025 compared to 2024. Also contributing to the increase in other income is dividend income of $1.8 million received in 2025; no dividend income received in 2024.

Income tax provision

The following table sets forth a comparison of our income tax provision for the listed years ended December 31 ($ in thousands):

Change

Income tax provision

Effective income tax rate

The increase in the income tax provision in 2025 compared to the prior period is primarily due to higher income before taxes and state income taxes and decreases in excess tax benefits from share-based compensation and research tax credits, offset by lower uncertain tax positions. The increase in the effective income tax rate in 2025 is driven by lower excess tax benefits from share-based compensation and research tax credit benefits and an increase in state taxes, offset by lower uncertain tax positions. The tax benefits related to research tax credits totaled $18.4 million in 2025 compared to $22.1 million in 2024. The tax expense related to uncertain tax positions in 2025 was $2.1 million compared to $10.1 million in 2024. The share-based exercise and vesting activity in 2025 generated $15.0 million of excess tax benefits, while exercise and vesting activity in 2024 generated $21.1 million of excess tax benefits.

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

On July 4, 2025, the reconciliation bill, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA includes a broad range of tax reform provisions that may affect our Company. The OBBBA allows an elective deduction for domestic Research and Development (“R&D”), a reinstatement of elective 100% first-year bonus depreciation, and a more favorable tax rate on Foreign-Derived Deduction Eligible Income and income from non-U.S. subsidiaries (“Net CFC Tested Income”), among other provisions. In 2025, we recognized the effects of the OBBBA, which resulted in a $72.9 million decrease in our deferred tax asset associated with capitalized research and experimental expenditures and a corresponding reduction in current income tax liabilities. The legislation did not have a material impact on our income tax expense for 2025.

FINANCIAL CONDITION AND LIQUIDITY

As of December 31, 2025, we had cash and cash equivalents of $1.0 billion compared to $744.7 million as of December 31, 2024. We also had $142.5 million invested in investment grade corporate bonds, U.S. Treasuries and asset-backed securities as of December 31, 2025. These investments have varying maturity dates through 2027 and are held as available-for-sale. 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 our revolving credit facility. 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 believe that our cash on hand, cash provided by operating activities, and available credit are sufficient to fund our working capital requirements and capital expenditures for at least the next twelve months.

The following table sets forth a summary of cash flows for the listed 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

In 2025, operating activities provided cash of $653.5 million, compared to $624.6 million in 2024. Operating activities that provided cash were primarily comprised of net income of $315.6 million, adjusted for non-cash depreciation and amortization charges of $138.4 million, non-cash share-based compensation expense of $151.3 million and non-cash amortization of operating lease right-of-use assets of $9.5 million. Changes in working capital, excluding cash, were approximately $24.1 million mainly due to higher accounts receivable. Also contributing to the decrease in working capital are the timing of prepaid expenses, payroll related payments, payments for operating leases and income tax payments. These decreases were offset by timing of payments to and receipts from our government partners, increases in deferred revenues and deferred taxes associated with stock option activity during the period. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance and subscription renewal billings. Our renewal dates occur throughout the year, but our largest maintenance billing cycles occur in the second and fourth quarters. Subscription renewals are billed throughout the year.

Investing activities used cash of $222.5 million in 2025 compared to $67.6 million in 2024. We invested $228.5 million and received $121.9 million in proceeds from investment grade corporate bonds, U.S. Treasuries and asset-backed securities. We capitalized approximately $16.8 million of software development costs. We invested approximately $16.0 million in property and equipment in 2025. Lastly, approximately $83.7 million, net of cash acquired, was invested in acquisitions completed during fiscal year 2025.

Financing activities used cash of $160.4 million in 2025 and provided cash of $22.2 million in 2024. During 2025, we repurchased approximately 303,000 shares of our common stock for an aggregate purchase price of $174.7 million. Net of withheld shares for taxes upon equity award settlement, we received $3.1 million from stock option exercises and received $18.8 million from employee stock purchase plan activity. We also paid $7.7 million in cash for long-term indemnity holdbacks related to prior acquisitions.

We paid interest of $2.2 million in 2025 and $3.1 million in 2024. See Note 10, “Debt,” to the consolidated financial statements for discussions of the Convertible Senior Notes and the 2024 Credit Agreement.

We paid income taxes, net of refunds received, of $40.8 million in 2025, compared to $84.2 million in 2024.

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.

We have no outstanding borrowings under the 2024 Credit Agreement, with an available borrowing capacity of $700.0 million as of December 31, 2025.

As of December 31, 2025, we had $600.0 million in outstanding principal for the Convertible Senior Notes due in 2026. We will settle any conversions of the Convertible Senior Notes in a combination of cash and shares of our common stock. 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 the principal amount of the Notes being converted. As of December 31, 2025, we have entered the Free Convertibility Period, effective on September 15, 2025 until the close of business on the second scheduled trading day immediately preceding maturity date, March 15, 2026. No conversions have occurred to date.

On February 2, 2026, we signed a definitive agreement to acquire the remaining equity interest of privately held company in which we currently hold a minority interest. The transaction, which has a cash purchase price of approximately $212.5 million, is expected to close in the first quarter of 2026, subject to the satisfaction of customary closing conditions and regulatory approvals.

On February 3, 2026, our Board of Directors authorized the repurchase of $1.0 billion of our common stock. The authorization replaced prior authorizations under our repurchase program originally announced in October 2002 and amended at various times from 2003 through 2019. Our share repurchase program allows us to repurchase shares at our discretion. Market conditions, as well as the volume of employee stock option exercises, influence the timing of the buybacks and the number of shares repurchased. Share repurchases are generally funded using our existing cash balances and borrowings under our credit facility 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. As of February 18, 2026, we have remaining authorization from our Board of Directors to repurchase up to $885.0 million of our common stock under the new repurchase plan.

We anticipate that 2026 capital spending will be between $24 million and $26 million, including approximately $10 million of capitalized software development. We expect the majority of the other capital spending will consist of computer equipment and software for infrastructure replacements and expansion. Capital spending and cash tax payments are 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, 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.

Our estimated future obligations consist of debt, uncertain tax positions, leases, and purchase commitments as of December 31, 2025. Refer to Note 10, “Debt,” Note 13, “Income Tax,” Note 17, “Leases,” and Note 19, “Commitment and Contingencies,” to the consolidated financial statements for related discussions.

CAPITALIZATION

At December 31, 2025, our capitalization consisted of $599.7 million of outstanding debt and $3.7 billion of shareholders’ equity.