FORM 10-K |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TYLER TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) |
DELAWARE | 75-2303920 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) |
5101 Tennyson Parkway Plano, Texas | 75024 |
(Address of principal executive offices) | (Zip code) |
Title of each class | Name of each exchange on which registered |
COMMON STOCK, $0.01 PAR VALUE | NEW YORK STOCK EXCHANGE |
NONE |
Large accelerated filer | x | Accelerated filer | ☐ | |||
Non-accelerated filer (Do not check if smaller reporting company) | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
PAGE | ||
Item 1. | ||
Item 1A. | ||
Item 1B. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
Item 7. | ||
Item 7A. | ||
Item 8. | ||
Item 9. | ||
Item 9A. | ||
Item 9B. | ||
Item 10. | ||
Item 11. | ||
Item 12. | ||
Item 13. | ||
Item 14. | ||
Item 15. | ||
ITEM 1. | BUSINESS. |
• | Sales of software licenses and royalties |
• | Subscription-based arrangements |
• | Software services |
• | Maintenance and support |
• | Appraisal services |
• | Financial Management and Education |
• | Courts and Justice |
• | Public Safety |
• | Property Appraisal and Tax |
• | Planning, Regulatory and Maintenance |
• | Land and Vital Records Management |
• | The physical inspection of commercial and residential properties |
• | Data collection and processing |
• | Sophisticated computer analyses for property valuation |
• | Preparation of tax rolls |
• | Community education regarding the assessment process |
• | Arbitration between taxpayers and the assessing jurisdiction |
• | New products and services to complement our existing offerings |
• | Entry into new markets related to local governments |
• | New clients and/or geographic expansion |
ITEM 1A. | RISK FACTORS. |
• | 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 |
• | Contract payments at times being subject to achieving implementation milestones, and we may have differences with clients as to whether milestones have been achieved |
• | Political resistance to the concept of contracting with third-parties to provide IT 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 |
• | The attractiveness of our “evergreen” business strategy |
• | The breadth, depth, and quality of our product and service offerings |
• | The ability to modify our offerings to accommodate particular clients’ needs |
• | Technological innovation |
• | Name recognition, reputation and references |
• | Price |
• | Our financial strength and stability |
• | 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 |
• | License agreements include applications that are under development or other undelivered elements |
• | Client contracts require the delivery of services considered essential to the functionality of the software, including significant modifications, customization, or complex interfaces, that could delay product delivery or acceptance |
• | The transaction involves customer acceptance criteria with a right to refund |
• | Prospective clients’ contracting decisions are often made in the last few weeks of a quarter |
• | The size of license transactions can vary significantly |
• | 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 |
• | We may have to defer revenues under our revenue recognition policies |
• | Clients may elect subscription-based arrangements, which result in lower software license revenues in the initial year as compared to traditional, on-premise software license arrangements, but generate higher overall subscription-based revenues over the term of the contract |
• | Actual or anticipated fluctuations in our operating results |
• | Announcements of technological innovations, new products, or new contracts by us or our competitors |
• | Developments with respect to patents, copyrights, or other proprietary rights |
• | Conditions and trends in the software and other technology industries |
• | Adoption of new accounting standards affecting the software industry |
• | Changes in financial estimates by securities analysts |
• | General market conditions and other factors |
ITEM 2. | PROPERTIES. |
ITEM 3. | LEGAL PROCEEDINGS. |
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
High | Low | |||||||
2016 | First Quarter | $ | 172.50 | $ | 118.16 | |||
Second Quarter | 168.19 | 126.70 | ||||||
Third Quarter | 175.77 | 159.24 | ||||||
Fourth Quarter | 172.24 | 139.61 | ||||||
2017 | First Quarter | $ | 166.86 | $ | 142.75 | |||
Second Quarter | 178.09 | 152.00 | ||||||
Third Quarter | 182.49 | 165.14 | ||||||
Fourth Quarter | 188.22 | 168.12 |
Number of securities to be issued upon exercise of outstanding options, warrants and rights as of December 31, 2017 | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in initial column as of December 31, 2017) | |||||||
Plan Category | |||||||||
Equity compensation plans approved by security shareholders: | |||||||||
Stock option plan | 4,817,241 | $ | 107.91 | 2,128,560 | |||||
Employee stock purchase plan | 12,052 | 150.49 | 796,834 | ||||||
Equity compensation plans not approved by security shareholders | — | — | — | ||||||
4,829,293 | $ | 108.02 | 2,925,394 |
Period | Total number of shares repurchased | Additional number of shares authorized that may be repurchased | Average price paid per share | Maximum number of shares that may be repurchased under current authorization | |||||||||
Three months ended March 31 | 41,896 | $ | 147.30 | 1,976,160 | |||||||||
Three months ended June 30 | — | — | — | 1,976,160 | |||||||||
Three months ended September 30 | — | — | — | 1,976,160 | |||||||||
October 1 through October 31 | — | — | — | 1,976,160 | |||||||||
November 1 through November 30 | 2,600 | — | 169.93 | 1,973,560 | |||||||||
December 1 through December 31 | — | — | — | 1,973,560 | |||||||||
44,496 | — | $ | 148.62 |
Company / Index | 12/31/12 | 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | |||||||||||
Tyler Technologies, Inc. | 100 | 210.84 | 225.93 | 359.87 | 294.74 | 365.50 | |||||||||||
S&P 500 Stock Index | 100 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | |||||||||||
S&P 600 Information Technology Index | 100 | 144.91 | 164.17 | 171.80 | 229.96 | 253.61 |
FOR THE YEARS ENDED DECEMBER 31, | |||||||||||||||||||
2017 (a) | 2016 (b) | 2015 (c) | 2014 | 2013 | |||||||||||||||
STATEMENT OF OPERATIONS DATA: | |||||||||||||||||||
Revenues | $ | 840,662 | $ | 756,043 | $ | 591,022 | $ | 493,101 | $ | 416,643 | |||||||||
Cost and expenses: | |||||||||||||||||||
Cost of revenues | 441,522 | 400,692 | 313,835 | 259,730 | 223,440 | ||||||||||||||
Selling, general and administrative expenses | 176,974 | 167,161 | 133,317 | 108,260 | 98,289 | ||||||||||||||
Research and development expense | 47,324 | 43,154 | 29,922 | 25,743 | 23,269 | ||||||||||||||
Amortization of customer and trade name intangibles | 13,912 | 13,731 | 5,905 | 4,546 | 4,517 | ||||||||||||||
Operating income | 160,930 | 131,305 | 108,043 | 94,822 | 67,128 | ||||||||||||||
Other income (expense), net | 698 | (1,998 | ) | 381 | (355 | ) | (1,309 | ) | |||||||||||
Income before income taxes | 161,628 | 129,307 | 108,424 | 94,467 | 65,819 | ||||||||||||||
Income tax (benefit) provision (a) | (2,317 | ) | 19,450 | 43,555 | 35,527 | 26,718 | |||||||||||||
Net income | 163,945 | 109,857 | 64,869 | 58,940 | 39,101 | ||||||||||||||
Net earnings per diluted share | $ | 4.18 | $ | 2.82 | $ | 1.77 | $ | 1.66 | $ | 1.13 | |||||||||
Weighted average diluted shares (b) | 39,246 | 38,961 | 36,552 | 35,401 | 34,590 | ||||||||||||||
STATEMENT OF CASH FLOWS DATA: | |||||||||||||||||||
Cash flows provided by operating activities (b) | $ | 195,755 | $ | 191,859 | $ | 134,327 | $ | 142,839 | $ | 94,297 | |||||||||
Cash flows used by investing activities | (85,395 | ) | (50,720 | ) | (398,459 | ) | (11,555 | ) | (25,658 | ) | |||||||||
Cash flows provided (used) by financing activities (b) | 39,415 | (138,075 | ) | 91,052 | (3,993 | ) | 3,831 | ||||||||||||
BALANCE SHEET DATA: | |||||||||||||||||||
Total assets | $ | 1,589,592 | $ | 1,357,945 | $ | 1,356,570 | $ | 569,812 | $ | 444,488 | |||||||||
Revolving line of credit | — | 10,000 | 66,000 | — | — | ||||||||||||||
Shareholders' equity | 1,167,094 | 915,525 | 858,857 | 336,973 | 246,319 |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
• | A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and |
• | A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. |
Percentage of Total Revenues Years Ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Revenues: | ||||||||
Software licenses and royalties | 9.0 | % | 9.8 | % | 10.0 | % | ||
Subscriptions | 20.6 | 18.9 | 18.9 | |||||
Software services | 22.3 | 23.1 | 23.7 | |||||
Maintenance | 43.0 | 42.7 | 41.6 | |||||
Appraisal services | 3.0 | 3.5 | 4.2 | |||||
Hardware and other | 2.1 | 2.0 | 1.6 | |||||
Total revenues | 100.0 | 100.0 | 100.0 | |||||
Operating Expenses: | ||||||||
Cost of software licenses, royalties and acquired software | 3.0 | 3.3 | 1.0 | |||||
Cost of software services, maintenance and subscriptions | 46.1 | 46.2 | 48.2 | |||||
Cost of appraisal services | 1.9 | 2.2 | 2.7 | |||||
Cost of hardware and other | 1.5 | 1.3 | 1.1 | |||||
Selling, general and administrative expenses | 21.1 | 22.1 | 22.6 | |||||
Research and development expense | 5.6 | 5.7 | 5.1 | |||||
Amortization of customer and trade name intangibles | 1.7 | 1.8 | 1.0 | |||||
Operating income | 19.1 | 17.4 | 18.3 | |||||
Other income (expense), net | 0.1 | (0.3 | ) | 0.1 | ||||
Income before income taxes | 19.2 | 17.1 | 18.4 | |||||
Income tax (benefit) provision | (0.3 | ) | 2.6 | 7.4 | ||||
Net income | 19.5 | % | 14.5 | % | 11.0 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
ES | $ | 67,840 | $ | 68,844 | $ | (1,004 | ) | (1 | )% | ||||||
A&T | 7,854 | 5,462 | 2,392 | 44 | |||||||||||
Total software licenses and royalties revenue | $ | 75,694 | $ | 74,306 | $ | 1,388 | 2 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
ES | $ | 165,651 | $ | 135,516 | $ | 30,135 | 22 | % | |||||||
A&T | 7,859 | 7,188 | 671 | 9 | |||||||||||
Total subscriptions revenue | $ | 173,510 | $ | 142,704 | $ | 30,806 | 22 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
ES | $ | 167,934 | $ | 158,478 | $ | 9,456 | 6 | % | |||||||
A&T | 19,215 | 16,326 | 2,889 | 18 | |||||||||||
Total software services revenue | $ | 187,149 | $ | 174,804 | $ | 12,345 | 7 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
ES | $ | 339,951 | $ | 304,380 | $ | 35,571 | 12 | % | |||||||
A&T | 21,618 | 18,589 | 3,029 | 16 | |||||||||||
Total maintenance revenue | $ | 361,569 | $ | 322,969 | $ | 38,600 | 12 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
ES | $ | — | $ | — | $ | — | — | % | |||||||
A&T | 25,023 | 26,287 | (1,264 | ) | (5 | ) | |||||||||
Total appraisal services revenue | $ | 25,023 | $ | 26,287 | $ | (1,264 | ) | (5 | )% |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
Software licenses and royalties | $ | 3,321 | $ | 2,964 | $ | 357 | 12 | % | |||||||
Acquired software | 21,686 | 22,235 | (549 | ) | (2 | ) | |||||||||
Software services, maintenance and subscriptions | 387,634 | 348,939 | 38,695 | 11 | |||||||||||
Appraisal services | 16,286 | 16,411 | (125 | ) | (1 | ) | |||||||||
Hardware and other | 12,595 | 10,143 | 2,452 | 24 | |||||||||||
Total cost of revenues | $ | 441,522 | $ | 400,692 | $ | 40,830 | 10 | % |
Gross margin percentage | 2017 | 2016 | Change | ||||||
Software licenses, royalties and acquired software | 67.0 | % | 66.1 | % | 0.9 | % | |||
Software services, maintenance and subscriptions | 46.3 | 45.5 | 0.8 | ||||||
Appraisal services | 34.9 | 37.6 | (2.7 | ) | |||||
Hardware and other | 28.9 | 32.3 | (3.4 | ) | |||||
Overall gross margin | 47.5 | % | 47.0 | % | 0.5 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
Selling, general and administrative expenses | $ | 176,974 | $ | 167,161 | $ | 9,813 | 6 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
Research and development expense | $ | 47,324 | $ | 43,154 | $ | 4,170 | 10 | % |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
Amortization of customer and trade name intangibles | $ | 13,912 | $ | 13,731 | $ | 181 | 1 | % |
2018 | $ | 13,819 | |
2019 | 12,534 | ||
2020 | 11,402 | ||
2021 | 11,282 | ||
2022 | 10,792 |
Change | ||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | ||||||||||
Other income (expense), net | $ | 698 | $ | (1,998 | ) | $ | 2,696 | N/M |
Change | |||||||||||||||
($ in thousands) | 2017 | 2016 | $ | % | |||||||||||
Income tax (benefit) provision | $ | (2,317 | ) | $ | 19,450 | $ | (21,767 | ) | (112 | )% | |||||
Effective income tax rate | (1.4 | )% | 15.0 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
ES | $ | 68,844 | $ | 54,376 | $ | 14,468 | 27 | % | |||||||
A&T | 5,462 | 4,632 | 830 | 18 | |||||||||||
Total software licenses and royalties revenue | $ | 74,306 | $ | 59,008 | $ | 15,298 | 26 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
ES | $ | 135,516 | $ | 107,090 | $ | 28,426 | 27 | % | |||||||
A&T | 7,188 | 4,843 | 2,345 | 48 | |||||||||||
Total subscriptions revenue | $ | 142,704 | $ | 111,933 | $ | 30,771 | 27 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
ES | $ | 158,478 | $ | 129,068 | $ | 29,410 | 23 | % | |||||||
A&T | 16,326 | 10,784 | 5,542 | 51 | |||||||||||
Total software services revenue | $ | 174,804 | $ | 139,852 | $ | 34,952 | 25 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
ES | $ | 304,380 | $ | 227,586 | $ | 76,794 | 34 | % | |||||||
A&T | 18,589 | 17,951 | 638 | 4 | |||||||||||
Total maintenance revenue | $ | 322,969 | $ | 245,537 | $ | 77,432 | 32 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
ES | $ | — | $ | — | $ | — | — | % | |||||||
A&T | 26,287 | 25,065 | 1,222 | 5 | |||||||||||
Total appraisal services revenue | $ | 26,287 | $ | 25,065 | $ | 1,222 | 5 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
Software licenses and royalties | $ | 2,964 | $ | 1,632 | $ | 1,332 | 82 | % | |||||||
Acquired software | 22,235 | 4,440 | 17,795 | N/M | |||||||||||
Software services, maintenance and subscriptions | 348,939 | 285,340 | 63,599 | 22 | |||||||||||
Appraisal services | 16,411 | 15,922 | 489 | 3 | |||||||||||
Hardware and other | 10,143 | 6,501 | 3,642 | 56 | |||||||||||
Total cost of revenues | $ | 400,692 | $ | 313,835 | $ | 86,857 | 28 | % |
Gross margin percentage | 2016 | 2015 | Change | ||||||
Software licenses, royalties and acquired software | 66.1 | % | 89.7 | % | (23.6 | )% | |||
Software services, maintenance and subscriptions | 45.5 | 42.6 | 2.9 | ||||||
Appraisal services | 37.6 | 36.5 | 1.1 | ||||||
Hardware and other | 32.3 | 32.5 | (0.2 | ) | |||||
Overall gross margin | 47.0 | % | 46.9 | % | 0.1 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
Selling, general and administrative expenses | $ | 167,161 | $ | 133,317 | $ | 33,844 | 25 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
Research and development expense | $ | 43,154 | $ | 29,922 | $ | 13,232 | 44 | % |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
Amortization of customer and trade name intangibles | $ | 13,731 | $ | 5,905 | $ | 7,826 | 133 | % |
Change | ||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | ||||||||||
Other (expense) income, net | $ | (1,998 | ) | $ | 381 | $ | (2,379 | ) | N/M |
Change | |||||||||||||||
($ in thousands) | 2016 | 2015 | $ | % | |||||||||||
Income tax provision | $ | 19,450 | $ | 43,555 | $ | (24,105 | ) | (55 | )% | ||||||
Effective income tax rate | 15.0 | % | 40.2 | % |
($ in thousands) | 2017 | 2016 | 2015 | |||||||||
Cash flows provided (used) by: | ||||||||||||
Operating activities | $ | 195,755 | $ | 191,859 | $ | 134,327 | ||||||
Investing activities | (85,395 | ) | (50,720 | ) | (398,459 | ) | ||||||
Financing activities | 39,415 | (138,075 | ) | 91,052 | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | 149,775 | $ | 3,064 | $ | (173,080 | ) |
2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
Revolving line of credit | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Lease obligations | 5,428 | 4,201 | 3,644 | 2,366 | 812 | 499 | 16,950 | ||||||||||||||||||||
Total future payment obligations | $ | 5,428 | $ | 4,201 | $ | 3,644 | $ | 2,366 | $ | 812 | $ | 499 | $ | 16,950 |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
ITEM 9A. | CONTROLS AND PROCEDURES. |
ITEM 9B. | OTHER INFORMATION. |
Headings in Proxy Statement | ||
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE. | “Tyler Management” and “Corporate Governance Principles and Board Matters” | |
ITEM 11. EXECUTIVE COMPENSATION. | “Executive Compensation” |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. | “Security Ownership of Certain Beneficial Owners and Management” |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. | "Executive Compensation" and “Certain Relationships and Related Transactions” |
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. | ||
The information required under this item may be found under the section captioned “Proposals For Consideration – Proposal Two – Ratification of Our Independent Auditors for Fiscal Year 2018” in our Proxy Statement. |
(a) | (1 | ) | The financial statements are filed as part of this Annual Report. | ||||
Page | |||||||
(2 | ) | Financial statement schedules: | |||||
There are no financial statement schedules filed as part of this Annual Report, since the required information is included in the financial statements, including the notes thereto, or the circumstances requiring inclusion of such schedules are not present. | |||||||
(3 | ) | Exhibits | |||||
Certain of the exhibits to this Annual Report are hereby incorporated by reference, as specified: |
Exhibit Number | Description | |
3.1 | Restated Certificate of Incorporation of Tyler Three, as amended through May 14, 1990, and Certificate of Designation of Series A Junior Participating Preferred Stock (filed as Exhibit 3.1 to our Form 10-Q for the quarter ended June 30, 1990, and incorporated by reference herein). | |
3.2 | Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to our Form 8-K, dated February 19, 1998, and incorporated by reference herein). | |
4.1 | Specimen of Common Stock Certificate (filed as Exhibit 4.1 to our registration statement no. 33-33505 and incorporated by reference herein). | |
Exhibit Number | Description | |
*101 | Instance Document | |
*101 | Schema Document | |
*101 | Calculation Linkbase Document | |
*101 | Labels Linkbase Document | |
*101 | Definition Linkbase Document | |
*101 | Presentation Linkbase Document | |
* | — Filed herewith. |
TYLER TECHNOLOGIES, INC. | ||||
Date: February 21, 2018 | By: | /s/ John S. Marr | ||
John S. Marr | ||||
Chief Executive Officer and Chairman of the Board | ||||
(principal executive officer) |
Date: February 21, 2018 | By: | /s/ John S. Marr | ||
John S. Marr | ||||
Chief Executive Officer and Chairman of the Board | ||||
Director | ||||
(principal executive officer) | ||||
Date: February 21, 2018 | By: | /s/ H. Lynn Moore | ||
H. Lynn Moore | ||||
President and Director | ||||
Date: February 21, 2018 | By: | /s/ Brian K. Miller | ||
Brian K. Miller | ||||
Executive Vice President and Chief Financial Officer | ||||
(principal financial officer) | ||||
Date: February 21, 2018 | By: | /s/ W. Michael Smith | ||
W. Michael Smith | ||||
Chief Accounting Officer | ||||
(principal accounting officer) | ||||
Date: February 21, 2018 | By: | /s/ Donald R. Brattain | ||
Donald R. Brattain | ||||
Director | ||||
Date: February 21, 2018 | By: | /s/ Glenn A. Carter | ||
Glenn A. Carter | ||||
Director | ||||
Date: February 21, 2018 | By: | /s/ Brenda A. Cline | ||
Brenda A. Cline | ||||
Director |
Date: February 21, 2018 | By: | /s/ J. Luther King | ||
J. Luther King | ||||
Director | ||||
Date: February 21, 2018 | By: | /s/ Daniel M. Pope | ||
Daniel M. Pope | ||||
Director | ||||
Date: February 21, 2018 | By: | /s/ Dustin R.Womble | ||
Dustin R. Womble | ||||
Director |
2017 | 2016 | 2015 | |||||||||
Revenues: | |||||||||||
Software licenses and royalties | $ | 75,694 | $ | 74,306 | $ | 59,008 | |||||
Subscriptions | 173,510 | 142,704 | 111,933 | ||||||||
Software services | 187,149 | 174,804 | 139,852 | ||||||||
Maintenance | 361,569 | 322,969 | 245,537 | ||||||||
Appraisal services | 25,023 | 26,287 | 25,065 | ||||||||
Hardware and other | 17,717 | 14,973 | 9,627 | ||||||||
Total revenues | 840,662 | 756,043 | 591,022 | ||||||||
Cost of revenues: | |||||||||||
Software licenses and royalties | 3,321 | 2,964 | 1,632 | ||||||||
Acquired software | 21,686 | 22,235 | 4,440 | ||||||||
Software services, maintenance and subscriptions | 387,634 | 348,939 | 285,340 | ||||||||
Appraisal services | 16,286 | 16,411 | 15,922 | ||||||||
Hardware and other | 12,595 | 10,143 | 6,501 | ||||||||
Total cost of revenues | 441,522 | 400,692 | 313,835 | ||||||||
Gross profit | 399,140 | 355,351 | 277,187 | ||||||||
Selling, general and administrative expenses | 176,974 | 167,161 | 133,317 | ||||||||
Research and development expense | 47,324 | 43,154 | 29,922 | ||||||||
Amortization of customer and trade name intangibles | 13,912 | 13,731 | 5,905 | ||||||||
Operating income | 160,930 | 131,305 | 108,043 | ||||||||
Other income (expense), net | 698 | (1,998 | ) | 381 | |||||||
Income before income taxes | 161,628 | 129,307 | 108,424 | ||||||||
Income tax (benefit) provision | (2,317 | ) | 19,450 | 43,555 | |||||||
Net income | $ | 163,945 | $ | 109,857 | $ | 64,869 | |||||
Earnings per common share: | |||||||||||
Basic | $ | 4.40 | $ | 3.01 | $ | 1.90 | |||||
Diluted | $ | 4.18 | $ | 2.82 | $ | 1.77 | |||||
December 31, 2017 | December 31, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 185,926 | $ | 36,151 | |||
Accounts receivable (less allowance for losses of $5,427 in 2017 and $3,396 in 2016) | 227,127 | 200,334 | |||||
Short-term investments | 43,159 | 20,273 | |||||
Prepaid expenses | 27,252 | 21,039 | |||||
Income tax receivable | 11,339 | 2,895 | |||||
Other current assets | 1,997 | 2,268 | |||||
Total current assets | 496,800 | 282,960 | |||||
Accounts receivable, long-term | 7,536 | 2,480 | |||||
Property and equipment, net | 152,315 | 124,268 | |||||
Other assets: | |||||||
Goodwill | 657,987 | 650,237 | |||||
Other intangibles, net | 236,444 | 267,259 | |||||
Non-current investments and other assets | 38,510 | 30,741 | |||||
$ | 1,589,592 | $ | 1,357,945 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 8,174 | $ | 7,295 | |||
Accrued liabilities | 64,675 | 55,989 | |||||
Deferred revenue | 309,461 | 298,217 | |||||
Total current liabilities | 382,310 | 361,501 | |||||
Revolving line of credit | — | 10,000 | |||||
Deferred revenue, long-term | 1,274 | 2,140 | |||||
Deferred income taxes | 38,914 | 68,779 | |||||
Commitments and contingencies | |||||||
Shareholders' equity: | |||||||
Preferred stock, $10.00 par value; 1,000,000 shares authorized; none issued | — | — | |||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 48,147,969 shares issued in 2017 and 2016 | 481 | 481 | |||||
Additional paid-in capital | 626,867 | 556,663 | |||||
Accumulated other comprehensive loss, net of tax | (46 | ) | (46 | ) | |||
Retained earnings | 599,821 | 435,876 | |||||
Treasury stock, at cost; 10,262,182 and 11,381,733 shares in 2017 and 2016, respectively | (60,029 | ) | (77,449 | ) | |||
Total shareholders' equity | 1,167,094 | 915,525 | |||||
$ | 1,589,592 | $ | 1,357,945 |
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Shareholders' Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||
Balance at December 31, 2014 | 48,148 | $ | 481 | $ | 201,389 | $ | (46 | ) | $ | 261,150 | (14,679 | ) | $ | (126,001 | ) | $ | 336,973 | ||||||||||||
Net income | — | — | — | — | 64,869 | — | — | 64,869 | |||||||||||||||||||||
Issuance of shares pursuant to stock compensation plan | — | — | 4,332 | — | — | 1,118 | 18,828 | 23,160 | |||||||||||||||||||||
Stock compensation | — | — | 20,182 | — | — | — | — | 20,182 | |||||||||||||||||||||
Issuance of shares pursuant to employee stock purchase plan | — | — | 3,879 | — | — | 43 | 792 | 4,671 | |||||||||||||||||||||
Federal income tax benefit related to exercise of stock options | — | — | 45,314 | — | — | — | — | 45,314 | |||||||||||||||||||||
Treasury stock purchases | — | — | — | — | — | (5 | ) | (645 | ) | (645 | ) | ||||||||||||||||||
Issuance of shares for acquisition | — | — | 332,659 | — | — | 2,149 | 31,674 | 364,333 | |||||||||||||||||||||
Balance at December 31, 2015 | 48,148 | 481 | 607,755 | (46 | ) | 326,019 | (11,374 | ) | (75,352 | ) | 858,857 | ||||||||||||||||||
Net income | — | — | — | — | 109,857 | — | — | 109,857 | |||||||||||||||||||||
Issuance of shares pursuant to stock compensation plan | — | — | (82,273 | ) | — | — | 827 | 105,800 | 23,527 | ||||||||||||||||||||
Stock compensation | — | — | 29,747 | — | — | — | — | 29,747 | |||||||||||||||||||||
Issuance of shares pursuant to employee stock purchase plan | — | — | 1,434 | — | — | 47 | 4,802 | 6,236 | |||||||||||||||||||||
Treasury stock purchases | — | — | — | — | — | (882 | ) | (112,699 | ) | (112,699 | ) | ||||||||||||||||||
Balance at December 31, 2016 | 48,148 | 481 | 556,663 | (46 | ) | 435,876 | (11,382 | ) | (77,449 | ) | 915,525 | ||||||||||||||||||
Net income | — | — | — | — | 163,945 | — | — | 163,945 | |||||||||||||||||||||
Issuance of shares pursuant to stock compensation plan | — | — | 28,174 | — | — | 1,113 | 21,671 | 49,845 | |||||||||||||||||||||
Stock compensation | — | — | 37,348 | — | — | — | — | 37,348 | |||||||||||||||||||||
Issuance of shares pursuant to employee stock purchase plan | — | — | 4,682 | — | — | 51 | 2,362 | 7,044 | |||||||||||||||||||||
Treasury stock purchases | — | — | — | — | — | (44 | ) | (6,613 | ) | (6,613 | ) | ||||||||||||||||||
Balance at December 31, 2017 | 48,148 | $ | 481 | $ | 626,867 | $ | (46 | ) | $ | 599,821 | (10,262 | ) | $ | (60,029 | ) | $ | 1,167,094 |
2017 | 2016 | 2015 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 163,945 | $ | 109,857 | $ | 64,869 | |||||
Adjustments to reconcile net income to cash provided by operations: | |||||||||||
Depreciation and amortization | 53,925 | 50,301 | 19,574 | ||||||||
Share-based compensation expense | 37,348 | 29,747 | 20,182 | ||||||||
Provision for losses - accounts receivable | 4,110 | 4,484 | 1,756 | ||||||||
Deferred income tax benefit | (29,865 | ) | (28,939 | ) | (7,956 | ) | |||||
Changes in operating assets and liabilities, exclusive of effects of acquired companies: | |||||||||||
Accounts receivable | (35,558 | ) | (30,227 | ) | (28,172 | ) | |||||
Income tax receivable | (8,444 | ) | 18,185 | 24,255 | |||||||
Prepaid expenses and other current assets | (5,897 | ) | 2,229 | (3,054 | ) | ||||||
Accounts payable | 878 | 387 | 652 | ||||||||
Accrued liabilities | 6,050 | 10,717 | 490 | ||||||||
Deferred revenue | 9,263 | 25,118 | 41,731 | ||||||||
Net cash provided by operating activities | 195,755 | 191,859 | 134,327 | ||||||||
Cash flows from investing activities: | |||||||||||
Cost of acquisitions, net of cash acquired | (11,344 | ) | (9,394 | ) | (339,961 | ) | |||||
Purchase of cost method investment | — | — | (15,000 | ) | |||||||
Purchase of marketable security investments | (59,779 | ) | (20,316 | ) | (31,907 | ) | |||||
Proceeds from marketable security investments | 28,786 | 16,837 | 900 | ||||||||
Additions to property and equipment | (43,057 | ) | (37,726 | ) | (12,501 | ) | |||||
(Increase) decrease in other | (1 | ) | (121 | ) | 10 | ||||||
Net cash used by investing activities | (85,395 | ) | (50,720 | ) | (398,459 | ) | |||||
Cash flows from financing activities: | |||||||||||
(Decrease) increase in net borrowings on revolving line of credit | (10,000 | ) | (56,000 | ) | 66,000 | ||||||
Purchase of treasury shares | (7,474 | ) | (111,838 | ) | (645 | ) | |||||
Contributions from employee stock purchase plan | 7,044 | 6,236 | 4,671 | ||||||||
Proceeds from exercise of stock options | 49,845 | 23,527 | 23,160 | ||||||||
Debt issuance costs | — | — | (2,134 | ) | |||||||
Net cash provided (used) by financing activities | 39,415 | (138,075 | ) | 91,052 | |||||||
Net increase (decrease) in cash and cash equivalents | 149,775 | 3,064 | (173,080 | ) | |||||||
Cash and cash equivalents at beginning of period | 36,151 | 33,087 | 206,167 | ||||||||
Cash and cash equivalents at end of period | $ | 185,926 | $ | 36,151 | $ | 33,087 |
• | persuasive evidence of an arrangement exists |
• | delivery has occurred |
• | our fee is fixed or determinable |
• | collectability is probable |
Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Balance at beginning of year | $ | 3,396 | $ | 1,640 | $ | 1,725 | |||||
Provisions for losses - accounts receivable | 4,110 | 4,484 | 1,756 | ||||||||
Collection of accounts previously written off | — | — | 153 | ||||||||
Deductions for accounts charged off or credits issued | (2,079 | ) | (2,728 | ) | (1,994 | ) | |||||
Balance at end of year | $ | 5,427 | $ | 3,396 | $ | 1,640 |
• | A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and |
• | A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. |
Useful Lives (years) | 2017 | 2016 | ||||||||
Land | — | $ | 9,958 | $ | 9,958 | |||||
Building and leasehold improvements | 5-39 | 116,214 | 94,924 | |||||||
Computer equipment and purchased software | 3-5 | 72,531 | 55,627 | |||||||
Furniture and fixtures | 5 | 24,834 | 19,897 | |||||||
Transportation equipment | 5 | 476 | 447 | |||||||
224,013 | 180,853 | |||||||||
Accumulated depreciation and amortization | (71,698 | ) | (56,585 | ) | ||||||
Property and equipment, net | $ | 152,315 | $ | 124,268 |
2017 | 2016 | ||||||
Gross carrying amount of acquisition intangibles: | |||||||
Customer related intangibles | $ | 187,717 | $ | 186,231 | |||
Acquired software | 179,466 | 176,096 | |||||
Trade names | 11,435 | 11,065 | |||||
Leases acquired | 3,694 | 3,694 | |||||
382,312 | 377,086 | ||||||
Accumulated amortization | (145,868 | ) | (109,827 | ) | |||
Total intangibles, net | $ | 236,444 | $ | 267,259 |
December 31, 2017 | December 31, 2016 | ||||||||||||||||||||
Gross Carrying Amount | Weighted Average Amortization Period | Accumulated Amortization | Gross Carrying Amount | Weighted Average Amortization Period | Accumulated Amortization | ||||||||||||||||
Non-amortizable intangibles: | |||||||||||||||||||||
Goodwill | $ | 657,987 | — | $ | — | $ | 650,237 | — | $ | — | |||||||||||
Amortizable intangibles: | |||||||||||||||||||||
Customer related intangibles | 187,717 | 15 years | 64,375 | 186,231 | 15 years | 51,491 | |||||||||||||||
Acquired software | 179,466 | 7 years | 76,800 | 176,096 | 7 years | 55,115 | |||||||||||||||
Trade names | 11,435 | 11 years | 3,768 | 11,065 | 12 years | 2,740 | |||||||||||||||
Leases acquired | 3,694 | 10 years | 925 | 3,694 | 9 years | 481 |
Enterprise Software | Appraisal and Tax | Total | |||||||||
Balance as of 12/31/2015 | $ | 647,109 | $ | 6,557 | $ | 653,666 | |||||
Goodwill acquired with acquisitions | 3,943 | — | 3,943 | ||||||||
Purchase price adjustments related to purchase of NWS | (7,372 | ) | — | (7,372 | ) | ||||||
Balance as of 12/31/2016 | 643,680 | 6,557 | 650,237 | ||||||||
Goodwill acquired with acquisitions | 7,750 | — | 7,750 | ||||||||
Balance as of 12/31/2017 | $ | 651,430 | $ | 6,557 | $ | 657,987 |
2018 | $ | 35,278 | |
2019 | 33,920 | ||
2020 | 32,495 | ||
2021 | 32,136 | ||
2022 | 28,665 |
2017 | 2016 | ||||||
Accrued wages, bonuses and commissions | $ | 43,688 | $ | 38,996 | |||
Other accrued liabilities | 20,987 | 16,993 | |||||
$ | 64,675 | $ | 55,989 |
Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Current: | |||||||||||
Federal | $ | 22,882 | $ | 41,366 | $ | 44,841 | |||||
State | 4,666 | 7,023 | 6,670 | ||||||||
27,548 | 48,389 | 51,511 | |||||||||
Deferred | (29,865 | ) | (28,939 | ) | (7,956 | ) | |||||
$ | (2,317 | ) | $ | 19,450 | $ | 43,555 |
Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Federal income tax expense at statutory rate | $ | 56,570 | $ | 45,257 | $ | 37,949 | |||||
State income tax, net of federal income tax benefit | 4,824 | 4,807 | 3,715 | ||||||||
Domestic production activities deduction | (2,617 | ) | (3,947 | ) | (466 | ) | |||||
Excess tax benefits related to stock option exercises | (40,624 | ) | (29,582 | ) | — | ||||||
Tax Act adjustments | (21,625 | ) | — | — | |||||||
Tax credits | (3,578 | ) | — | — | |||||||
Non-deductible business expenses | 4,573 | 2,979 | 2,414 | ||||||||
Other, net | 160 | (64 | ) | (57 | ) | ||||||
$ | (2,317 | ) | $ | 19,450 | $ | 43,555 |
2017 | 2016 | ||||||
Deferred income tax assets: | |||||||
Operating expenses not currently deductible | $ | 11,232 | $ | 18,721 | |||
Stock option and other employee benefit plans | 15,932 | 19,665 | |||||
Total deferred income tax assets | 27,164 | 38,386 | |||||
Deferred income tax liabilities: | |||||||
Intangible assets | (60,189 | ) | (103,754 | ) | |||
Property and equipment | (5,699 | ) | (3,207 | ) | |||
Other | (190 | ) | (204 | ) | |||
Total deferred income tax liabilities | (66,078 | ) | (107,165 | ) | |||
Net deferred income tax liabilities | $ | (38,914 | ) | $ | (68,779 | ) |
Years Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||
Stock option exercises | 1,113 | $ | 49,845 | 827 | $ | 23,527 | 1,118 | $ | 23,160 | |||||||||||
Purchases of common stock | (44 | ) | (6,613 | ) | (882 | ) | (112,699 | ) | (5 | ) | (645 | ) | ||||||||
Employee stock plan purchases | 51 | 7,044 | 47 | 6,236 | 43 | 4,671 | ||||||||||||||
Shares issued for acquisitions | — | — | — | — | 2,149 | 364,333 |
Years Ended December 31, | ||||||||
2017 | 2016 | 2015 | ||||||
Expected life (in years) | 6.0 | 6.0 | 6.0 | |||||
Expected volatility | 28.1 | % | 29.3 | % | 28.3 | % | ||
Risk-free interest rate | 2.0 | % | 1.8 | % | 1.7 | % | ||
Expected forfeiture rate | — | % | — | % | 1.7 | % |
Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Cost of software services, maintenance and subscriptions | $ | 9,415 | $ | 6,548 | $ | 3,380 | |||||
Selling, general and administrative expenses | 27,933 | 23,199 | 16,802 | ||||||||
Total share-based compensation expenses | 37,348 | 29,747 | 20,182 | ||||||||
Tax benefit | (40,624 | ) | (30,059 | ) | (5,986 | ) | |||||
Net (increase) decrease in net income | $ | (3,276 | ) | $ | (312 | ) | $ | 14,196 |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||
Outstanding at December 31, 2014 | 5,537 | $ | 44.61 | |||||||||
Granted | 747 | 145.71 | ||||||||||
Exercised | (1,118 | ) | 20.71 | |||||||||
Forfeited | (2 | ) | 19.61 | |||||||||
Outstanding at December 31, 2015 | 5,164 | 64.43 | ||||||||||
Granted | 846 | 147.25 | ||||||||||
Exercised | (827 | ) | 28.43 | |||||||||
Forfeited | (27 | ) | 95.33 | |||||||||
Outstanding at December 31, 2016 | 5,156 | 83.64 | ||||||||||
Granted | 824 | 176.26 | ||||||||||
Exercised | (1,113 | ) | 44.80 | |||||||||
Forfeited | (50 | ) | 134.83 | |||||||||
Outstanding at December 31, 2017 | 4,817 | 107.91 | 7 | $ | 334,940 | |||||||
Exercisable at December 31, 2017 | 2,355 | 78.40 | 6 | $ | 232,366 |
2017 | 2016 | 2015 | |||||||||
Weighted average grant-date fair value of stock options granted | $ | 55.56 | $ | 46.89 | $ | 45.17 | |||||
Total intrinsic value of stock options exercised | 137,699 | 103,703 | 149,542 |
Years Ended December 31, | |||||||||||
2017 | 2016 | 2015 | |||||||||
Numerator for basic and diluted earnings per share: | |||||||||||
Net income | $ | 163,945 | $ | 109,857 | $ | 64,869 | |||||
Denominator: | |||||||||||
Weighted-average basic common shares outstanding | 37,273 | 36,448 | 34,137 | ||||||||
Assumed conversion of dilutive securities: | |||||||||||
Stock options | 1,973 | 2,513 | 2,415 | ||||||||
Denominator for diluted earnings per share - Adjusted weighted-average shares | 39,246 | 38,961 | 36,552 | ||||||||
Earnings per common share: | |||||||||||
Basic | $ | 4.40 | $ | 3.01 | $ | 1.90 | |||||
Diluted | $ | 4.18 | $ | 2.82 | $ | 1.77 |
Years Ending December 31, | |||
2018 | $ | 5,428 | |
2019 | 4,201 | ||
2020 | 3,644 | ||
2021 | 2,366 | ||
2022 | 812 | ||
Thereafter | 499 | ||
Total | $ | 16,950 |
• | financial management, education and planning, regulatory and maintenance software solutions; |
• | financial management, municipal courts, and land and vital records management software solutions; |
• | courts and justice and public safety software solutions; and |
• | appraisal and tax software solutions and property appraisal services. |
Enterprise Software | Appraisal and Tax | Corporate | Totals | ||||||||||||
Revenues | |||||||||||||||
Software licenses and royalties | $ | 67,840 | $ | 7,854 | $ | — | $ | 75,694 | |||||||
Subscriptions | 165,651 | 7,859 | — | 173,510 | |||||||||||
Software services | 167,934 | 19,215 | — | 187,149 | |||||||||||
Maintenance | 339,951 | 21,618 | — | 361,569 | |||||||||||
Appraisal services | — | 25,023 | — | 25,023 | |||||||||||
Hardware and other | 13,094 | 10 | 4,613 | 17,717 | |||||||||||
Intercompany | 10,425 | — | (10,425 | ) | — | ||||||||||
Total revenues | $ | 764,895 | $ | 81,579 | $ | (5,812 | ) | $ | 840,662 | ||||||
Depreciation and amortization expense | 44,517 | 760 | 8,648 | 53,925 | |||||||||||
Segment operating income | 228,254 | 20,238 | (51,964 | ) | 196,528 | ||||||||||
Capital expenditures | 28,096 | 1,181 | 16,341 | 45,618 | |||||||||||
Segment assets | $ | 338,965 | $ | 44,464 | $ | 1,206,163 | $ | 1,589,592 |
Enterprise Software | Appraisal and Tax | Corporate | Totals | ||||||||||||
Revenues | |||||||||||||||
Software licenses and royalties | $ | 68,844 | $ | 5,462 | $ | — | $ | 74,306 | |||||||
Subscriptions | 135,516 | 7,188 | — | 142,704 | |||||||||||
Software services | 158,478 | 16,326 | — | 174,804 | |||||||||||
Maintenance | 304,380 | 18,589 | — | 322,969 | |||||||||||
Appraisal services | — | 26,287 | — | 26,287 | |||||||||||
Hardware and other | 11,942 | 16 | 3,015 | 14,973 | |||||||||||
Intercompany | 6,742 | — | (6,742 | ) | — | ||||||||||
Total revenues | $ | 685,902 | $ | 73,868 | $ | (3,727 | ) | $ | 756,043 | ||||||
Depreciation and amortization expense | 43,962 | 984 | 5,355 | 50,301 | |||||||||||
Segment operating income | 190,817 | 18,286 | (41,832 | ) | 167,271 | ||||||||||
Capital expenditures | 23,843 | 1,432 | 11,448 | 36,723 | |||||||||||
Segment assets | $ | 295,260 | $ | 31,769 | $ | 1,030,916 | $ | 1,357,945 |
Enterprise Software | Appraisal and Tax | Corporate | Totals | ||||||||||||
Revenues | |||||||||||||||
Software licenses and royalties | $ | 54,376 | $ | 4,632 | $ | — | $ | 59,008 | |||||||
Subscriptions | 107,090 | 4,843 | — | 111,933 | |||||||||||
Software services | 129,068 | 10,784 | — | 139,852 | |||||||||||
Maintenance | 227,586 | 17,951 | — | 245,537 | |||||||||||
Appraisal services | — | 25,065 | — | 25,065 | |||||||||||
Hardware and other | 6,935 | 12 | 2,680 | 9,627 | |||||||||||
Intercompany | 4,025 | — | (4,025 | ) | — | ||||||||||
Total revenues | $ | 529,080 | $ | 63,287 | $ | (1,345 | ) | $ | 591,022 | ||||||
Depreciation and amortization expense | 15,413 | 867 | 3,294 | 19,574 | |||||||||||
Segment operating income | 141,401 | 15,477 | (38,490 | ) | 118,388 | ||||||||||
Capital expenditures | 6,112 | 646 | 6,746 | 13,504 | |||||||||||
Segment assets | $ | 265,877 | $ | 22,283 | $ | 1,068,410 | $ | 1,356,570 |
Reconciliation of reportable segment operating | Years Ended December 31, | |||||||||||
income to the Company's consolidated totals: | 2017 | 2016 | 2015 | |||||||||
Total segment operating income | $ | 196,528 | $ | 167,271 | $ | 118,388 | ||||||
Amortization of acquired software | (21,686 | ) | (22,235 | ) | (4,440 | ) | ||||||
Amortization of customer and trade name intangibles | (13,912 | ) | (13,731 | ) | (5,905 | ) | ||||||
Other income (expense), net | 698 | (1,998 | ) | 381 | ||||||||
Income before income taxes | $ | 161,628 | $ | 129,307 | $ | 108,424 |
Quarters Ended | |||||||||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||||||||
Dec. 31 (a) | Sept. 30 | June 30 | Mar. 31 | Dec. 31 | Sept. 30 | June 30 | Mar. 31 | ||||||||||||||||||||||||
Revenues | $ | 217,851 | $ | 214,146 | $ | 209,123 | $ | 199,542 | $ | 193,281 | $ | 194,497 | $ | 188,972 | $ | 179,293 | |||||||||||||||
Gross profit | 105,500 | 103,429 | 95,863 | 94,348 | 92,817 | 93,480 | 86,936 | 82,118 | |||||||||||||||||||||||
Income before income taxes | 45,173 | 43,522 | 36,974 | 35,959 | 35,119 | 36,419 | 30,195 | 27,574 | |||||||||||||||||||||||
Net income | 61,798 | 38,263 | 31,578 | 32,306 | 31,196 | 35,430 | 25,007 | 18,224 | |||||||||||||||||||||||
Earnings per diluted share | $ | 1.56 | $ | 0.97 | $ | 0.81 | $ | 0.83 | $ | 0.80 | $ | 0.91 | $ | 0.65 | $ | 0.47 | |||||||||||||||
Shares used in computing diluted earnings per share | 39,499 | 39,342 | 39,201 | 38,932 | 38,975 | 39,062 | 38,738 | 39,071 |
(1) | Registration Statement (Form S-8 No. 333-205983) pertaining to the Tyler Technologies, Inc. 2010 Stock Option Plan, |
(2) | Registration Statement (Form S-8 No. 333-168499) pertaining to the Tyler Technologies, Inc. 2010 Stock Option Plan, and |
(3) | Registration Statement (Form S-8 No. 333-182318) pertaining to the Tyler Technologies, Inc. Employee Stock Purchase Plan; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over our financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Tyler and have: |
a. | Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its divisions, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (The registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: February 21, 2018 | By: | /s/ John S. Marr, Jr. | ||
John S. Marr, Jr. | ||||
Chief Executive Officer and Chairman of the Board |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over our financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Tyler and have: |
a. | Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its divisions, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (The registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: February 21, 2018 | By: | /s/ Brian K. Miller | ||
Brian K. Miller | ||||
Executive Vice President and Chief Financial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
Date: February 21, 2018 | By: | /s/ John S. Marr, Jr. | ||
John S. Marr, Jr. | ||||
Chief Executive Officer and Chairman of the Board | ||||
By: | /s/ Brian K. Miller | |||
Brian K. Miller | ||||
Executive Vice President and Chief Financial Officer |
Document and Entity Information - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Feb. 20, 2018 |
Jun. 30, 2017 |
|
Document And Entity Information [Abstract] | |||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2017 | ||
Document Fiscal Year Focus | 2017 | ||
Document Fiscal Period Focus | FY | ||
Trading Symbol | TYL | ||
Entity Registrant Name | TYLER TECHNOLOGIES INC | ||
Entity Central Index Key | 0000860731 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Common Stock, Shares Outstanding | 37,901 | ||
Entity Public Float | $ 6,107,280 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
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Revenues: | |||
Software licenses and royalties | $ 75,694 | $ 74,306 | $ 59,008 |
Subscriptions | 173,510 | 142,704 | 111,933 |
Software services | 187,149 | 174,804 | 139,852 |
Maintenance | 361,569 | 322,969 | 245,537 |
Appraisal services | 25,023 | 26,287 | 25,065 |
Hardware and other | 17,717 | 14,973 | 9,627 |
Total revenues | 840,662 | 756,043 | 591,022 |
Cost of revenues: | |||
Software licenses and royalties | 3,321 | 2,964 | 1,632 |
Acquired software | 21,686 | 22,235 | 4,440 |
Software services, maintenance and subscriptions | 387,634 | 348,939 | 285,340 |
Appraisal services | 16,286 | 16,411 | 15,922 |
Hardware and other | 12,595 | 10,143 | 6,501 |
Total cost of revenues | 441,522 | 400,692 | 313,835 |
Gross profit | 399,140 | 355,351 | 277,187 |
Selling, general and administrative expenses | 176,974 | 167,161 | 133,317 |
Research and development expense | 47,324 | 43,154 | 29,922 |
Amortization of customer and trade name intangibles | 36,000 | 36,400 | 10,300 |
Operating income | 160,930 | 131,305 | 108,043 |
Other income (expense), net | 698 | (1,998) | 381 |
Income before income taxes | 161,628 | 129,307 | 108,424 |
Income tax (benefit) provision | (2,317) | 19,450 | 43,555 |
Net income | $ 163,945 | $ 109,857 | $ 64,869 |
Earnings per common share: | |||
Basic (USD per share) | $ 4.40 | $ 3.01 | $ 1.90 |
Diluted (USD per share) | $ 4.18 | $ 2.82 | $ 1.77 |
Customer and trade name intangibles | |||
Cost of revenues: | |||
Amortization of customer and trade name intangibles | $ 13,912 | $ 13,731 | $ 5,905 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance for losses | $ 5,427 | $ 3,396 |
Preferred stock, par value (in dollars per share) | $ 10.00 | $ 10.00 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 48,147,969 | 48,147,969 |
Treasury stock, shares | 10,262,182 | 11,381,733 |
Summary of Significant Accounting Policies |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS We provide integrated software systems and related services for the public sector, with a focus on local governments. We develop and market a broad line of software solutions and services to address the information technology (“IT”) needs of cities, counties, schools and other local government entities. In addition, we provide professional IT services, including software and hardware installation, data conversion, training, and for certain customers, product modifications, along with continuing maintenance and support for customers using our systems. We also provide subscription-based services such as software as a service (“SaaS”) arrangements, which utilize the Tyler private cloud, and electronic document filing solutions (“e-filing”). In addition, we provide property appraisal outsourcing services for taxing jurisdictions. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our parent company and two subsidiaries, which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). We had no items of other comprehensive income (loss) during the years ended December 31, 2017, 2016 and 2015. CASH AND CASH EQUIVALENTS Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-producing investments. Investments with original maturities of three months or less are classified as cash and cash equivalents, which primarily consist of cash on deposit with several banks and money market funds. Cash and cash equivalents are stated at cost, which approximates market value. REVENUE RECOGNITION We earn revenue from software licenses, royalties, subscription-based services, software services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services. Software Arrangements: For the majority of our software arrangements, we provide services that range from installation, training, and basic consulting to software modification and customization to meet specific customer needs. If the arrangement does not require significant production, modification or customization or where the software services are not considered essential to the functionality of the software, revenue is recognized when all of the following conditions are met
For multiple element arrangements, each element of the arrangement is analyzed and we allocate a portion of the total arrangement fee to the elements based on the relative fair value of the element using vendor-specific objective evidence of fair value (“VSOE”), regardless of any separate prices stated within the contract for each element. Fair value is considered the price a customer would be required to pay if the element was sold separately based on our historical experience of stand-alone sales of these elements to third-parties. For PCS, we use renewal rates for continued support arrangements to determine fair value. For software services, we use the fair value we charge our customers when those services are sold separately. We monitor our transactions to determine that we maintain and periodically revise VSOE to reflect fair value. In software arrangements in which we have the fair value of all undelivered elements but not of a delivered element, we apply the “residual method,” in compliance with Accounting Standards Codification (“ASC”) 985-605, Software Revenue Recognition. Under the residual method, if the fair value of all undelivered elements is determinable, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element(s) and is recognized as revenue assuming the other revenue recognition criteria are met. In software arrangements in which we do not have VSOE for all undelivered elements, revenue is deferred until fair value is determined or all elements for which we do not have VSOE have been delivered. Alternatively, if sufficient VSOE does not exist and the only undelivered element is services that do not involve significant modification or customization of the software, the entire fee is recognized over the period during which the services are expected to be performed. Software Licenses and Royalties We recognize the revenue allocable to software licenses and specified upgrades upon delivery of the software product or upgrade to the customer, unless the fee is not fixed or determinable or collectability is not probable. If the fee is not fixed or determinable, software license revenue is generally recognized as payments become due from the customer. If collectability is not considered probable, revenue is recognized when the fee is collected. Arrangements that include software services, such as training or installation, are evaluated to determine whether those services are essential to the product’s functionality. A majority of our software arrangements involve “off-the-shelf” software. We consider software to be off-the-shelf software if it can be added to an arrangement with minor changes in the underlying code and it can be used by the customer for the customer’s purpose upon installation. For off-the-shelf software arrangements, we recognize the software license fee as revenue after delivery has occurred, customer acceptance is reasonably assured, that portion of the fee represents a non-refundable enforceable claim and is probable of collection, and the remaining services such as training are not considered essential to the product’s functionality. For arrangements that involve significant production, modification or customization of the software, or where software services are otherwise considered essential, we recognize revenue using contract accounting and apply the provisions of the Construction type and Production type Contracts as discussed in ASC 605-35. We generally use the percentage-of-completion method to recognize revenue from these arrangements. We measure progress-to-completion primarily using labor hours incurred, or value added. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we have the ability to produce reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit margin in the range of estimates is used until the results can be estimated more precisely. These arrangements are often implemented over an extended time period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent. For arrangements that include new product releases for which it is difficult to estimate final profitability except to assume that no loss will ultimately be incurred, we recognize revenue under the completed contract method. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete. Historically these amounts have been immaterial. We recognize royalty revenue when earned under the terms of our third party royalty arrangements, provided the fees are considered fixed or determinable and realization of payment is probable. Currently, our third party royalties are variable in nature and such amounts are not considered fixed or determinable until we receive notice of amounts earned. Typically, we receive notice of royalty revenues earned on a quarterly basis in the immediate quarter following the royalty reporting period. Software Services Some of our software arrangements include services considered essential for the customer to use the software for the customer’s purposes. For these software arrangements, both the software license revenue and the services revenue are recognized as the services are performed using the percentage-of-completion contract accounting method. When software services are not considered essential, the fee allocable to the service element is recognized as revenue as we perform the services. Computer Hardware Equipment Revenue allocable to computer hardware equipment is recognized when we deliver the equipment and collection is probable. Post-Contract Customer Support Our customers generally enter into PCS agreements when they purchase our software licenses. PCS includes telephone and online support, bug fixes, and rights to upgrades on a when-and-if available basis. Our PCS agreements are typically renewable annually. Revenue allocated to PCS is recognized on a straight-line basis over the period the PCS is provided. All significant costs and expenses associated with PCS are expensed as incurred. Subscription-Based Services: Subscription-based services consist of revenues derived from SaaS arrangements, which utilize the Tyler private cloud, and electronic filing transactions. For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software. In cases where the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software, we recognize the license, professional services and hosting services revenues pursuant to ASC 985-605, Software Revenue Recognition. For SaaS arrangements that do not meet the criteria for recognition under ASC 985-605, we account for the elements under ASC 605-25, Multiple Element Arrangements, using all applicable facts and circumstances, including whether (i) the element has stand-alone value, (ii) there is a general right of return and (iii) the revenue is contingent on delivery of other elements. We allocate contract value to each element of the arrangement that qualifies for treatment as a separate element based on VSOE, and if VSOE is not available, third-party evidence, and if third-party evidence is unavailable, estimated selling price. We recognize hosting services ratably over the term of the arrangement, which range from one to ten years but are typically for a period of five to seven years. For professional services associated with SaaS arrangements that we determine do not have stand-alone value to the customer or are contingent on delivery of other elements, we recognize the services revenue ratably over the remaining contractual period once we have provided the customer access to the software and we may begin billing for hosting services. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. Electronic filing transaction fees primarily pertain to documents filed with the courts by attorneys and other third-parties via our e-filing services and retrieval of filed documents via our access services. The elements for these arrangements are accounted for under ASC 605-25. For each document filed with a court, the filer generally pays a transaction fee and a court filing fee to us and we remit a portion of the transaction fee and the filing fee to the court. We record as revenue the transaction fee, while the portion of the transaction fee remitted to the courts is recorded as cost of sales as we are acting as a principal in the arrangement. Court filing fees collected on behalf of the courts and remitted to the courts are recorded on a net basis and thus do not affect the statement of comprehensive income. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period. Costs of performing services under subscription-based arrangements are expensed as incurred, except for certain direct and incremental contract origination and set-up costs associated with SaaS arrangements. Such direct and incremental costs are capitalized and amortized ratably over the related SaaS hosting term. Appraisal Services: For our property appraisal projects, we recognize revenue using the proportional performance method of revenue recognition since many of these projects are implemented over one to three year periods and consist of various unique activities. Under this method of revenue recognition, we identify each activity for the appraisal project, with a typical project generally calling for bonding, office set up, training, routing of map information, data entry, data collection, data verification, informal hearings, appeals and project management. Each activity or act is specifically identified and assigned an estimated cost. Costs which are considered to be associated with indirect activities, such as bonding costs and office set up, are expensed as incurred. These costs are typically billed as incurred and are recognized as revenue equal to cost. Direct contract fulfillment activities and related supervisory costs such as data collection, data entry and verification are expensed as incurred. The direct costs for these activities are determined and the total contract value is then allocated to each activity based on a consistent profit margin. Each activity is assigned a consistent unit of measure to determine progress towards completion and revenue is recognized for each activity based upon the percentage complete as applied to the estimated revenue for that activity. Progress for the fulfillment activities is typically based on labor hours or an output measure such as the number of parcel counts completed for that activity. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent. Allocation of Revenue in Statements of Comprehensive Income In our statements of comprehensive income, we allocate revenue to software licenses, software services, maintenance and hardware and other based on the VSOE of fair value for elements in each revenue arrangement and the application of the residual method for arrangements in which we have established VSOE of fair value for all undelivered elements. In arrangements where we are not able to establish VSOE of fair value for all undelivered elements, revenue is first allocated to any undelivered elements for which VSOE of fair value has been established. We then allocate revenue to any undelivered elements for which VSOE of fair value has not been established based upon management’s best estimate of fair value of those undelivered elements and apply a residual method to determine the license fee. Management’s best estimate of fair value of undelivered elements for which VSOE of fair value has not been established is based upon the VSOE of similar offerings and other objective criteria. Other The majority of deferred revenue consists of unearned maintenance revenue that has been billed based on contractual terms in the underlying arrangement with the remaining balance consisting of payments received in advance of revenue being earned under software licensing, subscription-based services, software and appraisal services and hardware installation. Unbilled revenue is not billable at the balance sheet date but is recoverable over the remaining life of the contract through billings made in accordance with contractual agreements. The termination clauses in our contracts generally provide for the payment for the value of products delivered and services performed in the event of an early termination. Prepaid expenses and other current assets include direct and incremental costs such as commissions associated with arrangements for which revenue recognition has been deferred. Such costs are expensed at the time the related revenue is recognized. USE OF ESTIMATES The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the application of the percentage-of-completion and proportional performance methods of revenue recognition, the carrying amount and estimated useful lives of intangible assets, determination of share-based compensation expense and valuation allowance for receivables. Actual results could differ from estimates. PROPERTY AND EQUIPMENT, NET Property, equipment and purchased software are recorded at original cost and increased by the cost of any significant improvements after purchase. We expense maintenance and repairs when incurred. Depreciation and amortization is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in the case of leasehold improvements. For income tax purposes, we use accelerated depreciation methods as allowed by tax laws. RESEARCH AND DEVELOPMENT COSTS We expensed research and development costs of $47.3 million during 2017, $43.2 million during 2016, and $29.9 million during 2015. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the income statement). The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be "realized." On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate U.S. federal tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. Under ASC 740 Income Taxes, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. In the case of U.S. corporate federal income taxes, the enactment date is the date the bill becomes law (i.e., upon presidential signature). See Note 7 - "Income Tax" for further discussion related to the Tax Act. SHARE-BASED COMPENSATION We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation. See Note 9 – “Share-Based Compensation” for further information. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identifiable intangible assets, in connection with our business combinations. Upon acquisition, goodwill is assigned to the reporting unit that is expected to benefit from the synergies of the business combination, which is the reporting unit to which the related acquired technology is assigned. A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by executive management. We assess goodwill for impairment annually as of April, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure the amount of potential impairment. In the second step, we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization. Our annual goodwill impairment analysis, which we performed quantitatively during the second quarter of 2017, did not result in an impairment charge. Other Intangible Assets We make judgments about the recoverability of purchased intangible assets other than goodwill whenever events or changes in circumstances indicate that an impairment may exist. Customer base and acquired software each comprise approximately half of our purchased intangible assets other than goodwill. We review our customer turnover each year for indications of impairment. Our customer turnover has historically been very low. There have been no significant impairments of intangible assets in any of the periods presented. If indications of impairment are determined to exist, we measure the recoverability of assets by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. IMPAIRMENT OF LONG-LIVED ASSETS We periodically evaluate whether current facts or circumstances indicate that the carrying value of our property and equipment or other long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, we measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset or appropriate grouping of assets and the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There have been no significant impairments of long-lived assets in any of the periods presented. COSTS OF COMPUTER SOFTWARE We capitalize software development costs upon the establishment of technological feasibility and prior to the availability of the product for general release to customers. Software development costs primarily consist of personnel costs and rent for related office space. We begin to amortize capitalized costs when a product is available for general release to customers. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the product’s remaining estimated economic life. We have not capitalized any internal software development costs in any of the periods presented. FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, accounts receivables, accounts payables, short-term obligations and certain other assets at cost approximate fair value because of the short maturity of these instruments. The fair value of our revolving line of credit approximates book value as of December 31, 2017, because our interest rates reset approximately every 30 days or less. See Note 6 – “Revolving Line of Credit” for further discussion. As of December 31, 2017, we have $63.8 million in investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates ranging from 2017 through 2021. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or from other observable market data. These investments are included in short-term investments and non-current investments and other assets. As of December 31, 2017, we have $15.0 million invested in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in convertible preferred stock is accounted under the cost method because the Company does not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values. Our investment is carried at cost less any impairment write-downs. Annually, the Company’s cost method investments are assessed for impairment. The Company does not reassess the fair value of cost method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. This investment is included in non-current investments and other assets in the accompanying consolidated balance sheets. CONCENTRATIONS OF CREDIT RISK AND UNBILLED RECEIVABLES Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable from trade customers, and investments in marketable securities. Our cash and cash equivalents primarily consists of operating account balances and money market funds, which are maintained at several major domestic financial institutions and the balances often exceed insured amounts. As of December 31, 2017, we had cash and cash equivalents of $185.9 million. We perform periodic evaluations of the credit standing of these financial institutions. Concentrations of credit risk with respect to receivables are limited due to the size and geographical diversity of our customer base. Historically, our credit losses have not been significant. As a result, we do not believe we have any significant concentrations of credit risk as of December 31, 2017. We maintain allowances for doubtful accounts and sales adjustments, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate that the carrying amount for the allowances for doubtful accounts and sales adjustments may require revision, include, but are not limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products. The following table summarizes the changes in the allowances for doubtful accounts and sales adjustments:
The termination clauses in most of our contracts provide for the payment for the value of products delivered or services performed in the event of early termination. Our property appraisal outsourcing service contracts can range up to three years and, in a few cases, as long as five years, in duration. In connection with these contracts, as well as certain software service contracts, we may perform work prior to when the software and services are billable and/or payable pursuant to the contract. We have historically recorded such unbilled receivables (costs and estimated profit in excess of billings) in connection with (1) property appraisal services contracts accounted for using proportional performance accounting in which the revenue is earned based upon activities performed in one accounting period but the billing normally occurs subsequently and may span another accounting period; (2) software services contracts accounted for using the percentage-of-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing for the software element of the arrangement may be based upon the specific phase of the implementation; (3) software revenue for which we have objective evidence that the customer-specified objective criteria has been met but the billing has not yet been submitted to the customer; (4) some of our contracts provide for an amount to be withheld from a progress billing (generally between 5% and 20% retention) until final and satisfactory project completion is achieved; and (5) in a limited number of cases, we may grant extended payment terms, generally to existing customers with whom we have a long-term relationship and favorable collection history. We have recorded unbilled receivables of $42.6 million and $33.6 million at December 31, 2017 and 2016, respectively. Included in unbilled receivables are retention receivables of $7.2 million and $5.0 million at December 31, 2017 and 2016, respectively, and these retentions become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables and retention receivables expected to be collected in excess of one year have been included with accounts receivable, long-term portion in the accompanying consolidated balance sheets. INDEMNIFICATION Most of our software license agreements indemnify our customers in the event that the software sold infringes upon the intellectual property rights of a third-party. These agreements typically provide that in such event we will either modify or replace the software so that it becomes non-infringing or procure for the customer the right to use the software. We have recorded no liability associated with these indemnifications, as we are not aware of any pending or threatened infringement actions that are possible losses. We believe the estimated fair value of these intellectual property indemnification clauses is minimal. We have also agreed to indemnify our officers and board members if they are named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity. We maintain directors’ and officers’ liability insurance coverage to protect against any such losses. We have recorded no liability associated with these indemnifications. Because of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal. RECLASSIFICATIONS Certain amounts for previous years have been reclassified to conform to the current year presentation. NEW ACCOUNTING PRONOUNCEMENTS Recent Accounting Guidance not yet Adopted Revenue from Contracts with Customers. On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU is the result of a convergence project between the FASB and the International Accounting Standards Board. The core principle behind ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The ASU allows two methods of adoption: a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements. We have adopted the new standard effective January 1, 2018 using the full retrospective method which will require each prior reporting period presented to be recast in future issuance of our financial statements. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information and have reached conclusions on key accounting assessments related to the standard. During the fourth quarter of fiscal 2017, we have substantially completed data conversion activities required to recast our prior period results. We continue to perform an in-depth review of our preliminary results; therefore, we are in the process of completing our analysis necessary to recast prior period results. We do not believe there are any remaining significant implementation topics associated with the adoption of this ASU that have not yet been addressed. This standard will have a material impact on our consolidated balance sheets and statement of shareholders’ equity. The impact of the standard on consolidated revenue and costs of revenue will be dependent upon the mix of revenue streams due to our accounting for software license fees, allocation of discounts across all performance obligations and to the incremental costs of obtaining a contract. Specifically, under the new standard software license fees under perpetual agreements will no longer be subject to 100% discount allocations from other elements in the contract. Discounts in arrangements will be allocated across all deliverables increasing license revenues and decreasing revenues allocated to other performance obligations. In addition, in most cases, net license fees (total license fees less any allocated discounts) will be recognized at the point in time that control of the software license transfers to the customer versus our current policy of recognizing revenue only to the extent billable per the contractual terms. Time-based license fees currently recognized over the license term will no longer be recognized over the period of the license and will instead be recognized at the point in time that control of the software license transfers to the customer. Revenue related to our software as a service (“SaaS”) offerings, post-contract customer support ("PCS") renewals and professional services remain substantially unchanged. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms and may vary in some instances from recognition at the time of billing. Application of the new standard requires that incremental costs directly related to obtaining a contract (typically sales commissions plus any associated fringe benefits) must be recognized as an asset and expensed on a systematic basis that is consistent with the transfer to the customer of the goods and services to which the asset relates, unless that life is less than one year. Currently, we defer sales commissions and recognize expense over the relevant initial contractual term. With the adoption of the new standard, amortization periods will extend past the initial term. Leases. On February 25, 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early application is permitted for all business entities upon issuance. We are assessing the financial impact of adopting the new standard; however, we are currently unable to provide a reasonable estimate regarding the financial impact. We will adopt the new standard in fiscal year 2019. |
Acquisitions |
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Business Combinations [Abstract] | |
Acquisitions | ACQUISITIONS 2017 On November 29, 2017, we acquired audio and digital two-way radio communications technology and related assets from Radio 10-33, LLC. The total purchase price was $1.4 million, all of which was paid in cash. On August 2, 2017, we acquired substantially all of the assets and assumed certain liabilities of Digital Health Department, Inc. ("DHD"), a company that provides environmental health software, offering a software-as-a-service (SaaS) solution for public health compliance and inspections processes. The total purchase price, net of debt assumed, was $3.9 million, all of which was paid in cash. The purchase price allocations for the acquisitions noted above are not yet complete. As of December 31, 2017, the preliminary estimates of fair values assumed at the acquisition dates for intangibles, liabilities, deferred revenue, and related deferred taxes are subject to change as valuations are finalized. On May 30, 2017, we acquired all of the capital stock of Modria.com, Inc., a company that specializes in online dispute resolution for government and commercial entities. The total purchase price, net of debt assumed, was $7.0 million, of which $6.1 million was paid in cash and $0.9 million was accrued as of December 31, 2017. As of December 31, 2017, the purchase price allocation for this acquisition is complete and our balance sheet reflects the allocation of the purchase price to the assets acquired based on their fair value at the date of acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The operating results of these acquisition are included in our results of operations of the Enterprise Software segment from their respective dates of acquisition. The impact of these acquisitions, individually and in the aggregate, on our operating results, assets and liabilities is not material. 2016 On May 31, 2016, we acquired all of the capital stock of ExecuTime Software, LLC, a leading provider of time, attendance, and advanced scheduling software solutions. The total purchase price, net of debt assumed, was $7.4 million. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The operating results of this acquisition are included in our results of operations of the Enterprise Software segment from the date of the acquisition. The impact of this acquisition on our operating results is not material. 2015 On November 16, 2015, we acquired all of the capital stock of New World Systems Corporation (“NWS”), which provides public safety and financial solutions for local governments. The purchase price, net of cash acquired of $22.5 million, was comprised of $337.5 million in cash, of which $4.0 million was accrued at December 31, 2015, and 2.1 million shares of Tyler common stock valued at $362.8 million, based on the closing price on November 16, 2015. We also incurred fees of approximately $5.9 million for financial advisory, legal, accounting, due diligence, valuation and other various services necessary to complete the acquisition. These fees were expensed in 2015 and are included in selling, general and administrative expenses. In 2016, we paid $2.0 million related to the working capital holdback of $4.0 million and reduced the accrued liability. Our final valuation of the fair market value of NWS’ assets and liabilities resulted in adjustments to the preliminary opening balance sheet. These adjustments related to a reduction in deferred revenue and related deferred income taxes and additional reserves for accounts receivable and contingencies resulting in a net decrease to goodwill of approximately $7.4 million. On May 29, 2015, we acquired all of the capital stock of Brazos Technology Corporation (“Brazos”), which provides mobile hand held solutions, primarily to law enforcement agencies, for field accident reporting and electronically issuing citations. The purchase price, net of cash acquired of $312,000 and including debt assumed of $733,000, was $6.1 million in cash and 12,500 shares of Tyler common stock valued at $1.5 million. The operating results of NWS and Brazos are included with the operating results of the Enterprise Software segment from their respective dates of acquisition. The fair value of the assets and liabilities acquired are based on valuations using Level III, unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Property and Equipment, Net |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net | PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following at December 31:
Depreciation expense was $17.3 million during 2017, $13.4 million during 2016, and $9.1 million during 2015. In 2017, we purchased an office building in Latham, New York for approximately $2.9 million and paid $2.1 million for improvements to that building. We also paid $19.4 million for construction to expand our office building in Yarmouth, Maine. In 2016, we purchased an office building in Falmouth, Maine, that was previously leased from an entity owned by an executive’s father and brother, for approximately $9.7 million, and paid $8.0 million for construction to expand our office building in Yarmouth, Maine. We own office buildings in Bangor, Falmouth and Yarmouth, Maine; Lubbock and Plano, Texas; Troy, Michigan; Latham, New York; and Moraine, Ohio. We lease space in some of these buildings to third-party tenants. These leases expire between 2019 and 2025 and are expected to provide rental income of approximately $1.5 million during 2018, $1.4 million during 2019, $1.4 million during 2020, $1.4 million during 2021, $1.5 million during 2022, and $4.3 million thereafter. Rental income from third-party tenants was $1.5 million in 2017, $1.7 million in 2016, and $0.9 million in 2015. |
Goodwill and Other Intangible Assets |
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Goodwill and Other Intangible Assets | GOODWILL AND OTHER INTANGIBLE ASSETS Other intangible assets and related accumulated amortization consists of the following at December 31:
Total amortization expense for intangibles was $36.0 million in 2017, $36.4 million in 2016, and $10.3 million during 2015. The allocation of acquisition intangible assets is summarized in the following table:
The changes in the carrying amount of goodwill for the two years ended December 31, 2017 are as follows:
Estimated annual amortization expense related to acquired leases will be recorded as a reduction to hardware and other revenue and is expected to be $425,000 in 2018, $373,000 in 2019, $313,000 in 2020, $312,000 in 2021, $312,000 in 2022 and $1.0 million thereafter. Estimated annual amortization expense related to acquisition intangibles, including acquired software, for which the amortization expense is recorded as cost of revenues, is as follows:
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Accrued Liabilities | ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31:
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Revolving Line of Credit |
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Debt Disclosure [Abstract] | |
Revolving Line of Credit | REVOLVING LINE OF CREDIT On November 16, 2015, we entered into a $300.0 million Credit Agreement (the “Credit Facility”) with the various lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. The Credit Facility provides for a revolving credit line of up to $300.0 million, including a $10.0 million sublimit for letters of credit. The Credit Facility matures on November 16, 2020. Borrowings under the Credit Facility may be used for general corporate purposes, including working capital requirements, acquisitions and share repurchases. Borrowings under the Credit Facility bear interest at a rate of either (1) Wells Fargo Bank’s prime rate (subject to certain higher rate determinations) plus a margin of 0.25% to 1.00% or (2) the 30, 60, 90 or 180-day LIBOR rate plus a margin of 1.25% to 2.00%. As of December 31, 2017, our interest rate was 4.75% under the prime rate option or approximately 2.78% under the 30-day LIBOR option. The Credit Facility is secured by substantially all our assets. The Credit Facility requires us to maintain certain financial ratios and other financial conditions and prohibits us from making certain investments, advances, cash dividends or loans, and limits incurrence of additional indebtedness and liens. As of December 31, 2017, we were in compliance with those covenants. As of December 31, 2017, we had no outstanding borrowings and had unused borrowing capacity of $299.5 million under the Credit Facility. In addition, as of December 31, 2017, we had one outstanding letter of credit for $0.5 million in favor of a client contract. The letter of credit guarantees our performance under the contract and expires in 2018. We paid interest of $804,000 in 2017, $1.9 million in 2016, and $223,000 in 2015. |
Income Tax |
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Income Tax | INCOME TAX The income tax (benefit) provision on income from operations consists of the following:
Reconciliation of the U.S. statutory income tax rate to our effective income tax expense rate for operations follows:
On December 22, 2017, the Tax Act was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act reduces the U.S. corporate federal tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. The Tax Act also adds many new provisions including changes to bonus depreciation, the deduction for executive compensation and a tax on global intangible low-taxed income (GILTI). The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate from 35% to 21%. The impact of the rate reduction on our 2017 income tax provision is a $21.6 million tax benefit due to the remeasurement of deferred tax assets and liabilities. We have reported provisional amounts for the income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate could be determined. There were no specific impacts of the Tax Act that could not be reasonably estimated which we accounted for under prior tax law. Based on a continued analysis of the estimates and further guidance on the application of the law, it is anticipated that additional revisions may occur throughout the allowable measurement period. Overall, the changes due to the Tax Act will favorably affect income tax expense and future U.S. earnings. Due to the adoption of ASU No. 2016-09 in 2016, federal and state excess tax benefits from stock option exercises for years subsequent to 2015 are reflected as a reduction of the provision for income taxes, whereas they were previously accounted for as an increase to shareholders’ equity. The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:
Although realization is not assured, we believe it is more likely than not that all the deferred tax assets will be realized. Accordingly, we believe no valuation allowance is required for the deferred tax assets. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of reversing taxable temporary differences are revised. There were no unrecognized tax benefits during any of the reported periods. We are subject to U.S. federal tax, as well as income tax of multiple state, local and foreign jurisdictions. We are routinely subject to income tax examinations by these taxing jurisdictions, but we do not have a history of, nor do we expect any, material adjustments to result from these examinations. During 2017, the Internal Revenue Service issued a “no change” letter upon completion of their examination of our 2012 tax year. With few exceptions, major U.S. federal, state and foreign jurisdictions are no longer subject to examinations for years before 2013. As of February 20, 2018, no significant adjustments have been proposed by any taxing jurisdiction. We paid income taxes, net of refunds received, of $36.0 million in 2017, $30.2 million in 2016, and $27.3 million in 2015. |
Shareholders' Equity |
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Shareholders' Equity | SHAREHOLDERS’ EQUITY The following table details activity in our common stock:
As of February 20, 2018, we had authorization from our board of directors to repurchase up to 2.0 million additional shares of our common stock. |
Share-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation | SHARE-BASED COMPENSATION Share-Based Compensation Plan We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. Once options become exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation. As of December 31, 2017, there were 2.1 million shares available for future grants under the plan from the 20.0 million shares previously approved by the shareholders. Determining Fair Value of Stock Compensation Valuation and Amortization Method. We estimate the fair value of share-based awards granted using the Black-Scholes option valuation model. We amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods. Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The expected life represents the weighted-average period the stock options are expected to be outstanding based primarily on the options’ vesting terms, remaining contractual life and the employees’ expected exercise based on historical patterns. Expected Volatility. Using the Black-Scholes option valuation model, we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock. Risk-Free Interest Rate. We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. Expected Dividend Yield. We have not paid any cash dividends on our common stock in more than ten years and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes option valuation model. Expected Forfeitures. We use historical data to estimate pre-vesting option forfeitures. We record share-based compensation only for those awards that are expected to vest. The following weighted average assumptions were used for options granted:
The following table summarizes share-based compensation expense related to share-based awards which is recorded in the statements of comprehensive income:
Stock Option Activity Options granted, exercised, forfeited and expired are summarized as follows:
We had unvested options to purchase 2.4 million shares with a weighted average grant date exercise price of $136.51 as of December 31, 2017, and unvested options to purchase 2.8 million shares with a weighted average grant date exercise price of $104.91 as of December 31, 2016. As of December 31, 2017, we had $88.2 million of total unrecognized compensation cost related to unvested options, net of expected forfeitures, which is expected to be amortized over a weighted average amortization period of 3.2 years. Other information pertaining to option activity was as follows during the twelve months ended December 31:
Employee Stock Purchase Plan Under our Employee Stock Purchase Plan (“ESPP”) participants may contribute up to 15% of their annual compensation to purchase common shares of Tyler. The purchase price of the shares is equal to 85% of the closing price of Tyler shares on the last day of each quarterly offering period. As of December 31, 2017, there were 797,000 shares available for future grants under the ESPP from the 2.0 million shares previously approved by the stockholders. |
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Earnings Per Share | EARNINGS PER SHARE Basic earnings and diluted earnings per share data were computed as follows:
Stock options representing the right to purchase common stock of 1,343,000 shares in 2017, 786,000 shares in 2016, and 417,000 shares in 2015 were not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. |
Leases |
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Leases | LEASES We lease office facilities for use in our operations, as well as transportation, computer and other equipment. Most of our leases are non-cancelable operating lease agreements and they expire at various dates through 2025. In addition to rent, the leases generally require us to pay taxes, maintenance, insurance and certain other operating expenses. Rent expense was approximately $6.9 million in 2017, $6.7 million in 2016, and $7.2 million in 2015, which included rent expense associated with related party lease agreements of $150,000 in 2017, $330,000 in 2016, and $1.8 million in 2015. Future minimum lease payments under all non-cancelable leases at December 31, 2017 are as follows:
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Employee Benefit Plans |
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Postemployment Benefits [Abstract] | |
Employee Benefit Plans | EMPLOYEE BENEFIT PLANS We provide a defined contribution plan for the majority of our employees meeting minimum service requirements. The employees can contribute up to 30% of their current compensation to the plan subject to certain statutory limitations. We contribute up to a maximum of 3% of an employee’s compensation to the plan. We made contributions to the plan and charged operating results $7.9 million during 2017, $6.9 million during 2016, and $5.3 million during 2015. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Other than routine litigation incidental to our business, there are no material legal proceedings pending to which we are party or to which any of our properties are subject. |
Segment and Related Information |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment and Related Information | SEGMENT AND RELATED INFORMATION We are a major provider of integrated information management solutions and services for the public sector, with a focus on local and state governments. We provide our software systems and services and appraisal services through four business units, which focus on the following products:
In accordance with ASC 280-10, Segment Reporting, the financial management, education and planning, regulatory and maintenance software solutions unit; financial management, municipal courts and land and vital records management software solutions unit; and the courts and justice and public safety software solutions unit meet the criteria for aggregation and are presented in one reportable segment, Enterprise Software (“ES”). The ES segment provides municipal and county governments and schools with software systems and services to meet their information technology and automation needs for mission-critical “back-office” functions such as financial management and courts and justice and public safety processes. The Appraisal and Tax (“A&T”) segment provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for local governments and taxing authorities. Property appraisal outsourcing services include: the physical inspection of commercial and residential properties; data collection and processing; computer analysis for property valuation; preparation of tax rolls; community education; and arbitration between taxpayers and the assessing jurisdiction. We evaluate performance based on several factors, of which the primary financial measure is business segment operating income. We define segment operating income for our business units as income before noncash amortization of intangible assets associated with their acquisition, interest expense and income taxes. Segment operating income includes intercompany transactions. The majority of intercompany transactions relate to contracts involving more than one unit and are valued based on the contractual arrangement. Segment operating income for corporate primarily consists of compensation costs for the executive management team and certain accounting and administrative staff and share-based compensation expense for the entire company. Corporate segment operating income also includes revenues and expenses related to a company-wide user conference. The accounting policies of the reportable segments are the same as those described in Note 1, “Summary of Significant Accounting Policies.” Segment assets include net accounts receivable, prepaid expenses and other current assets and net property and equipment. Corporate assets consist of cash and investments, prepaid insurance, intangibles associated with acquisitions, deferred income taxes and net property and equipment mainly related to unallocated information and technology assets. ES segment capital expenditures included $24.4 million in 2017 and $17.7 million in 2016 for the expansion of existing buildings and purchases of buildings and land. For the year ended December 31, 2017
For the year ended December 31, 2016
For the year ended December 31, 2015
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information (unaudited) | QUARTERLY FINANCIAL INFORMATION (unaudited) The following table contains selected financial information from unaudited statements of income for each quarter of 2017 and 2016:
(a) Fourth quarter 2017 includes the significant impact of the enactment of the Tax Act. The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate from 35% to 21%. The impact of the rate reduction on our 2017 income tax provision is a $21.6 million tax benefit due to the remeasurement of deferred tax assets and liabilities. Refer to Note 7 - "Income Tax" for further discussion on the impact the Tax Act. |
Summary of Significant Accounting Policies (Policies) |
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Principles of Consolidation | PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our parent company and two subsidiaries, which are wholly-owned. All significant intercompany balances and transactions have been eliminated in consolidation. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources and includes all components of net income (loss) and other comprehensive income (loss). We had no items of other comprehensive income (loss) during the years ended December 31, 2017, 2016 and 2015. |
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Cash and Cash Equivalents | CASH AND CASH EQUIVALENTS Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-producing investments. Investments with original maturities of three months or less are classified as cash and cash equivalents, which primarily consist of cash on deposit with several banks and money market funds. Cash and cash equivalents are stated at cost, which approximates market value. |
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Revenue Recognition | REVENUE RECOGNITION We earn revenue from software licenses, royalties, subscription-based services, software services, post-contract customer support (“PCS” or “maintenance”), hardware, and appraisal services. Software Arrangements: For the majority of our software arrangements, we provide services that range from installation, training, and basic consulting to software modification and customization to meet specific customer needs. If the arrangement does not require significant production, modification or customization or where the software services are not considered essential to the functionality of the software, revenue is recognized when all of the following conditions are met
For multiple element arrangements, each element of the arrangement is analyzed and we allocate a portion of the total arrangement fee to the elements based on the relative fair value of the element using vendor-specific objective evidence of fair value (“VSOE”), regardless of any separate prices stated within the contract for each element. Fair value is considered the price a customer would be required to pay if the element was sold separately based on our historical experience of stand-alone sales of these elements to third-parties. For PCS, we use renewal rates for continued support arrangements to determine fair value. For software services, we use the fair value we charge our customers when those services are sold separately. We monitor our transactions to determine that we maintain and periodically revise VSOE to reflect fair value. In software arrangements in which we have the fair value of all undelivered elements but not of a delivered element, we apply the “residual method,” in compliance with Accounting Standards Codification (“ASC”) 985-605, Software Revenue Recognition. Under the residual method, if the fair value of all undelivered elements is determinable, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered element(s) and is recognized as revenue assuming the other revenue recognition criteria are met. In software arrangements in which we do not have VSOE for all undelivered elements, revenue is deferred until fair value is determined or all elements for which we do not have VSOE have been delivered. Alternatively, if sufficient VSOE does not exist and the only undelivered element is services that do not involve significant modification or customization of the software, the entire fee is recognized over the period during which the services are expected to be performed. Software Licenses and Royalties We recognize the revenue allocable to software licenses and specified upgrades upon delivery of the software product or upgrade to the customer, unless the fee is not fixed or determinable or collectability is not probable. If the fee is not fixed or determinable, software license revenue is generally recognized as payments become due from the customer. If collectability is not considered probable, revenue is recognized when the fee is collected. Arrangements that include software services, such as training or installation, are evaluated to determine whether those services are essential to the product’s functionality. A majority of our software arrangements involve “off-the-shelf” software. We consider software to be off-the-shelf software if it can be added to an arrangement with minor changes in the underlying code and it can be used by the customer for the customer’s purpose upon installation. For off-the-shelf software arrangements, we recognize the software license fee as revenue after delivery has occurred, customer acceptance is reasonably assured, that portion of the fee represents a non-refundable enforceable claim and is probable of collection, and the remaining services such as training are not considered essential to the product’s functionality. For arrangements that involve significant production, modification or customization of the software, or where software services are otherwise considered essential, we recognize revenue using contract accounting and apply the provisions of the Construction type and Production type Contracts as discussed in ASC 605-35. We generally use the percentage-of-completion method to recognize revenue from these arrangements. We measure progress-to-completion primarily using labor hours incurred, or value added. The percentage-of-completion method generally results in the recognition of reasonably consistent profit margins over the life of a contract because we have the ability to produce reasonably dependable estimates of contract billings and contract costs. We use the level of profit margin that is most likely to occur on a contract. If the most likely profit margin cannot be precisely determined, the lowest probable level of profit margin in the range of estimates is used until the results can be estimated more precisely. These arrangements are often implemented over an extended time period and occasionally require us to revise total cost estimates. Amounts recognized in revenue are calculated using the progress-to-completion measurement after giving effect to any changes in our cost estimates. Changes to total estimated contract costs, if any, are recorded in the period they are determined. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent. For arrangements that include new product releases for which it is difficult to estimate final profitability except to assume that no loss will ultimately be incurred, we recognize revenue under the completed contract method. Under the completed contract method, revenue is recognized only when a contract is completed or substantially complete. Historically these amounts have been immaterial. We recognize royalty revenue when earned under the terms of our third party royalty arrangements, provided the fees are considered fixed or determinable and realization of payment is probable. Currently, our third party royalties are variable in nature and such amounts are not considered fixed or determinable until we receive notice of amounts earned. Typically, we receive notice of royalty revenues earned on a quarterly basis in the immediate quarter following the royalty reporting period. Software Services Some of our software arrangements include services considered essential for the customer to use the software for the customer’s purposes. For these software arrangements, both the software license revenue and the services revenue are recognized as the services are performed using the percentage-of-completion contract accounting method. When software services are not considered essential, the fee allocable to the service element is recognized as revenue as we perform the services. Computer Hardware Equipment Revenue allocable to computer hardware equipment is recognized when we deliver the equipment and collection is probable. Post-Contract Customer Support Our customers generally enter into PCS agreements when they purchase our software licenses. PCS includes telephone and online support, bug fixes, and rights to upgrades on a when-and-if available basis. Our PCS agreements are typically renewable annually. Revenue allocated to PCS is recognized on a straight-line basis over the period the PCS is provided. All significant costs and expenses associated with PCS are expensed as incurred. Subscription-Based Services: Subscription-based services consist of revenues derived from SaaS arrangements, which utilize the Tyler private cloud, and electronic filing transactions. For SaaS arrangements, we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software. In cases where the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and the customer can feasibly maintain the software on the customer’s hardware or enter into another arrangement with a third-party to host the software, we recognize the license, professional services and hosting services revenues pursuant to ASC 985-605, Software Revenue Recognition. For SaaS arrangements that do not meet the criteria for recognition under ASC 985-605, we account for the elements under ASC 605-25, Multiple Element Arrangements, using all applicable facts and circumstances, including whether (i) the element has stand-alone value, (ii) there is a general right of return and (iii) the revenue is contingent on delivery of other elements. We allocate contract value to each element of the arrangement that qualifies for treatment as a separate element based on VSOE, and if VSOE is not available, third-party evidence, and if third-party evidence is unavailable, estimated selling price. We recognize hosting services ratably over the term of the arrangement, which range from one to ten years but are typically for a period of five to seven years. For professional services associated with SaaS arrangements that we determine do not have stand-alone value to the customer or are contingent on delivery of other elements, we recognize the services revenue ratably over the remaining contractual period once we have provided the customer access to the software and we may begin billing for hosting services. We record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. Electronic filing transaction fees primarily pertain to documents filed with the courts by attorneys and other third-parties via our e-filing services and retrieval of filed documents via our access services. The elements for these arrangements are accounted for under ASC 605-25. For each document filed with a court, the filer generally pays a transaction fee and a court filing fee to us and we remit a portion of the transaction fee and the filing fee to the court. We record as revenue the transaction fee, while the portion of the transaction fee remitted to the courts is recorded as cost of sales as we are acting as a principal in the arrangement. Court filing fees collected on behalf of the courts and remitted to the courts are recorded on a net basis and thus do not affect the statement of comprehensive income. In some cases, we are paid on a fixed fee basis and recognize the revenue ratably over the contractual period. Costs of performing services under subscription-based arrangements are expensed as incurred, except for certain direct and incremental contract origination and set-up costs associated with SaaS arrangements. Such direct and incremental costs are capitalized and amortized ratably over the related SaaS hosting term. Appraisal Services: For our property appraisal projects, we recognize revenue using the proportional performance method of revenue recognition since many of these projects are implemented over one to three year periods and consist of various unique activities. Under this method of revenue recognition, we identify each activity for the appraisal project, with a typical project generally calling for bonding, office set up, training, routing of map information, data entry, data collection, data verification, informal hearings, appeals and project management. Each activity or act is specifically identified and assigned an estimated cost. Costs which are considered to be associated with indirect activities, such as bonding costs and office set up, are expensed as incurred. These costs are typically billed as incurred and are recognized as revenue equal to cost. Direct contract fulfillment activities and related supervisory costs such as data collection, data entry and verification are expensed as incurred. The direct costs for these activities are determined and the total contract value is then allocated to each activity based on a consistent profit margin. Each activity is assigned a consistent unit of measure to determine progress towards completion and revenue is recognized for each activity based upon the percentage complete as applied to the estimated revenue for that activity. Progress for the fulfillment activities is typically based on labor hours or an output measure such as the number of parcel counts completed for that activity. Estimated losses on uncompleted contracts are recorded in the period in which we first determine that a loss is apparent. Allocation of Revenue in Statements of Comprehensive Income In our statements of comprehensive income, we allocate revenue to software licenses, software services, maintenance and hardware and other based on the VSOE of fair value for elements in each revenue arrangement and the application of the residual method for arrangements in which we have established VSOE of fair value for all undelivered elements. In arrangements where we are not able to establish VSOE of fair value for all undelivered elements, revenue is first allocated to any undelivered elements for which VSOE of fair value has been established. We then allocate revenue to any undelivered elements for which VSOE of fair value has not been established based upon management’s best estimate of fair value of those undelivered elements and apply a residual method to determine the license fee. Management’s best estimate of fair value of undelivered elements for which VSOE of fair value has not been established is based upon the VSOE of similar offerings and other objective criteria. Other The majority of deferred revenue consists of unearned maintenance revenue that has been billed based on contractual terms in the underlying arrangement with the remaining balance consisting of payments received in advance of revenue being earned under software licensing, subscription-based services, software and appraisal services and hardware installation. Unbilled revenue is not billable at the balance sheet date but is recoverable over the remaining life of the contract through billings made in accordance with contractual agreements. The termination clauses in our contracts generally provide for the payment for the value of products delivered and services performed in the event of an early termination. Prepaid expenses and other current assets include direct and incremental costs such as commissions associated with arrangements for which revenue recognition has been deferred. Such costs are expensed at the time the related revenue is recognized. |
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Use of Estimates | USE OF ESTIMATES The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the application of the percentage-of-completion and proportional performance methods of revenue recognition, the carrying amount and estimated useful lives of intangible assets, determination of share-based compensation expense and valuation allowance for receivables. Actual results could differ from estimates. |
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Property and Equipment, Net | PROPERTY AND EQUIPMENT, NET Property, equipment and purchased software are recorded at original cost and increased by the cost of any significant improvements after purchase. We expense maintenance and repairs when incurred. Depreciation and amortization is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the term of the lease in the case of leasehold improvements. For income tax purposes, we use accelerated depreciation methods as allowed by tax laws. |
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Research and Development Costs | RESEARCH AND DEVELOPMENT COSTS We expensed research and development costs of $47.3 million during 2017, $43.2 million during 2016, and $29.9 million during 2015. |
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Income Taxes | INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the income statement). The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be "realized." On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act reduces the corporate U.S. federal tax rate from a maximum of 35% to a flat 21% rate and transitions from a worldwide tax system to a territorial tax system. Under ASC 740 Income Taxes, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. In the case of U.S. corporate federal income taxes, the enactment date is the date the bill becomes law (i.e., upon presidential signature). See Note 7 - "Income Tax" for further discussion related to the Tax Act. |
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Share-Based Compensation | SHARE-BASED COMPENSATION We have a stock option plan that provides for the grant of stock options to key employees, directors and non-employee consultants. Stock options generally vest after three to six years of continuous service from the date of grant and have a contractual term of 10 years. We account for share-based compensation utilizing the fair value recognition pursuant to ASC 718, Stock Compensation. See Note 9 – “Share-Based Compensation” for further information. |
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Goodwill and Other Intangible Assets | GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including identifiable intangible assets, in connection with our business combinations. Upon acquisition, goodwill is assigned to the reporting unit that is expected to benefit from the synergies of the business combination, which is the reporting unit to which the related acquired technology is assigned. A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by executive management. We assess goodwill for impairment annually as of April, or more frequently whenever events or changes in circumstances indicate its carrying value may not be recoverable. When testing goodwill for impairment quantitatively, we first compare the fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is performed to measure the amount of potential impairment. In the second step, we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized. The fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions. The assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value. We evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization. Our annual goodwill impairment analysis, which we performed quantitatively during the second quarter of 2017, did not result in an impairment charge. Other Intangible Assets We make judgments about the recoverability of purchased intangible assets other than goodwill whenever events or changes in circumstances indicate that an impairment may exist. Customer base and acquired software each comprise approximately half of our purchased intangible assets other than goodwill. We review our customer turnover each year for indications of impairment. Our customer turnover has historically been very low. There have been no significant impairments of intangible assets in any of the periods presented. If indications of impairment are determined to exist, we measure the recoverability of assets by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. |
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Impairment of Long-Lived Assets | IMPAIRMENT OF LONG-LIVED ASSETS We periodically evaluate whether current facts or circumstances indicate that the carrying value of our property and equipment or other long-lived assets to be held and used may not be recoverable. If such circumstances are determined to exist, we measure the recoverability of assets to be held and used by a comparison of the carrying amount of the asset or appropriate grouping of assets and the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of the assets exceeds their estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. There have been no significant impairments of long-lived assets in any of the periods presented. |
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Costs of Computer Software | COSTS OF COMPUTER SOFTWARE We capitalize software development costs upon the establishment of technological feasibility and prior to the availability of the product for general release to customers. Software development costs primarily consist of personnel costs and rent for related office space. We begin to amortize capitalized costs when a product is available for general release to customers. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the product’s remaining estimated economic life. We have not capitalized any internal software development costs in any of the periods presented. |
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Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, accounts receivables, accounts payables, short-term obligations and certain other assets at cost approximate fair value because of the short maturity of these instruments. The fair value of our revolving line of credit approximates book value as of December 31, 2017, because our interest rates reset approximately every 30 days or less. See Note 6 – “Revolving Line of Credit” for further discussion. As of December 31, 2017, we have $63.8 million in investment grade corporate bonds, municipal bonds and asset-backed securities with maturity dates ranging from 2017 through 2021. We intend to hold these bonds to maturity and have classified them as such. We believe cost approximates fair value because of the relatively short duration of these investments. The fair values of these securities are considered Level II as they are based on inputs from quoted prices in markets that are not active or from other observable market data. These investments are included in short-term investments and non-current investments and other assets. As of December 31, 2017, we have $15.0 million invested in convertible preferred stock representing a 20% interest in Record Holdings Pty Limited, a privately held Australian company specializing in digitizing the spoken word in court and legal proceedings. The investment in convertible preferred stock is accounted under the cost method because the Company does not have the ability to exercise significant influence over the investee and the securities do not have readily determinable fair values. Our investment is carried at cost less any impairment write-downs. Annually, the Company’s cost method investments are assessed for impairment. The Company does not reassess the fair value of cost method investments if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. This investment is included in non-current investments and other assets in the accompanying consolidated balance sheets. |
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Concentrations of Credit Risk and Unbilled Receivables | CONCENTRATIONS OF CREDIT RISK AND UNBILLED RECEIVABLES Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable from trade customers, and investments in marketable securities. Our cash and cash equivalents primarily consists of operating account balances and money market funds, which are maintained at several major domestic financial institutions and the balances often exceed insured amounts. As of December 31, 2017, we had cash and cash equivalents of $185.9 million. We perform periodic evaluations of the credit standing of these financial institutions. Concentrations of credit risk with respect to receivables are limited due to the size and geographical diversity of our customer base. Historically, our credit losses have not been significant. As a result, we do not believe we have any significant concentrations of credit risk as of December 31, 2017. We maintain allowances for doubtful accounts and sales adjustments, which are provided at the time the revenue is recognized. Since most of our customers are domestic governmental entities, we rarely incur a loss resulting from the inability of a customer to make required payments. Events or changes in circumstances that indicate that the carrying amount for the allowances for doubtful accounts and sales adjustments may require revision, include, but are not limited to, deterioration of a customer’s financial condition, failure to manage our customer’s expectations regarding the scope of the services to be delivered, and defects or errors in new versions or enhancements of our software products. The following table summarizes the changes in the allowances for doubtful accounts and sales adjustments:
The termination clauses in most of our contracts provide for the payment for the value of products delivered or services performed in the event of early termination. Our property appraisal outsourcing service contracts can range up to three years and, in a few cases, as long as five years, in duration. In connection with these contracts, as well as certain software service contracts, we may perform work prior to when the software and services are billable and/or payable pursuant to the contract. We have historically recorded such unbilled receivables (costs and estimated profit in excess of billings) in connection with (1) property appraisal services contracts accounted for using proportional performance accounting in which the revenue is earned based upon activities performed in one accounting period but the billing normally occurs subsequently and may span another accounting period; (2) software services contracts accounted for using the percentage-of-completion method of revenue recognition using labor hours as a measure of progress towards completion in which the services are performed in one accounting period but the billing for the software element of the arrangement may be based upon the specific phase of the implementation; (3) software revenue for which we have objective evidence that the customer-specified objective criteria has been met but the billing has not yet been submitted to the customer; (4) some of our contracts provide for an amount to be withheld from a progress billing (generally between 5% and 20% retention) until final and satisfactory project completion is achieved; and (5) in a limited number of cases, we may grant extended payment terms, generally to existing customers with whom we have a long-term relationship and favorable collection history. We have recorded unbilled receivables of $42.6 million and $33.6 million at December 31, 2017 and 2016, respectively. Included in unbilled receivables are retention receivables of $7.2 million and $5.0 million at December 31, 2017 and 2016, respectively, and these retentions become payable upon the completion of the contract or completion of our fieldwork and formal hearings. Unbilled receivables and retention receivables expected to be collected in excess of one year have been included with accounts receivable, long-term portion in the accompanying consolidated balance sheets. |
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Indemnification | INDEMNIFICATION Most of our software license agreements indemnify our customers in the event that the software sold infringes upon the intellectual property rights of a third-party. These agreements typically provide that in such event we will either modify or replace the software so that it becomes non-infringing or procure for the customer the right to use the software. We have recorded no liability associated with these indemnifications, as we are not aware of any pending or threatened infringement actions that are possible losses. We believe the estimated fair value of these intellectual property indemnification clauses is minimal. We have also agreed to indemnify our officers and board members if they are named or threatened to be named as a party to any proceeding by reason of the fact that they acted in such capacity. We maintain directors’ and officers’ liability insurance coverage to protect against any such losses. We have recorded no liability associated with these indemnifications. Because of our insurance coverage, we believe the estimated fair value of these indemnification agreements is minimal. |
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Reclassifications | RECLASSIFICATIONS Certain amounts for previous years have been reclassified to conform to the current year presentation. |
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New Accounting Pronouncements | NEW ACCOUNTING PRONOUNCEMENTS Recent Accounting Guidance not yet Adopted Revenue from Contracts with Customers. On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU is the result of a convergence project between the FASB and the International Accounting Standards Board. The core principle behind ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The ASU allows two methods of adoption: a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements. We have adopted the new standard effective January 1, 2018 using the full retrospective method which will require each prior reporting period presented to be recast in future issuance of our financial statements. In preparation for adoption of the standard, we have implemented internal controls and key system functionality to enable the preparation of financial information and have reached conclusions on key accounting assessments related to the standard. During the fourth quarter of fiscal 2017, we have substantially completed data conversion activities required to recast our prior period results. We continue to perform an in-depth review of our preliminary results; therefore, we are in the process of completing our analysis necessary to recast prior period results. We do not believe there are any remaining significant implementation topics associated with the adoption of this ASU that have not yet been addressed. This standard will have a material impact on our consolidated balance sheets and statement of shareholders’ equity. The impact of the standard on consolidated revenue and costs of revenue will be dependent upon the mix of revenue streams due to our accounting for software license fees, allocation of discounts across all performance obligations and to the incremental costs of obtaining a contract. Specifically, under the new standard software license fees under perpetual agreements will no longer be subject to 100% discount allocations from other elements in the contract. Discounts in arrangements will be allocated across all deliverables increasing license revenues and decreasing revenues allocated to other performance obligations. In addition, in most cases, net license fees (total license fees less any allocated discounts) will be recognized at the point in time that control of the software license transfers to the customer versus our current policy of recognizing revenue only to the extent billable per the contractual terms. Time-based license fees currently recognized over the license term will no longer be recognized over the period of the license and will instead be recognized at the point in time that control of the software license transfers to the customer. Revenue related to our software as a service (“SaaS”) offerings, post-contract customer support ("PCS") renewals and professional services remain substantially unchanged. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms and may vary in some instances from recognition at the time of billing. Application of the new standard requires that incremental costs directly related to obtaining a contract (typically sales commissions plus any associated fringe benefits) must be recognized as an asset and expensed on a systematic basis that is consistent with the transfer to the customer of the goods and services to which the asset relates, unless that life is less than one year. Currently, we defer sales commissions and recognize expense over the relevant initial contractual term. With the adoption of the new standard, amortization periods will extend past the initial term. Leases. On February 25, 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods therein. Early application is permitted for all business entities upon issuance. We are assessing the financial impact of adopting the new standard; however, we are currently unable to provide a reasonable estimate regarding the financial impact. We will adopt the new standard in fiscal year 2019. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Adjustments in Allowances for Doubtful Accounts and Sales Adjustments | The following table summarizes the changes in the allowances for doubtful accounts and sales adjustments:
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Property and Equipment, Net (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Property and Equipment, Net | Property and equipment, net consists of the following at December 31:
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Goodwill and Other Intangible Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Other Intangible Assets and Related Accumulated Amortization | Other intangible assets and related accumulated amortization consists of the following at December 31:
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Summary of Allocation of Acquisition Intangible Assets | The allocation of acquisition intangible assets is summarized in the following table:
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Summary of Changes in Carrying Amount of Goodwill | The changes in the carrying amount of goodwill for the two years ended December 31, 2017 are as follows:
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Summary of Estimated Annual Amortization Expense | Estimated annual amortization expense related to acquisition intangibles, including acquired software, for which the amortization expense is recorded as cost of revenues, is as follows:
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Accrued Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Liabilities, Current [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Accrued Liabilities | Accrued liabilities consist of the following at December 31:
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Income Tax (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Provision (Benefit) on Income from Operations | The income tax (benefit) provision on income from operations consists of the following:
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Reconciliation of U.S. Statutory Income Tax Rate to Effective Income Tax Expense Rate | Reconciliation of the U.S. statutory income tax rate to our effective income tax expense rate for operations follows:
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Schedule of Deferred Tax Assets and Liabilities | The tax effects of the major items recorded as deferred tax assets and liabilities as of December 31 are:
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Shareholders' Equity (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Activities in Common Stock | The following table details activity in our common stock:
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Share-Based Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Weighted Average Assumptions Used for Options Granted | The following weighted average assumptions were used for options granted:
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Summary of Share-Based Compensation Expense Related to Share-Based Awards | The following table summarizes share-based compensation expense related to share-based awards which is recorded in the statements of comprehensive income:
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Stock Option Activity | Other information pertaining to option activity was as follows during the twelve months ended December 31:
Options granted, exercised, forfeited and expired are summarized as follows:
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Earnings Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of Basic Earnings and Diluted Earnings Per Share Data | Basic earnings and diluted earnings per share data were computed as follows:
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Leases (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Summary of Future Minimum Lease Payments | Future minimum lease payments under all non-cancelable leases at December 31, 2017 are as follows:
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Segment and Related Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Revenues and Operations | the year ended December 31, 2017
For the year ended December 31, 2016
For the year ended December 31, 2015
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Reconciliation of Operating Income from Segments to Consolidated |
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Quarterly Financial Information (unaudited) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Quarterly Financial Information | The following table contains selected financial information from unaudited statements of income for each quarter of 2017 and 2016:
(a) Fourth quarter 2017 includes the significant impact of the enactment of the Tax Act. The most significant impact of the Tax Act to us is the reduction in the U.S. federal corporate income tax rate from 35% to 21%. The impact of the rate reduction on our 2017 income tax provision is a $21.6 million tax benefit due to the remeasurement of deferred tax assets and liabilities. Refer to Note 7 - "Income Tax" for further discussion on the impact the Tax Act. |
Summary of Significant Accounting Policies - Summary of Adjustments in Allowances for Doubtful Accounts and Sales Adjustments (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Allowance for Doubtful Accounts Receivable [Roll Forward] | |||
Balance at beginning of year | $ 3,396 | $ 1,640 | $ 1,725 |
Provisions for losses - accounts receivable | 4,110 | 4,484 | 1,756 |
Collection of accounts previously written off | 0 | 0 | 153 |
Deductions for accounts charged off or credits issued | (2,079) | (2,728) | (1,994) |
Balance at end of year | $ 5,427 | $ 3,396 | $ 1,640 |
Property and Equipment, Net - Additional Information (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Property, Plant and Equipment [Line Items] | |||
Depreciation expense | $ 17.3 | $ 13.4 | $ 9.1 |
Lease expiration year, earliest | 2019 | ||
Lease expiration year, latest | 2025 | ||
Expected rental income, during 2018 | $ 1.5 | ||
Expected rental income, during 2019 | 1.4 | ||
Expected rental income, during 2020 | 1.4 | ||
Expected rental income, during 2021 | 1.4 | ||
Expected rental income, during 2022 | 1.5 | ||
Expected rental income, thereafter | 4.3 | ||
Rental income from third party tenants in 2016, 2015, and 2014 | 1.5 | 1.7 | $ 0.9 |
Latham, New York | |||
Property, Plant and Equipment [Line Items] | |||
Payment to acquire building | 2.9 | ||
Payment for construction to expand building | 2.1 | ||
Yarmouth, Maine | |||
Property, Plant and Equipment [Line Items] | |||
Payment to acquire building | 9.7 | ||
Payment for construction to expand building | $ 19.4 | $ 8.0 |
Goodwill and Other Intangible Assets - Summary of Other Intangible Assets and Related Accumulated Amortization (Detail) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Acquisition intangibles, gross | $ 382,312 | $ 377,086 |
Accumulated amortization | (145,868) | (109,827) |
Total intangibles, net | 236,444 | 267,259 |
Customer related intangibles | ||
Finite-Lived Intangible Assets [Line Items] | ||
Acquisition intangibles, gross | 187,717 | 186,231 |
Accumulated amortization | (64,375) | (51,491) |
Acquired software | ||
Finite-Lived Intangible Assets [Line Items] | ||
Acquisition intangibles, gross | 179,466 | 176,096 |
Accumulated amortization | (76,800) | (55,115) |
Trade names | ||
Finite-Lived Intangible Assets [Line Items] | ||
Acquisition intangibles, gross | 11,435 | 11,065 |
Accumulated amortization | (3,768) | (2,740) |
Leases acquired | ||
Finite-Lived Intangible Assets [Line Items] | ||
Acquisition intangibles, gross | 3,694 | 3,694 |
Accumulated amortization | $ (925) | $ (481) |
Goodwill and Other Intangible Assets - Summary of Changes in Carrying Amount of Goodwill (Detail) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
|
Goodwill [Roll Forward] | ||
Goodwill Beginning Balance | $ 650,237 | $ 653,666 |
Goodwill acquired | 7,750 | 3,943 |
Purchase price adjustments related to purchase of NWS | (7,372) | |
Goodwill Ending Balance | 657,987 | 650,237 |
Enterprise Software Solutions | ||
Goodwill [Roll Forward] | ||
Goodwill Beginning Balance | 643,680 | 647,109 |
Goodwill acquired | 7,750 | 3,943 |
Purchase price adjustments related to purchase of NWS | (7,372) | |
Goodwill Ending Balance | 651,430 | 643,680 |
Appraisal and Tax Software Solutions and Services | ||
Goodwill [Roll Forward] | ||
Goodwill Beginning Balance | 6,557 | 6,557 |
Goodwill acquired | 0 | 0 |
Purchase price adjustments related to purchase of NWS | 0 | |
Goodwill Ending Balance | $ 6,557 | $ 6,557 |
Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Finite-Lived Intangible Assets [Line Items] | |||
Total amortization expense | $ 36,000 | $ 36,400 | $ 10,300 |
Amortization expense, 2018 | 35,278 | ||
Amortization expense, 2019 | 33,920 | ||
Amortization expense, 2020 | 32,495 | ||
Amortization expense, 2021 | 32,136 | ||
Amortization expense, 2022 | 28,665 | ||
Leases acquired | |||
Finite-Lived Intangible Assets [Line Items] | |||
Amortization expense, 2018 | 425 | ||
Amortization expense, 2019 | 373 | ||
Amortization expense, 2020 | 313 | ||
Amortization expense, 2021 | 312 | ||
Amortization expense, 2022 | 312 | ||
Amortization expense, thereafter | $ 1,000 |
Goodwill and Other Intangible Assets - Summary of Estimated Annual Amortization Expense (Detail) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
2018 | $ 35,278 |
2019 | 33,920 |
2020 | 32,495 |
2021 | 32,136 |
2022 | $ 28,665 |
Accrued Liabilities - Summary of Accrued Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Accrued Liabilities, Current [Abstract] | ||
Accrued wages, bonuses and commissions | $ 43,688 | $ 38,996 |
Other accrued liabilities | 20,987 | 16,993 |
Accrued liabilities | $ 64,675 | $ 55,989 |
Income Tax - Income Tax Provision (Benefit) on Income From Operations (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | |||
Federal | $ 22,882 | $ 41,366 | $ 44,841 |
State | 4,666 | 7,023 | 6,670 |
Current income tax expense benefit | 27,548 | 48,389 | 51,511 |
Deferred | (29,865) | (28,939) | (7,956) |
Income tax expense benefit | $ (2,317) | $ 19,450 | $ 43,555 |
Income Tax - Reconciliation of U.S. Statutory Income Tax Rate to Effective Income Tax Rate (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | |||
Federal income tax expense at statutory rate | $ 56,570 | $ 45,257 | $ 37,949 |
State income tax, net of federal income tax benefit | 4,824 | 4,807 | 3,715 |
Domestic production activities deduction | (2,617) | (3,947) | (466) |
Excess tax benefits related to stock option exercises | (40,624) | (29,582) | 0 |
Tax Act adjustments | (21,625) | 0 | 0 |
Tax credits | (3,578) | 0 | 0 |
Non-deductible business expenses | 4,573 | 2,979 | 2,414 |
Other, net | 160 | (64) | (57) |
Income tax expense benefit | $ (2,317) | $ 19,450 | $ 43,555 |
Income Tax - Schedule of Deferred Tax Assets and Liabilities (Detail) - USD ($) $ in Thousands |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Income Tax Disclosure [Abstract] | ||
Operating expenses not currently deductible | $ 11,232 | $ 18,721 |
Stock option and other employee benefit plans | 15,932 | 19,665 |
Total deferred income tax assets | 27,164 | 38,386 |
Intangible assets | (60,189) | (103,754) |
Property and equipment | (5,699) | (3,207) |
Other | (190) | (204) |
Total deferred income tax liabilities | (66,078) | (107,165) |
Net deferred income tax liabilities | $ (38,914) | $ (68,779) |
Income Tax - Additional Information (Detail) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | |||
Tax Cuts and Jobs Act of 2017, change in tax rate, income tax benefit | $ 21,625,000 | $ 0 | $ 0 |
Deferred tax assets, valuation allowance | 0 | ||
Unrecognized tax benefits | 0 | 0 | |
Income taxes, net of refunds | $ 36,000,000 | $ 30,200,000 | $ 27,300,000 |
Shareholders' Equity - Summary of Activities in Common Stock (Detail) - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Equity [Abstract] | |||
Issuance of shares pursuant to stock compensation plan, shares | 1,113 | 827 | 1,118 |
Purchases of common stock, Shares | (44) | (882) | (5) |
Employee stock plan purchases, Shares | 51 | 47 | 43 |
Shares issued for acquisitions, Shares | 2,149 | ||
Issuance of shares pursuant to stock compensation plan | $ 49,845 | $ 23,527 | $ 23,160 |
Purchases of common stock, Amount | (6,613) | (112,699) | (645) |
Employee stock plan purchases, Amount | $ 7,044 | $ 6,236 | 4,671 |
Shares issued for acquisitions, Amount | $ 364,333 |
Shareholders' Equity - Additional Information (Detail) shares in Millions |
Feb. 20, 2018
shares
|
---|---|
Subsequent Event | |
Class Of Stock [Line Items] | |
Number of shares authorized to be repurchased | 2.0 |
Share-Based Compensation - Summary of Weighted Average Assumptions Used for Options Granted (Detail) - Stock Option Plan |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Expected life (in years) | 6 years | 6 years | 6 years |
Expected volatility | 28.10% | 29.30% | 28.30% |
Risk-free interest rate | 2.00% | 1.80% | 1.70% |
Expected forfeiture rate | 0.00% | 0.00% | 1.70% |
Share-Based Compensation - Summary of Share-Based Compensation Expense Related to Share-Based Awards (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | |||
Total share-based compensation expenses | $ 37,348 | $ 29,747 | $ 20,182 |
Tax benefit | (40,624) | (30,059) | (5,986) |
Net (increase) decrease in net income | (3,276) | (312) | 14,196 |
Cost of software services, maintenance and subscriptions | |||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | |||
Share-based compensation expense | 9,415 | 6,548 | 3,380 |
Selling, general and administrative expenses | |||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | |||
Share-based compensation expense | $ 27,933 | $ 23,199 | $ 16,802 |
Share-Based Compensation - Other Information Pertaining to Option Activity (Detail) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||
Weighted average grant-date fair value of stock options granted | $ 55.56 | $ 46.89 | $ 45.17 |
Total intrinsic value of stock options exercised | $ 137,699 | $ 103,703 | $ 149,542 |
Earnings Per Share - Computation of Basic Earnings and Diluted Earnings Per Share Data (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Earnings Per Share [Abstract] | |||||||||||
Net income | $ 61,798 | $ 38,263 | $ 31,578 | $ 32,306 | $ 31,196 | $ 35,430 | $ 25,007 | $ 18,224 | $ 163,945 | $ 109,857 | $ 64,869 |
Weighted-average basic common shares outstanding | 37,273 | 36,448 | 34,137 | ||||||||
Stock options | 1,973 | 2,513 | 2,415 | ||||||||
Denominator for diluted earnings per share - Adjusted weighted-average shares | 39,499 | 39,342 | 39,201 | 38,932 | 38,975 | 39,062 | 38,738 | 39,071 | 39,246 | 38,961 | 36,552 |
Basic (USD per share) | $ 4.40 | $ 3.01 | $ 1.90 | ||||||||
Diluted (USD per share) | $ 1.56 | $ 0.97 | $ 0.81 | $ 0.83 | $ 0.80 | $ 0.91 | $ 0.65 | $ 0.47 | $ 4.18 | $ 2.82 | $ 1.77 |
Earnings Per Share - Additional Information (Detail) - shares shares in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Earnings Per Share [Abstract] | |||
Antidilutive securities excluded from computation of earnings per share, amount | 1,343 | 786 | 417 |
Leases - Additional Information (Detail) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Operating Leased Assets [Line Items] | |||
Operating lease expiration year | 2025 | ||
Rent expense | $ 6,900 | $ 6,700 | $ 7,200 |
Related Party Transaction | |||
Operating Leased Assets [Line Items] | |||
Rent expense | $ 150 | $ 330 | $ 1,800 |
Leases - Summary of Future Minimum Lease Payments (Detail) $ in Thousands |
Dec. 31, 2017
USD ($)
|
---|---|
Leases [Abstract] | |
2018 | $ 5,428 |
2019 | 4,201 |
2020 | 3,644 |
2021 | 2,366 |
2022 | 812 |
Thereafter | 499 |
Total | $ 16,950 |
Employee Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Defined Benefit Plan Disclosure [Line Items] | |||
Percentage of employee contribution | 30.00% | ||
Defined contribution plan, cost recognized | $ 7.9 | $ 6.9 | $ 5.3 |
Maximum | |||
Defined Benefit Plan Disclosure [Line Items] | |||
Percentage of employer contribution | 3.00% |
Commitments and Contingencies - Additional Information (Detail) |
Dec. 31, 2017
LegalMatter
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
Number of material legal proceedings pending | 0 |
Segment and Related Information - Additional Information (Detail) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2017
USD ($)
Business_Unit
Segment
|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
|
Segment Reporting Information [Line Items] | |||
Number of business units | Business_Unit | 4 | ||
Capital expenditure for purchase of buildings and land | $ 43,057 | $ 37,726 | $ 12,501 |
Enterprise Software Solutions | |||
Segment Reporting Information [Line Items] | |||
Number of reportable segment | Segment | 1 | ||
Capital expenditure for purchase of buildings and land | $ 24,400 | $ 17,700 |
Segment and Related Information - Schedule of Segment Revenues and Operations (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Segment Reporting Information [Line Items] | |||||||||||
Software licenses and royalties | $ 75,694 | $ 74,306 | $ 59,008 | ||||||||
Subscriptions | 173,510 | 142,704 | 111,933 | ||||||||
Software services | 187,149 | 174,804 | 139,852 | ||||||||
Maintenance | 361,569 | 322,969 | 245,537 | ||||||||
Appraisal services | 25,023 | 26,287 | 25,065 | ||||||||
Hardware and other | 17,717 | 14,973 | 9,627 | ||||||||
Intercompany | 0 | ||||||||||
Total revenues | $ 217,851 | $ 214,146 | $ 209,123 | $ 199,542 | $ 193,281 | $ 194,497 | $ 188,972 | $ 179,293 | 840,662 | 756,043 | 591,022 |
Depreciation and amortization expense | 53,925 | 50,301 | 19,574 | ||||||||
Segment operating income | 196,528 | 167,271 | 118,388 | ||||||||
Capital expenditures | 45,618 | 36,723 | 13,504 | ||||||||
Segment assets | 1,589,592 | 1,357,945 | 1,589,592 | 1,357,945 | 1,356,570 | ||||||
Operating segments | Enterprise Software Solutions | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Software licenses and royalties | 67,840 | 68,844 | 54,376 | ||||||||
Subscriptions | 165,651 | 135,516 | 107,090 | ||||||||
Software services | 167,934 | 158,478 | 129,068 | ||||||||
Maintenance | 339,951 | 304,380 | 227,586 | ||||||||
Appraisal services | 0 | ||||||||||
Hardware and other | 13,094 | 11,942 | 6,935 | ||||||||
Intercompany | 10,425 | 6,742 | 4,025 | ||||||||
Total revenues | 764,895 | 685,902 | 529,080 | ||||||||
Depreciation and amortization expense | 44,517 | 43,962 | 15,413 | ||||||||
Segment operating income | 228,254 | 190,817 | 141,401 | ||||||||
Capital expenditures | 28,096 | 23,843 | 6,112 | ||||||||
Segment assets | 338,965 | 295,260 | 338,965 | 295,260 | 265,877 | ||||||
Operating segments | Appraisal and Tax Software Solutions and Services | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Software licenses and royalties | 7,854 | 5,462 | 4,632 | ||||||||
Subscriptions | 7,859 | 7,188 | 4,843 | ||||||||
Software services | 19,215 | 16,326 | 10,784 | ||||||||
Maintenance | 21,618 | 18,589 | 17,951 | ||||||||
Appraisal services | 25,023 | 26,287 | 25,065 | ||||||||
Hardware and other | 10 | 16 | 12 | ||||||||
Intercompany | 0 | ||||||||||
Total revenues | 81,579 | 73,868 | 63,287 | ||||||||
Depreciation and amortization expense | 760 | 984 | 867 | ||||||||
Segment operating income | 20,238 | 18,286 | 15,477 | ||||||||
Capital expenditures | 1,181 | 1,432 | 646 | ||||||||
Segment assets | 44,464 | 31,769 | 44,464 | 31,769 | 22,283 | ||||||
Corporate | |||||||||||
Segment Reporting Information [Line Items] | |||||||||||
Software licenses and royalties | 0 | ||||||||||
Subscriptions | 0 | ||||||||||
Software services | 0 | ||||||||||
Maintenance | 0 | ||||||||||
Appraisal services | 0 | ||||||||||
Hardware and other | 4,613 | 3,015 | 2,680 | ||||||||
Intercompany | (10,425) | (6,742) | (4,025) | ||||||||
Total revenues | (5,812) | (3,727) | (1,345) | ||||||||
Depreciation and amortization expense | 8,648 | 5,355 | 3,294 | ||||||||
Segment operating income | (51,964) | (41,832) | (38,490) | ||||||||
Capital expenditures | 16,341 | 11,448 | 6,746 | ||||||||
Segment assets | $ 1,206,163 | $ 1,030,916 | $ 1,206,163 | $ 1,030,916 | $ 1,068,410 |
Quarterly Financial Information (unaudited) - Summary of Selected Financial Information (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2017 |
Sep. 30, 2017 |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Revenues | $ 217,851 | $ 214,146 | $ 209,123 | $ 199,542 | $ 193,281 | $ 194,497 | $ 188,972 | $ 179,293 | $ 840,662 | $ 756,043 | $ 591,022 |
Gross profit | 105,500 | 103,429 | 95,863 | 94,348 | 92,817 | 93,480 | 86,936 | 82,118 | 399,140 | 355,351 | 277,187 |
Income before income taxes | 45,173 | 43,522 | 36,974 | 35,959 | 35,119 | 36,419 | 30,195 | 27,574 | |||
Net income | $ 61,798 | $ 38,263 | $ 31,578 | $ 32,306 | $ 31,196 | $ 35,430 | $ 25,007 | $ 18,224 | $ 163,945 | $ 109,857 | $ 64,869 |
Diluted (USD per share) | $ 1.56 | $ 0.97 | $ 0.81 | $ 0.83 | $ 0.80 | $ 0.91 | $ 0.65 | $ 0.47 | $ 4.18 | $ 2.82 | $ 1.77 |
Shares used in computing diluted earnings per share | 39,499 | 39,342 | 39,201 | 38,932 | 38,975 | 39,062 | 38,738 | 39,071 | 39,246 | 38,961 | 36,552 |
Tax Cuts and Jobs Act of 2017, change in tax rate, income tax benefit | $ 21,625 | $ 0 | $ 0 |
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