Total revenues were $74.3 million, up 8.3 percent compared to $68.6 million in the same period last year. Software-related revenues (software licenses, subscriptions, software services, and maintenance) grew in the aggregate 9.7 percent for the quarter.

Operating income was $12.5 million, a 4.4 percent increase, compared with operating income of $11.9 million in the same quarter of 2008.

On June 27, 2008, Tyler settled outstanding litigation related to stock purchase warrants owned by Bank of America, N. A., and in the second quarter of 2008, Tyler recorded a non-cash legal settlement related to warrants charge of $9.0 million, which was not tax deductible. The results of this settlement are reflected in operating income, net income and net income per diluted share for the nine months ending September 30, 2008.

The effective income tax rate was 39.8 percent compared to 36.5 percent, before the impact of the non-cash legal settlement related to warrants, in the third quarter of 2008. Including the impact of the settlement, the tax rate for the 2008 third quarter was 48.4 percent.

Net income was $7.5 million, or $0.20 per diluted share, compared to non-GAAP net income for the three months ended September 30, 2008 of $7.8 million, before the impact of the non-cash legal settlement related to warrants, or $0.20 per diluted share. Including the impact of the settlement, net income for the 2008 third quarter was $6.4 million, or $0.16 per diluted share.

Free cash flow was $18.8 million (cash provided by operating activities of $22.9 million minus capital expenditures of $4.1 million). For the third quarter of 2008, free cash flow was $13.6 million (cash provided by operating activities of $27.5 million minus capital expenditures of $13.9 million). Capital expenditures for the three-month periods ending September 30, 2009 and 2008 included $3.6 million and $13.0 million, respectively, related to acquisitions of real estate for the company's current and future office requirements. Excluding the real estate acquisitions, free cash flow for the three-month periods ending September 30, 2009 and 2008 was $22.4 million and $26.6 million, respectively.

For the nine months ended September 30, 2009, free cash flow was $22.6 million (cash provided by operating activities of $31.2 million minus capital expenditures of $8.6 million), compared to $26.6 million (cash provided by operating activities of $45.4 million minus capital expenditures of $18.8 million) for the nine months ended September 30, 2008. Capital expenditures for the nine-month periods ending September 30, 2009 and 2008 included $6.9 million and $15.2 million, respectively, related to acquisitions of real estate for the company's current and future office requirements. Excluding the real estate acquisitions, free cash flow for the nine months ended September 30, 2009 was $29.5 million compared to $41.8 million for the same period in 2008.

EBITDA, or earnings before interest, income taxes, depreciation and amortization, was $14.8 million, compared to $15.2 million for the third quarter of 2008.

Gross margin increased 110 basis points to 44.7 percent, compared to 43.6 percent in the quarter ended September 30, 2008. Sequentially, gross margin for the third quarter improved from 44.3 percent in the second quarter of 2009.

Selling, general and administrative expenses were $17.1 million (23.0 percent of revenues), compared to $16.0 million (23.3 percent of revenues) in the same quarter last year.

Non-cash share-based compensation expense for the third quarter totaled $1.3 million, of which $139,000 was included in cost of revenues and $1.2 million was included in selling, general and administrative expenses. For the third quarter of 2008, share-based compensation expense was $1.1 million, of which $100,000 was included in cost of revenues and $998,000 was included in selling, general and administrative expenses.

Total backlog was $231.5 million at September 30, 2009, compared to $235.3 million at June 30, 2009 and $245.3 million at September 30, 2008. Software related backlog (excluding appraisal services) was $209.2 million, compared to $209.4 million at June 30, 2009 and $219.6 million at September 30, 2008.

Tyler ended the third quarter of 2009 with $10.0 million in cash and investments and $21.6 million of availability under its $25 million revolving line of credit. During the quarter, the Company used $700,000 in cash for acquisitions. For the three months ended September 30, 2009, the Company repurchased 519,948 shares of its common stock at a cost of $8.1 million, or an average of $15.49 per share. For the first nine months of 2009, Tyler repurchased 1,234,548 shares of its common stock at a cost of $17.0 million, or an average of $13.77 per share.

Revenues for the nine months ended September 30, 2009 increased 10.5 percent to $216.1 million from $195.6 million in 2008. Operating income for the first nine months of 2009 increased 23.3 percent to $33.8 million, compared to $27.4 million, before the impact of the non-cash legal settlement related to warrants, in the first nine months of 2008. Including the impact of the settlement, operating income for the nine-month period ending September 30, 2008 was $18.4 million.

Net income for the nine months ended September 30, 2009 was $20.4 million, or $0.56 per diluted share, compared to net income of $17.6 million, before the impact of the non-cash legal settlement related to warrants, or $0.45 per diluted share, for the comparable period of 2008. Including the impact of the settlement, net income for the nine month period ending September 30, 2008 was $9.7 million, or $0.25 per diluted share.

"We are pleased to report another quarter of solid financial performance, notwithstanding this difficult economic environment," commented John S. Marr, Jr., Tyler's president and chief executive officer. "Revenues, gross margin and operating income all reached new quarterly highs. Although software licenses revenues declined 11 percent from last year's third quarter, we achieved record total revenues of over $74 million, bolstered by double-digit growth in recurring revenues. Maintenance revenues were up approximately 15 percent from last year and subscription revenues grew 29 percent, and for the first time these recurring revenues comprised more than 50 percent of total revenues.

"Gross margin increased by 110 basis points, and the year-to-date gross margin is 290 basis points higher than last year." Mr. Marr continued, "It is important to note that Tyler achieved record quarterly operating income and margins while continuing to invest heavily in product development for both new and existing products, unlike some competitors that have reduced staffing and cut development. In fact, our research and development expense more than doubled compared to the third quarter of 2008. We believe that these investments in our products will provide us with a competitive advantage as the economy and our markets return to a more normal environment. In addition, we recently launched a new corporate branding initiative to build on our position as the leader in public sector software.

"Our business outlook remains positive, although the timing of new software sales is more difficult to predict in this environment. We continued to see a lengthening of our sales cycles in the most recent quarter, with many prospects taking more time to make decisions and execute contracts. New request for proposal activity for our major solution suites continues to be comparable to last year, resulting in a pipeline of opportunities that is at a historically high level. We have seen a general increase in market activity since Labor Day, and expect that a number of these opportunities will result in wins for Tyler in the coming months," commented Mr. Marr. "We continue to maintain a solid backlog, even as we have increased our implementation capacity. Our software backlog remained essentially level with the second quarter of this year, while appraisal services backlog declined in line with our expectations.

"Based on Tyler's financial performance during the first nine months of 2009, combined with our outlook for new business based on our sales pipelines and overall market activity, we have again revised slightly upward our earnings guidance for the full year 2009. Our solid performance in a difficult current environment has allowed us to maintain a steady focus on our long-term goals and as a result, Tyler is extremely well positioned to continue to execute our business model. We believe that our unique position in the local government software market, coupled with a strong competitive position and substantial recurring revenues, provides significant opportunity for continued long-term revenue growth and exceptional financial performance. It's gratifying that Forbes Magazine has again recognized our strengths, naming Tyler to its list of "America's 200 Best Small Companies" for the third consecutive year," Mr. Marr concluded.

Annual Guidance for 2009

Total revenues for 2009 are currently expected to be in the range of $290 million to $293 million. Tyler expects to have diluted earnings per share of approximately $0.70 to $0.74. These estimates include assumed non-cash pretax expense for the year of approximately $5.1 million, or $0.11 per share after taxes, related to stock options and the Company's stock purchase plan. The Company currently estimates that its effective income tax rate for 2009 will be approximately 39.6 percent.

Tyler expects that free cash flow for the year 2009 will be between $25 million and $30 million (cash provided by operations of $40 million to $44 million minus capital expenditures of between $14 million and $15 million). Excluding estimated real estate capital expenditures of approximately $11 million, free cash flow for 2009 is expected to be between $36 million and $41 million.

Tyler Technologies will hold a conference call on Thursday, October 29 at 12:00 p.m. Eastern Time to discuss the Company's results. To participate in the teleconference, please dial into the call a few minutes before the start time: (888) 205-6648 (U.S. dialers) and (913) 312-0866 (international dialers). Please refer to confirmation code 5354605. A replay of the call will be available two hours after the completion of the call through November 5, 2009. To access the replay, please dial (888) 203-1112 (U.S. dialers) and (719) 457-0820 (international dialers) and reference passcode 5354605. The live webcast and archived replay can also be accessed on the Company's Web site at www.tylertech.com.

Based in Dallas, Tyler Technologies is a leading provider of end-to-end information management solutions and services for local governments. Tyler partners with clients to enable the public sector -- cities, counties, schools and other government entities -- to become more efficient, more accessible, and more responsive to the needs of citizens. Tyler's client base includes more than 8,000 local government offices throughout all 50 states, Canada, Puerto Rico and the United Kingdom. Tyler has been named one of "America's 200 Best Small Companies" for three consecutive years by Forbes Magazine.