TYLER TECHNOLOGIES INC
For the period ended Mar 31, 2026. Filed Apr 29, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2026 · Filed Apr 29, 2026
TYL$420.56-2.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-09-30; filed 2025-10-29.
0000860731-25-000046
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-03-31; filed 2026-04-29.
0000860731-26-000032
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 107 previous paragraphs and 108 current paragraphs.
36 unchanged; 57 reworded; 15 added; 14 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 22 previous and 22 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (15)
Current report
Reclassifications
Current report
As of January 1, 2026, we have elected to combine software license and royalties revenue and hardware and other revenue into a single revenue category, along with a corresponding adjustment within cost of revenues on the condensed consolidated statement of income for all reporting periods presented to simplify presentation and enhance the usefulness of our financial statements.
Current report
For the three months ended March 31, 2026, SaaS fees grew 23%, compared to the prior period. The growth is primarily due to sales to new clients and expansions with existing clients, along with new SaaS revenues from existing on-premises clients converting to our SaaS offerings. Annual price increases for existing clients also contributed to the growth.
Current report
For the three months ended March 31, 2026, contributing to the growth in transaction-based fees compared to prior period are the new transaction clients and volume increases from online payments and e-filing services, somewhat offset by the decline in revenues of approximately $12.3 million due to the wind-down in the fourth quarter of 2025 of one state payment processing contract.
Current report
Other
Current report
The following table sets forth a comparison of other revenue for the three months ended March 31 ($ in thousands):
Current report
Other
Current report
The following table sets forth a comparison of other costs for the three months ended March 31 ($ in thousands):
Current report
Other costs for the three months ended March 31, 2026, increased 66% compared to the prior period. The increase was primarily driven by higher computer hardware sales.
Current report
G&A expense as a percentage of revenue was 13.7% for the three months ended March 31, 2026 compared to 14.1% for the three months ended March 31, 2025. G&A expense increased 6% for the three months ended March 31, 2026, compared to the prior period. For the three months ended March 31, 2026, the increase in G&A expense was primarily attributable to a $4.7 million write-off of previously capitalized software projects.
Current report
Amortization of other intangibles remained flat for the three months ended March 31, 2026, compared to the prior period.
Current report
For the three months ended March 31, 2026, the ES segment operating income increased 17%, primarily driven by a $66.6 million rise in subscription revenues resulting from the continued shift toward SaaS arrangements for both new and existing clients, as well as growth in certain transaction-based revenues. This increase was partially offset by higher expenses, including a $15.1 million increase in merchant fees, a $10.1 million increase in personnel expenses, and a $4.6 million increase in hosting fees. Also partially offsetting the increases is a $4.6 million decline in maintenance revenue, professional services revenue, and other revenues.
Current report
For the three months ended March 31, 2026, the PT segment operating income decreased 41%, driven by a $4.9 million increase in personnel expenses, higher G&A expenses, including a $4.7 million write-off related to previously capitalized software projects, and $1.9 million in lower professional services revenue. Also contributing to the decrease is a decline of approximately $12.3 million in transaction-based revenues, partially offset by a corresponding $10.5 million reduction in merchant fees, following the wind-down in the fourth quarter of 2025 of a state payment processing contract.
Current report
On March 15, 2026, the Company repaid the $600.0 million aggregate principal amount of its 0.25% Convertible Senior Notes due 2026 (the “Notes”) in cash at maturity. No conversions of the Notes occurred prior to or at maturity as the Company’s common stock price did not exceed the conversion price during the relevant periods for redemption, and no other conversion conditions were met. As a result, the entire principal amount was settled in cash, and no shares of common stock were issued upon settlement.
Current report
On February 2, 2026, we signed a definitive agreement to acquire the remaining equity interest of a privately held company in which, as of March 31, 2026, we held a minority interest. The agreement, which was subject to the satisfaction of customary closing conditions and regulatory approvals, closed on April 14, 2026. The transaction has a cash purchase price of approximately $223 million subject to customary post-closing adjustments.
Removed paragraphs (14)
Previous report
On July 28, 2025, we acquired Emergency Networking, Inc (“EN”). EN is a SaaS company specializing in cloud-native software for fire departments and emergency medical services (EMS) agencies. The total cash purchase price, net of cash acquired of $497,000, was approximately $19.4 million, subject to certain post-closing adjustments, including holdbacks of $2.5 million. The actual operating results of EN are included with the operating results of the ES segment since the date of acquisition.
Previous report
For the three and nine months ended September 30, 2025, SaaS fees grew 20% and 21%, respectively, compared to the prior period. That growth is primarily attributable to new SaaS clients as well as existing on-premises clients who converted to our SaaS model. Since September 30, 2024, we have added 608 new SaaS clients, while 451 existing on-premises clients have converted to our SaaS offerings. For both the nine months ended September 30, 2025, and September 30, 2024, our new software client mix was approximately 89% subscription-based arrangements and approximately 11% perpetual software license arrangements.
Previous report
For the three and nine months ended September 30, 2025, transaction-based fees grew 11% and 17%, respectively, compared to the prior period. For the three and nine months ended September 30, 2025, volume increases from online payments from new and existing customers contributed approximately $13.9 million and $58.8 million, respectively, to the growth in transactions fees compared to prior period, and price increases by certain third-party processing partners from whom we receive a share of revenues contributed the remainder of the growth for both periods, respectively, compared to the prior period.
Previous report
Software licenses and royalties
Previous report
The following table sets forth a comparison of our software licenses and royalties revenue for the three and nine months ended September 30 ($ in thousands):
Previous report
Software licenses and royalties.
Previous report
The following table sets forth a comparison of our costs of software licenses and royalties for the three and nine months ended September 30 ($ in thousands):
Previous report
The cost of software licenses and royalties for the three and nine months ended September 30, 2025, decreased 11% and increased 8% respectively, compared to prior period. The decrease in the three month period was primarily due to timing of third-party software costs incurred, while the increase for the nine month period was driven by higher third-party software costs.
Previous report
G&A expense as a percentage of revenue was 13.4% for both the three and nine months ended September 30, 2025, compared to 13.3% and 13.8%, respectively, for the three and nine months ended September 30, 2024. G&A expense increased 10% and 7%, respectively, for the three and nine months ended September 30, 2025, compared to the prior period. For the three months ended September 30, 2025, the increase in G&A expense is primarily attributable to an increase of $4.2 million in personnel expenses, a $1.4 million increase in professional fees expense, and a $1.6 million increase in certain IT-related costs. For the nine months ended September 30, 2025, the G&A expense increase is attributed to a $7.2 million increase in personnel expenses, a $2.8 million increase in professional fees expense, and a $6.1 million increase in share-based compensation expense due to the higher stock price for share-based awards issued in the current period.
Previous report
Amortization of other intangibles increased 3% for the three months ended September 30, 2025, due to amortization of other intangibles from acquisitions completed during the 2025 fiscal year. For the nine months ended September 30, 2025, amortization of other intangibles decreased 8% for the nine months ended September 30, 2025, compared to the prior period due to the impact of certain trade name intangible assets becoming fully amortized as a result of accelerated amortization expense in 2024.
Previous report
For both the three and nine months ended September 30, 2025, the increase of 25% in the ES segment operating income is primarily due to the $50.7 million and $155.4 million, respectively, increase in subscription revenues as a result of the ongoing shift toward SaaS arrangements for both new and existing clients, along with growth in certain transaction-based revenues from new and existing customers. For the three and nine months ended September 30, 2025, these increases are partially offset by lower revenue of $2.4 million and $14.2 million, respectively, compared to prior period from software licenses, maintenance, and professional services. Also partially offsetting the increase in segment operating income for the three and nine months ended September 30, 2025, are increases in total personnel expenses of $13.6 million and $27.7 million, respectively and increases in total hosting costs of $4.5 million and $13.1 million compared to the prior period.
Previous report
The decreases for the three and nine months ended September 30, 2025, in the PT segment operating income are primarily due to the $13.5 million decline in professional services revenue attributed to loss reserves of approximately $8.5 million for contracts with agencies within two state governments. Higher merchant fees also contributed to the decline in operating income.
Previous report
On July 4, 2025, the reconciliation bill, commonly referred to as the OBBBA was signed into law, which includes a broad range of tax reform provisions that may affect our Company. The OBBBA allows an elective deduction for domestic Research and Development (“R&D”), a reinstatement of elective 100% first-year bonus depreciation, and a more favorable tax rate on Foreign-derived Deduction Eligible Income and income from non-U.S. subsidiaries (“Net CFC Tested Income”), among other provisions. We do not anticipate a material impact on our effective tax rate in 2025 and future periods. We do, however, anticipate a significant reduction in current tax payments in the next 12 months, as well as a decrease in deferred tax assets and the income tax payable related to the provisions for full expensing of domestic R&D and bonus depreciation. The year-to-date impacts of the OBBBA are included in our operating results for the nine months ended September 30, 2025.
Previous report
As of September 30, 2025, we had $600.0 million in outstanding principal for the Convertible Senior Notes due in 2026. We will settle any conversions of the Convertible Senior Notes in a combination of cash and shares of our common stock. However, upon conversion of any Convertible Senior Notes, the conversion value, which will be determined over an “Observation Period” (as defined in the Indenture) consisting of 30 trading days, will be paid in cash up to at least the principal amount of the Notes being converted. As of September 30, 2025, we have entered the Free Convertibility Period, effective on September 15, 2025 until the close of business on the second scheduled trading day immediately preceding maturity date, March 15, 2026. No conversions have occurred.
Reworded paragraphs (57)
Previous wording
This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, including local, state and federal government agencies, that could negatively impact information technology spending; (2) disruption to our business and harm to our competitive position resulting from cyber-attacks, security vulnerabilities and software updates; (3) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (4) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (5) material portions of our business require the Internet infrastructure to be adequately maintained; (6) our ability to actively monitor developments in artificial intelligence ("AI") regulation and ethical standards as we expect that future changes in the regulatory landscape may affect our product development timelines, compliance costs, and market opportunities related to AI; (7) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (8) general economic, political and market conditions, including inflation and changes in interest rates; (9) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (10) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (11) the ability to attract and retain qualified personnel and dealing with rising labor costs, the…
Excerpt shortened here; the source contains the full paragraph.
Current wording
This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) changes in the budgets or regulatory environments of our clients, including local, state and federal government agencies, that could negatively impact information technology spending; (2) disruption to our business and harm to our competitive position resulting from cyber-attacks, evolving use of artificial intelligence (“AI”), security vulnerabilities and software updates, or changes in our ability to access third-party software and services; (3) our ability to protect client information from security breaches or misuse through AI and to provide uninterrupted operations of data centers; (4) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (5) material portions of our business require the Internet infrastructure to be adequately maintained; (6) our ability to actively monitor developments in AI regulation and ethical standards as we expect that future changes in the regulatory landscape may affect our product development timelines, compliance costs, and market opportunities related to AI; (7) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (8) general economic, political and market conditions, including inflation and changes in interest rates; (9) technological and market risks associated with the development of new technologies, products or services or of new versions of existing or acquired products or services; (10) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure …
Excerpt shortened here; the source contains the full paragraph.
Previous wording
Our Chief Operating Decision Maker (“CODM”) uses segment operating income or loss to assess performance and to allocate resources (including employees, property, and financial or capital resources) for each segment, predominantly in the annual budget and forecasting process. During the fiscal periods presented, we had no significant transactions between reportable segments. Corporate unallocated amounts are comprised of non-cash amortization of intangible assets associated with acquisitions, depreciation associated with unallocated property and equipment assets, compensation costs for the executive management team and certain shared services staff, and share-based compensation expense for the entire company. Corporate unallocated amounts also include incidental revenues and expenses related to a company-wide user conference and rental income.
Current wording
The Chief Operating Decision Maker (“CODM”) uses segment operating income or loss to assess performance and to allocate resources (including employees, property, and financial or capital resources) for each segment, predominantly in the annual budget and forecasting process. During the fiscal periods presented, we had no significant transactions between reportable segments. Corporate unallocated amounts are comprised of non-cash amortization of intangible assets associated with acquisitions, depreciation associated with unallocated property and equipment assets, compensation costs for the executive management team and certain shared services staff such as internal infrastructure costs and share-based compensation expense for the entire company. Corporate unallocated amounts also include incidental revenues and expenses related to a company-wide user conference and rental income.
Previous wording
We did not complete any acquisitions during the 2024 fiscal period.
Current wording
We did not complete any new acquisitions during the three months ended March 31, 2026.
Previous wording
On January 31, 2025, we acquired MyGov, LLC (“MyGov”), a provider of SaaS platform solutions for community development. The total cash purchase price, net of cash acquired of $215,000, was approximately $18.2 million. The actual operating results of MyGov are included with the operating results of the ES segment since the date of acquisition.
Current wording
On December 2, 2025, we acquired Edu.Link, Inc. (“Edulink”), a SaaS company focused on educator evaluation, performance management, professional development, and compliance tracking geared specifically to the unique needs of K-12 schools. On November 19, 2025, we acquired CloudGavel, LLC (“CG”), a SaaS company specializing in cloud electronic warrant solutions that allows for real time interaction for judges and law enforcement personnel. On July 28, 2025, we acquired Emergency Networking, Inc. (“EN”), a SaaS company specializing in cloud-native software for fire departments and emergency medical services agencies. On January 31, 2025, we acquired MyGov, LLC (“MyGov”), a provider of SaaS platform solutions for community development. The actual operating results of Edulink, CG, EN, and MyGov, from their respective dates of acquisition, are included in the operating results of the ES segment.
Previous wording
For both the three and nine months ended September 30, 2025, total revenues increased 10%, compared to the prior period, primarily due to an increase in subscription revenue.
Current wording
For the three months ended March 31, 2026, total revenues increased 9%, compared to the prior period, primarily due to an increase in subscription revenue.
Previous wording
Subscriptions revenue grew 15.5% and 18.8%, respectively, for the three and nine months ended September 30, 2025, compared to the prior period, primarily due to an ongoing shift toward SaaS arrangements for both new and existing clients, along with growth in certain transaction-based revenues.
Current wording
Subscriptions revenue grew 14.6%, for the three months ended March 31, 2026, compared to the prior period, primarily due to an ongoing shift toward SaaS arrangements for both new and existing clients, along with growth in certain transaction-based revenues.
Previous wording
Our total employee count increased to 7,689 as of September 30, 2025, including 29 employees who joined us through acquisitions completed since September 30, 2024, from 7,386 as of September 30, 2024.
Current wording
Our total employee count increased to 7,703 as of March 31, 2026, including 118 employees who joined us through acquisitions completed since March 31, 2025. Our employee count was 7,462 as of March 31, 2025.
Previous wording
Annualized recurring revenues (ARR) - Subscriptions and maintenance are considered recurring revenue sources. ARR is calculated by annualizing the current quarter’s recurring revenues from maintenance and subscriptions as reported in our statement of income. Management believes ARR is an indicator of the annual run rate of our recurring revenues, as well as a measure of the effectiveness of the strategies we deploy to drive revenue growth over time. ARR is a metric widely used by companies in the technology sector and by investors, which we believe offers insight into the stability of our maintenance and subscription revenues to be recognized within the year.
Current wording
Annualized recurring revenues (“ARR”) - Subscriptions and maintenance are considered recurring revenue sources. ARR is calculated by annualizing the current quarter’s recurring revenues from subscriptions and maintenance as reported in our statement of income. Management believes ARR is an indicator of the annual run rate of our recurring revenues, as well as a measure of the effectiveness of the strategies we deploy to drive revenue growth over time. ARR is a metric widely used by companies in the technology sector and by investors, which we believe offers insight into the stability of our subscription and maintenance revenues to be recognized within the year.
Previous wording
ARR was $2.05 billion and $1.85 billion as of September 30, 2025, and 2024, respectively. ARR increased approximately 11% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements for both new and existing clients and expansion in transaction-based fee arrangements.
Current wording
ARR was $2.15 billion and $1.95 billion as of March 31, 2026, and 2025, respectively. ARR increased approximately 10% compared to the prior period primarily due to an increase in subscriptions revenue resulting from an ongoing shift toward SaaS arrangements for both new and existing clients and expansion in transaction-based fee arrangements.
Previous wording
The following table sets forth a comparison of our subscriptions revenue for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our subscriptions revenue for the three months ended March 31 ($ in thousands):
Previous wording
The following table sets forth a comparison of our subscriptions revenue derived from SaaS fees for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our subscriptions revenue derived from SaaS fees for the three months ended March 31 ($ in thousands):
Previous wording
The following table sets forth a comparison of our subscriptions revenue derived from transaction-based fees for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our subscriptions revenue derived from transaction-based fees for the three months ended March 31 ($ in thousands):
Previous wording
The following table sets forth a comparison of our maintenance revenue for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our maintenance revenue for the three months ended March 31 ($ in thousands):
Previous wording
We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue decreased 4% and 3% for the three and nine months ended September 30, 2025, respectively, compared to the prior period primarily due to the impact of 451 clients converting from on-premises license arrangements to SaaS, partially offset by maintenance price increases.
Current wording
We provide maintenance and support services for our software products and certain third-party software. Maintenance revenue decreased 3% for the three months ended March 31, 2026, compared to the prior period primarily due to the impact of 478 clients converting from on-premises license arrangements to SaaS since March 31, 2025, partially offset by maintenance price increases.
Previous wording
The following table sets forth a comparison of our professional services revenue for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our professional services revenue for the three months ended March 31 ($ in thousands):
Previous wording
Professional services revenues were flat and decreased 7% for the three and nine months ended September 30, 2025, respectively, compared to the prior period. The decrease for the nine months ended September 30, 2025, is primarily due to loss reserves of approximately $8.5 million for contracts with agencies within two state governments. The remainder of the decrease in professional services revenues compared to the prior period is related to an intentional reduction in custom development work as well as efficiencies in the delivery of professional services.
Current wording
Professional services revenue decreased 5% for the three months ended March 31, 2026, compared to the prior period. The decline in professional services revenue compared to the prior period is related to an intentional reduction in custom development, as well as efficiencies in the delivery of professional services.
Previous wording
For the three and nine months ended September 30, 2025, software licenses and royalties revenue decreased 18% and 22%, respectively, compared to the prior period primarily because of the ongoing shift in the mix of new software contracts toward more SaaS offerings. Refer to the SaaS revenue section for further details on our revenue mix shift.
Current wording
Other revenue primarily consists of software licenses, royalties and computer hardware. Other revenue increased 6% compared to the prior period primarily due to an increase in computer hardware revenue. The increase is somewhat offset by the decline in revenue from software licenses due to the ongoing shift in the mix of new software contracts toward more SaaS offerings. Refer to the SaaS fees section for further details on our revenue mix shift.
Previous wording
Although the mix of new contracts between subscription-based and perpetual license arrangements may vary from quarter to quarter and year to year, we expect that software license revenues will continue to decline as we shift our model away from perpetual software licenses to SaaS.
Current wording
We expect that software license revenues will continue to decline as we shift our model away from perpetual software licenses to SaaS.
Previous wording
The following table sets forth a comparison of the key components of our cost of revenues for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of the key components of our cost of revenues for the three months ended March 31 ($ in thousands):
Previous wording
The following table sets forth a comparison of our costs of subscriptions, maintenance, and professional services for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our costs of subscriptions, maintenance, and professional services for the three months ended March 31 ($ in thousands):
Previous wording
Cost of subscriptions, maintenance and professional services primarily consist of personnel costs related to installation of our software, conversion of client data, training client personnel, public cloud hosting costs, support activities, and various other services such as custom development, ongoing operation of our SaaS solutions, property appraisal outsourcing activities, digital govern ment services, and other transaction-based services such as e-filing. Other costs included are merchant and interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.
Current wording
Cost of subscriptions, maintenance and professional services primarily consist of personnel costs related to implementation of our software, conversion of client data, training client personnel, public cloud hosting costs, support activities, and various other services such as custom development, ongoing operation of our SaaS solutions, property appraisal outsourcing activities, digital govern ment services, and other transaction-based services such as e-filing. Other costs included are merchant and interchange fees required to process credit/debit card transactions and bank fees to process automated clearinghouse transactions related to our payments business.
Previous wording
The cost of subscriptions, maintenance, and professional services for the three and nine months ended September 30, 2025, increased 2% and 4%, respectively, compared to the prior period. For the three months ended September 30, 2025, the increase is primarily due to a $1.3 million increase in stock-based compensation expense, a $1.0 million increase in third-party fees related to higher transaction volumes, and an increase of $6.8 million in hosting costs as we expand our SaaS client base and transition from our proprietary data centers to the public cloud. For the nine months ended September 30, 2025, the increase is primarily due to a $3.9 million increase in stock-based compensation expense, a $17.0 million increase in merchant fees and other third-party fees related to higher transaction volumes, and a $15.1 million increase in hosting costs. The increases for both comparative periods were partially offset by the redeployment of resources to research and development due to continued migration of clients to our SaaS products and the consolidation of versions of on-premises software products with support obligations.
Current wording
The cost of subscriptions, maintenance, and professional services for the three months ended March 31, 2026 increased 6% compared to the prior period. The increase is primarily due to a $17.1 million increase in merchant fees and third-party fees related to higher activity, an increase of $5.9 million in hosting costs as we expand our SaaS client base and transition from our proprietary data centers to the public cloud, and a $2.0 million increase in personnel expense. The increases were partially offset by a $10.5 million reduction in merchant fees, following the wind-down in the fourth quarter of 2025 of a state payment processing contract. Also increases were partially offset by the redeployment of resources to research and development due to continued migration of clients to our SaaS products and the consolidation of versions of on-premises software products with support obligations.
Previous wording
The following table sets forth a comparison of our amortization of software development for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our amortization of software development for the three months ended March 31 ($ in thousands):
Previous wording
Amortization of software development costs included in cost of revenues primarily consist of personnel costs which were previously capitalized. We begin to amortize capitalized costs when a product is available for general release to clients. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the software’s remaining estimated economic life of, generally, three to five years.
Current wording
Amortization of software development costs included in cost of revenues primarily consists of personnel costs which were previously capitalized. We begin to amortize capitalized costs when a product is available for general release to clients. Amortization expense is determined on a product-by-product basis at a rate not less than straight-line basis over the software’s remaining estimated economic life of, generally, three to seven years.
Previous wording
For the three and nine months ended September 30, 2025, amortization of software development costs increased 25% and 24%, respectively, compared to the prior period due to new capitalized software development projects going into service in the past year.
Current wording
For the three months ended March 31, 2026, amortization of software development costs increased 5% compared to the prior period due to new capitalized software development projects going into service in the past year.
Previous wording
The following table sets forth a comparison of our amortization of acquired software for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our amortization of acquired software for the three months ended March 31 ($ in thousands):
Previous wording
Amortization expense related to acquired software attributed to business combinations is included with cost of revenues. The estimated useful lives of acquired software range from three to 10 years.
Current wording
Amortization expense related to acquired software attributed to business combinations is included with cost of revenues. The estimated useful lives of acquired software range from five to 10 years.
Previous wording
For both the three and nine months ended September 30, 2025, amortization of acquired software increased 1% compared to the prior period due to amortization of newly acquired software from recent acquisitions completed in 2025, partially offset by assets becoming fully amortized in the fourth quarter of 2024.
Current wording
For the three months ended March 31, 2026, amortization of acquired software declined 3% compared to the prior period due to assets becoming fully amortized in the fourth quarter of 2025.
Previous wording
Costs of software licenses and royalties primarily consist of direct third-party software costs. We do not have any direct costs associated with royalties revenues.
Current wording
Other costs primarily consist of costs related to software licenses and computer hardware. Software license costs primarily consist of direct third-party software costs. Computer hardware costs primarily consist of the costs of purchased inventory and other direct fulfillment costs. We do not have any direct costs associated with royalties revenues.
Previous wording
The following table sets forth a comparison of gross profit and overall gross margin for the periods presented as of September 30:
Current wording
The following table sets forth a comparison of gross profit and overall gross margin for the periods presented as of March 31 ($ in thousands):
Previous wording
Overall gross margin. For the three and nine months ended September 30, 2025, our blended gross margin increased 3.5% and 3.0%, respectively, compared to the prior period. For the three and nine months ended September 30, 2025, the increase in overall gross margin compared to the prior period is primarily attributed to a shift in our revenue mix toward higher-margin SaaS revenues. Also contributing to the increase in overall gross margin for the three and nine months ended September 30, 2025, respectively, is the redeployment of resources to research and development due to continued migration of clients to our SaaS products and consolidation of versions of on-premises software products with support obligations. The increase in the overall gross margin is partially offset by declines in software licenses, maintenance and professional services revenues and increases in merchant fees, hosting costs, and software development amortization expense.
Current wording
Overall gross margin. For the three months ended March 31, 2026, our blended gross margin increased 1.0% compared to the prior period. For the three months ended March 31, 2026, the increase in overall gross margin compared to the prior period is primarily attributed to a shift in our revenue mix toward higher-margin SaaS revenues. The increase in the overall gross margin is partially offset by declines in software licenses, maintenance and professional services revenues and increases in merchant fees and third party fees, hosting costs, and software development amortization expense.
Previous wording
Sales and marketing (“S&M”) expense consists primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing costs. The following table sets forth a comparison of our S&M expense for the three and nine months ended September 30 ($ in thousands):
Current wording
Sales and marketing (“S&M”) expense consists primarily of salaries, employee benefits, travel, share-based compensation expense, commissions and related overhead costs for sales and marketing employees, as well as professional fees, trade show activities, advertising costs and other marketing costs. The following table sets forth a comparison of our S&M expense for the three months ended March 31 ($ in thousands):
Previous wording
S&M expense as a percentage of revenues was 6.3% for both the three and nine months ended September 30, 2025, compared to 7.0% and 7.3%, respectively, for the three and nine months ended September 30, 2024. S&M expense decreased 2% and 5%, respectively, when compared to the prior period. The decrease in S&M expense is primarily attributed to an increase in compensation capitalized as contract acquisition costs compared to the prior period.
Current wording
S&M expense as a percentage of revenues was 6.3% for the three months ended March 31, 2026 compared to 6.5% for the three months ended March 31, 2025. S&M expense increased 6% compared to the prior period. The increase in S&M expense is primarily attributed to an increase in commission expense and higher personnel expense compared to the prior period.
Previous wording
General and administrative (“G&A”) expense consists primarily of personnel salaries and share-based compensation expense for general corporate functions including senior management, finance, accounting, legal, human resources and corporate development, as well as third-party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, amortization of software development for internal use, acquisition-related expenses and other administrative expenses. The following table sets forth a comparison of our G&A expense for the three and nine months ended September 30 ($ in thousands):
Current wording
General and administrative (“G&A”) expense consists primarily of personnel salaries and share-based compensation expense for general corporate functions including senior management, finance, accounting, legal, human resources and corporate development, as well as third-party professional fees, travel-related expenses, insurance, allocation of depreciation, facilities and IT support costs, amortization of software development for internal use, acquisition-related expenses and other administrative expenses. The following table sets forth a comparison of our G&A expense for the three months ended March 31 ($ in thousands):
Previous wording
Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with new product development. Research and development expense consists mainly of costs associated with development of new products and new functionality in our current SaaS products. The following table sets forth a comparison of our research and development expense for the three and nine months ended September 30 ($ in thousands):
Current wording
Research and development expense consists primarily of salaries, employee benefits and related overhead costs associated with product development. Research and development expense consists mainly of costs associated with development in our current products that do not qualify for capitalization. The following table sets forth a comparison of our research and development expense for the three months ended March 31 ($ in thousands):
Previous wording
Research and development expense increased 72% and 70%, respectively, for the three and nine months ended September 30, 2025, compared to the prior period, with the majority of the increase due the redeployment of resources to research and development resulting from the continued migration of clients to our SaaS products and version consolidation of on-premises software products with support obligations, together with increased investments in a number of new Tyler product development initiatives across our product suites. The remainder of the increase is attributed to $3.8 million and $12.6 million increases related to share-based compensation expense for the three and nine months ended September 30, 2025, respectively, compared to the prior period.
Current wording
Research and development expense increased 25% for the three months ended March 31, 2026, compared to the prior period, with the majority of the increase due to the redeployment of resources to research and development resulting from the continued migration of clients to our SaaS products and version consolidation of on-premises software products with support obligations, together with increased investments in a number of new Tyler product development initiatives across our product suites.
Previous wording
Other intangibles represents the portion of purchase price allocated to the identified intangible assets for client-related intangibles, trade names and leases acquired. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues, while amortization expense of other intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years. The following table sets forth a comparison of amortization of other intangibles for the three and nine months ended September 30 ($ in thousands):
Current wording
Other intangibles represents the portion of purchase price allocated to the identified intangible assets for client-related intangibles, trade names and leases acquired. The remaining excess purchase price is allocated to goodwill that is not subject to amortization. Amortization expense related to acquired software is included with cost of revenues, while amortization expense of other intangibles is recorded as operating expense. The estimated useful lives of other intangibles range from one to 25 years. The following table sets forth a comparison of amortization of other intangibles for the three months ended March 31 ($ in thousands):
Previous wording
The following table sets forth a comparison of the operating income by reportable segments for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of the operating income by reportable segments for the three months ended March 31 ($ in thousands):
Previous wording
The following table sets forth a comparison of our interest expense for the three and nine months ended September 30 ($ in thousands):
Current wording
The following table sets forth a comparison of our interest expense for the three months ended March 31 ($ in thousands):
Previous wording
Interest expense is comprised of interest expense and non-usage and other fees associated with our borrowings. Interest expense in the three months ended September 30, 2025, was flat compared to the prior period. The 20% decline for the nine months ended September 30, 2025, compared to the prior period is primarily attributable to lower interest incurred as a result of our repayment of the Term Loans in early 2024.
Current wording
Interest expense is comprised of interest expense and non-usage and other fees associated with our borrowings. Interest expense in the three months ended March 31, 2026, decreased 14% compared to the prior period as a result of repayment of the Convertible Senior Notes during the current period.
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