8-K
TYLER TECHNOLOGIES INC (TYL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 8-K
_____________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 3, 2021 (March 3, 2021)
Date of Report (Date of earliest event reported)
_____________________________________________
TYLER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________
| Delaware | 1-10485 | 75-2303920 | |
|---|---|---|---|
| (State or other jurisdiction of incorporation organization) | (Commission <br>File Number) | (I.R.S. Employer Identification No.) | |
| 5101 TENNYSON PARKWAY | PLANO | Texas | 75024 |
| --- | --- | --- | --- |
| (Address of principal executive offices) | (City) | (State) | (Zip code) |
(972) 713-3700
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)
| Title of each class | Trading symbol | Name of each exchange<br><br>on which registered |
|---|---|---|
| COMMON STOCK, $0.01 PAR VALUE | TYL | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 7.01 Regulation FD Disclosure.
On March 3, 2021, Tyler Technologies, Inc. (the “Company”) issued a press release announcing that it intends to offer, subject to market and other conditions, $1,000,000,000 aggregate principal amount of convertible senior notes due 2026 and $600,000,000 aggregate principal amount of convertible senior notes due 2028 (collectively, the “Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) (the “Offering”). The Company also expects to grant the initial purchasers of the Notes an option to purchase up to an additional $150,000,000 aggregate principal amount of 2026 Notes and up to an additional $90,000,000 aggregate principal amount of 2028 Notes. A copy of the press release announcing the Offering is furnished as Exhibit 99.1 to this Current Report on Form 8-K (this “Report”) and is incorporated herein by reference.
In connection with the Offering and the Company’s previously announced proposed acquisition of NIC Inc. (“NIC”), the Company is providing investors with certain information that has not been previously publicly reported, including certain unaudited pro forma financial information and certain additional risk factors related to the proposed acquisition of NIC. The unaudited pro forma financial information and additional risk factors are furnished as Exhibit 99.2 and Exhibit 99.3, respectively, to this Report and are incorporated herein by reference solely for purposes of this Item 7.01.
In accordance with General Instruction B.2. to Form 8-K, the information set forth in this Item 7.01 and Exhibits 99.1, 99.2 and 99.3 to this Report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
EXHIBIT INDEX
| Exhibit number | Exhibit description |
|---|---|
| 99.1 | Press Release Announcing Offering, dated March 3, 2021 |
| 99.2 | Unaudited Pro Forma Condensed Combined Financial Information |
| 99.3 | Risk Factors |
| 104 | Cover Page Interactive Data File (embedded in the Inline XBRL document) |
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical in nature and typically address future or anticipated events, expectations or beliefs. Forward-looking statements include, without limitation, statements regarding the anticipated terms of the Notes, the completion, timing and size of the Offering and the intended use of the proceeds. These forward-looking statements can often, but not always, be identified by phrases such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “will,” “may,” “should,” “projects,” “might,” “could,” or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.
While the Company believes there is a reasonable basis for the forward-looking statements in this Report, such statements involve certain risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those indicated in, or implied by, such forward-looking statements. Such risks and uncertainties include, but are not limited to: (i) market conditions, including market interest rates; (ii) the trading price and volatility of the Company’s common stock; (iii) risks relating to the proposed acquisition of NIC; and (iv) risks relating to the Company’s business and the Offering, including those described in the Company’s most recent Annual Report on Form 10-K, Exhibit 99.3 to this Report, and the other periodic reports that the Company files from time to time with the Securities and Exchange Commission.
The Company may not consummate the Offering and, if the Offering is consummated, the Company cannot provide any assurances regarding the final terms of the Offering or the Notes or its ability to effectively apply the net proceeds from the Offering.
The forward-looking statements in this Report speak only as of the date of this Report. The Company does not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
| SIGNATURES |
|---|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TYLER TECHNOLOGIES, INC. | ||
|---|---|---|
| /s/ Brian K. Miller | ||
| March 3, 2021 | By: | Brian K. Miller<br>Executive Vice President and Chief Financial<br>Officer (principal financial officer) |
Document
Exhibit 99.1
Tyler Technologies, Inc. Announces Proposed Offering of Convertible Senior Notes due 2026 and Convertible Senior Notes due 2028
PLANO, Texas (March 3, 2021) - Tyler Technologies, Inc. (NYSE: TYL) today announced its intention to offer, subject to market and other conditions, $1,000,000,000 aggregate principal amount of convertible senior notes due 2026 (the “2026 Notes”) and $600,000,000 aggregate principal amount of convertible senior notes due 2028 (the “2028 Notes” and, together with the 2026 Notes, the “Notes”) in a private offering to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). Tyler also expects to grant the initial purchasers of the Notes a 13-day option to purchase up to an additional $150,000,000 aggregate principal amount of 2026 Notes and up to an additional $90,000,000 aggregate principal amount of 2028 Notes.
The Notes will be senior, unsecured obligations of Tyler and will accrue interest payable semi-annually in arrears. The 2026 Notes will mature on March 15, 2026, and the 2028 Notes will mature on March 15, 2028, in each case unless earlier repurchased, redeemed or converted. Holders of the Notes will have the right to convert their Notes in certain circumstances and during specified periods. Tyler will settle conversions of the Notes either entirely in cash or in a combination of cash and shares of its common stock, at Tyler’s election. However, upon conversion of any Notes, the conversion value, which will be determined proportionately over a period of multiple trading days, will be paid in cash up to the principal amount of the Notes being converted.
The Notes will be redeemable, in whole or in part, for cash at Tyler’s option at any time, and from time to time, on or after March 15, 2024 (in the case of the 2026 Notes) or March 17, 2025 (in the case of the 2028 Notes) and on or before the 30th scheduled trading day immediately before the maturity date of such series of Notes, but only if the last reported sale price per share of Tyler’s common stock exceeds 130% of the conversion price of such series of Notes for a specified period of time. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Holders of the Notes will have the right to require Tyler to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indentures governing the Notes) at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The interest rate, initial conversion rate and other terms of each series of Notes will be determined at the pricing of the offering.
Tyler intends to use the net proceeds from the offering to fund the purchase price of its previously announced acquisition of NIC Inc. (the “NIC Acquisition”) and to pay fees and expenses related to the NIC Acquisition, and, in the event that the NIC Acquisition does not close, for general corporate purposes (which may include future acquisitions).
The offer and sale of the Notes and any shares of common stock issuable upon conversion of the Notes have not been, and will not be, registered under the Securities Act, or any other securities laws, and the Notes and any such shares cannot be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable securities laws.
This press release does not constitute an offer to sell, or the solicitation of an offer to buy, the Notes or any shares of common stock issuable upon conversion of the Notes, nor will there be any offer, solicitation or sale of the Notes or any such shares, in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful.
About Tyler
Tyler Technologies, Inc. (NYSE: TYL) provides integrated software and technology services to the public sector. Tyler’s end-to-end solutions empower local, state and federal government entities to operate more efficiently and connect more transparently with their constituents and with each other. By connecting data and processes across disparate systems, Tyler’s solutions are transforming how clients gain actionable insights that solve problems in their communities. Tyler has more than 27,000 successful installations across more than 11,000 sites, with clients in all 50 states, Canada, the Caribbean, Australia and other international locations. Tyler has been named to Government Technology’s GovTech 100 list five times and has been recognized three times on Forbes’ “Most Innovative Growth Companies” list.
Exhibit 99.1
Forward-Looking Statements
This press release includes forward-looking statements, including statements regarding the anticipated terms of the Notes being offered, the completion, timing and size of the proposed offering and the intended use of the proceeds. Forward-looking statements represent Tyler’s current expectations regarding future events and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those indicated in, or implied by, the forward-looking statements. Among those risks and uncertainties are market conditions, including market interest rates, the trading price and volatility of Tyler’s common stock and risks relating to Tyler’s business, including those described in periodic reports that Tyler files from time to time with the Securities and Exchange Commission. Tyler may not consummate the proposed offering described in this press release and, if the proposed offering is consummated, cannot provide any assurances regarding the final terms of the offering or the Notes or its ability to effectively apply the net proceeds as described above. The forward-looking statements included in this press release speak only as of the date of this press release, and Tyler does not undertake to update the statements included in this press release for subsequent developments, except as may be required by law.
Contact Information
Jennifer Kepler
Tyler Technologies
972.713.3770
Jennifer.Kepler@tylertech.com
Document
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On February 9, 2021, Tyler Technologies, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the "Merger Agreement”) by and among the Company, Topos Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and NIC Inc., a Delaware corporation (“NIC”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, Merger Sub will merge with and into NIC (the “Merger”), with NIC surviving the Merger and continuing as a wholly owned subsidiary of the Company.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of Common Stock prior to the Effective Time, par value $0.0001 per share, of NIC (the “NIC Common Stock”) other than (i) shares of NIC Common Stock owned directly or indirectly by the Company, NIC or any of their respective subsidiaries immediately prior to the Effective Time, including shares of NIC held as treasury stock, (ii) shares of NIC Common Stock as to which dissenters’ rights have been properly perfected, and (iii) shares of NIC Common Stock covered by certain unvested NIC restricted stock awards will be converted in the Merger into the right to receive $34.00 in cash, without interest.
Under the terms of the Merger Agreement, the completion of the Merger is subject to certain customary closing conditions, including, among others: (i) adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the voting power of the outstanding shares of NIC Common Stock; (ii) the accuracy of the parties’ respective representations and warranties in the Merger Agreement, subject to specified materiality qualifications; (iii) compliance by the parties with their respective covenants in the Merger Agreement in all material respects; (iv) the absence of any order restraining, enjoining, or otherwise prohibiting the consummation of the Merger; and (v) the expiration of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Company plans to fund the Merger with a combination of approximately $700 million of cash on the Company’s balance sheet and the proceeds from the issuance of $1.6 billion aggregate principal amount of convertible senior notes due 2026 (the “2026 Notes”) and convertible senior notes due 2028 (the “2028 Notes”) (collectively, the “Notes”). The Company has obtained financing commitments for a $1.6 billion bridge facility and expects to replace the bridge facility with the proceeds of the Notes offering prior to closing.
The Merger has not closed and the consummation of the Merger is subject to numerous risks and uncertainties, including the risks set forth described in Exhibit 99.3 to the Current Report on Form 8-K to which this is unaudited pro forma condensed combined financial information is attached.
The unaudited pro forma condensed combined financial information and explanatory notes presented below show the impact of the Merger, together with the planned issuance of the Notes (collectively, the “Transactions”), on the historical financial position and results of operations of the Company and NIC. The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they had occurred on December 31, 2020, and the unaudited pro forma condensed combined statement of operations gives effect to the Transactions as if they had occurred on January 1, 2020.
The unaudited pro forma condensed combined financial information was based on, and should be read in conjunction with, the following historical consolidated financial information and the related footnotes to such financial information:
•Historical audited consolidated financial information of the Company as of and for the year ended December 31, 2020, and the related notes to consolidated financial information, as set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and incorporated by reference in this Current Report on Form 8-K.
•Historical audited consolidated financial information of NIC as of and for the year ended December 31, 2020, and the related notes to consolidated financial information, as set forth in NIC’s Annual Report on Form 10-K for the year ended December 31, 2020 and incorporated by reference in this Current Report on Form 8-K.
Exhibit 99.2
In May 2020, the SEC adopted Release No.33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” (the “Final Rule”). The Company has adopted the provisions of the Final Rule, and the unaudited pro forma condensed combined financial information herein is presented in accordance therewith.
The unaudited pro forma transaction accounting adjustments are based upon available information and reflect estimates and certain assumptions that the Company believes are reasonable under the circumstances. Actual adjustments may differ materially from the information presented herein. The unaudited pro forma condensed combined financial information is presented for informational purposes only and does not purport to represent what the results of operations or financial condition would have been had the Transactions actually occurred on the dates indicated, nor do they purport to project the results of operations or financial condition for any future period or as of any future date.
The unaudited pro forma condensed combined financial information does not reflect the realization of operating efficiencies or other synergies, if any, that may result from the Transactions as a result of planned initiatives following the completion of the Transactions.
Exhibit 99.2
Tyler Technologies, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2020
(Dollars in thousands, except per share data)
| Tyler Technologies, Inc. | NIC, Inc. | Transaction Accounting Adjustments <br>( Note 5) | Pro Forma | ||||||
|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 603,623 | $ | 236,513 | $ | (782,157) | (A) | $ | 57,979 |
| Accounts receivable, net | 382,319 | 155,484 | — | 537,803 | |||||
| Short-term investments | 72,187 | — | — | 72,187 | |||||
| Prepaid expenses | 30,864 | — | — | 30,864 | |||||
| Income tax receivable | 21,598 | — | — | 21,598 | |||||
| Other current assets | 2,479 | 23,638 | — | 26,117 | |||||
| Total current assets | 1,113,070 | 415,635 | (782,157) | 746,548 | |||||
| Accounts receivable, long term | 21,417 | — | — | 21,417 | |||||
| Operating lease right of use assets | 18,734 | 10,809 | — | 29,543 | |||||
| Property and equipment, net | 168,004 | 9,341 | — | 177,345 | |||||
| Goodwill | 838,428 | 5,965 | 1,473,053 | (G) | 2,317,446 | ||||
| Intangible assets, net | 331,189 | 20,737 | 733,263 | (H) | 1,085,189 | ||||
| Non-current investment | 82,640 | — | — | 82,640 | |||||
| Other non-current assets | 33,792 | 1,862 | — | 35,654 | |||||
| Total assets | $ | 2,607,274 | $ | 464,349 | $ | 1,424,159 | $ | 4,495,782 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 14,011 | $ | 82,364 | $ | — | $ | 96,375 | |
| Accrued liabilities | 83,084 | 61,064 | — | 144,148 | |||||
| Operating lease liabilities | 5,904 | 4,078 | — | 9,982 | |||||
| Deferred revenue | 461,278 | 6,651 | (2,786) | (I) | 465,143 | ||||
| Other current liabilities | — | 3,840 | — | 3,840 | |||||
| Total current liabilities | 564,277 | 157,997 | (2,786) | 719,488 | |||||
| Revolving line of credit | — | — | — | — | |||||
| Convertible debt | — | — | 1,600,000 | (B) | 1,600,000 | ||||
| Deferred debt issuance costs | — | — | (17,600) | (C) | (17,600) | ||||
| Deferred revenue, long term | 100 | — | — | 100 | |||||
| Deferred income taxes | 40,507 | 1,097 | 178,278 | (J) | 219,882 | ||||
| Operating lease liabilities, long-term | 16,279 | 7,172 | — | 23,451 | |||||
| Other long term liabilities | — | 4,934 | — | 4,934 | |||||
| Total liabilities | 621,163 | 171,200 | 1,757,892 | 2,550,255 | |||||
| Shareholders’ equity: | |||||||||
| Preferred stock, $10.00 par value | — | — | — | — | |||||
| Common stock, $0.01 par value | 481 | 7 | (7) | (K) | 481 | ||||
| Additional paid-in capital | 905,332 | 129,456 | (129,456) | (L) | 905,332 | ||||
| Accumulated other comprehensive loss, net of tax | (46) | — | — | (46) | |||||
| Retained earnings | 1,112,156 | 163,686 | (204,270) | (M) | 1,071,572 | ||||
| Treasury stock, at cost | (31,812) | — | — | (31,812) | |||||
| Total shareholders’ equity | 1,986,111 | 293,149 | (333,733) | 1,945,527 | |||||
| Total liabilities and shareholders’ equity | $ | 2,607,274 | $ | 464,349 | $ | 1,424,159 | $ | 4,495,782 |
Exhibit 99.2
Tyler Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 2020
(Dollars in thousands, except per share data)
| Tyler Technologies, Inc. | NIC, Inc. | Reclassification Adjustments (Note 4) | Transaction Accounting Adjustments (Note 5) | Pro Forma | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Software licenses and royalties | $ | 73,164 | $ | — | $ | — | $ | — | $ | 73,164 | ||
| Subscriptions | 350,648 | — | 428,924 | — | 779,572 | |||||||
| Software services | 186,409 | — | 31,530 | — | 217,939 | |||||||
| Maintenance | 467,513 | — | — | — | 467,513 | |||||||
| Appraisal services | 21,127 | — | — | — | 21,127 | |||||||
| Hardware and other | 17,802 | — | — | — | 17,802 | |||||||
| State enterprise revenues | — | 331,720 | (331,720) | — | — | |||||||
| Software & services revenues | — | 128,734 | (128,734) | — | — | |||||||
| Total revenues | 1,116,663 | 460,454 | — | — | 1,577,117 | |||||||
| Software licenses and royalties | 3,339 | — | — | — | 3,339 | |||||||
| Acquired software | 31,962 | — | 3,521 | 16,479 | (N) | 51,962 | ||||||
| Software services, maintenance and subscriptions | 510,504 | — | 297,042 | (6,465) | (N) | 801,081 | ||||||
| — | — | — | — | |||||||||
| Appraisal services | 15,945 | — | — | — | 15,945 | |||||||
| Hardware and other | 12,401 | — | — | — | 12,401 | |||||||
| Total cost of revenues | 574,151 | — | 300,563 | 10,014 | 884,728 | |||||||
| Gross Profit | 542,512 | 460,454 | (300,563) | (10,014) | 692,389 | |||||||
| State enterprise, exclusive of depreciation & amortization | — | 199,901 | (199,901) | — | — | |||||||
| Software & services, exclusive of depreciation & amortization | — | 94,833 | (94,833) | — | — | |||||||
| Enterprise technology & product support | — | 29,491 | (29,491) | — | — | |||||||
| Selling, general and administrative expenses | 259,561 | 34,551 | 37,751 | 43,598 | (F) | 375,461 | ||||||
| Research and development expense | 88,363 | — | — | — | 88,363 | |||||||
| Depreciation & amortization | — | 14,245 | (14,245) | — | — | |||||||
| Amortization of intangible assets | 21,662 | — | 156 | 30,694 | (N) | 52,512 | ||||||
| Total cost of revenues and operating expenses | 943,737 | 373,021 | — | 84,306 | 1,401,064 | |||||||
| Operating Income | 172,926 | 87,433 | — | (84,306) | 176,053 | |||||||
| Interest Income (expense), net | 389 | (389) | ||||||||||
| Other income (expense), net | 2,116 | 389 | (12,543) | (O) | (10,038) | |||||||
| Total other income (expense), net | 2,116 | 389 | — | (12,543) | (10,038) | |||||||
| Income before income taxes | 175,042 | 87,822 | — | (96,849) | 166,015 | |||||||
| Income tax (benefit) provision | (19,778) | 19,228 | — | (21,361) | (P) | (21,911) | ||||||
| Net income | $ | 194,820 | $ | 68,594 | $ | — | $ | (75,488) | $ | 187,926 | ||
| Earnings per common share | ||||||||||||
| Basic | $ | 4.87 | $ | 4.69 | ||||||||
| Diluted | $ | 4.69 | $ | 4.53 | ||||||||
| Basic | 40,035 | 40,035 | ||||||||||
| Diluted | 41,526 | 41,526 | (Q) |
Exhibit 99.2
Tyler Technologies, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
As of and for the year ended December 31, 2020
(Dollars in thousands, except per share data)
Note 1 – BASIS OF PRO-FORMA PRESENTATION
The unaudited pro forma condensed combined financial information has been derived from the historical consolidated financial information of the Company and NIC, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they had occurred on December 31, 2020, and the unaudited pro forma condensed combined statement of operations gives effect to the Transactions as if they had occurred on January 1, 2020.
The unaudited pro forma transaction accounting adjustments are based upon available information and reflect estimates and certain assumptions that the Company believes are reasonable under the circumstances. Actual adjustments may differ materially from the information presented herein. The unaudited pro forma condensed combined financial information is presented for informational purposes only and does not purport to represent what the results of operations or financial condition would have been had the Transactions actually occurred on the dates indicated, nor do they purport to project the results of operations or financial condition for any future period or as of any future date.
The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and related notes of the Company and NIC as of and for the year ended December 31, 2020.
Note 2 – ACCOUNTING POLICY AND PRESENTATION
The unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2020 has been compiled in a manner consistent with the accounting policies adopted by the Company. Certain reclassifications have been made to NIC’s historical financial information presented herein to conform to the Company’s historical presentation.
Note 3 – PRELIMINARY PURCHASE PRICE ALLOCATION
The Merger will be accounted for as an acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) which requires the allocation of purchase consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination.
The preliminary allocation of the purchase price over the fair value of the identified assets to be acquired and liabilities to be assumed upon consummation of the Merger is as follows:
| Purchase price (in cash) | $ | 2,314,559 |
|---|---|---|
| Cash and cash equivalents | 236,513 | |
| Accounts receivable, net | 155,484 | |
| Unbilled revenue | 13,200 | |
| Other current assets | 10,438 | |
| Property and equipment, net | 9,341 | |
| Intangible assets, net | 754,000 | |
| Other non-current assets, net | 1,862 | |
| Right of use assets | 10,809 | |
| Deferred tax asset | (187,692) | |
| Goodwill | 1,479,018 | |
| Current liabilities | (147,268) | |
| Deferred revenue, current | (3,865) | |
| Deferred tax liabilities | (1,097) | |
| Lease liabilities | (11,250) | |
| Other long term liabilities | (4,934) | |
| Net assets acquired | $ | 2,314,559 |
The excess of the purchase price over the fair value of the assets to be acquired and liabilities to be assumed is presented as goodwill in the unaudited pro forma condensed combined balance sheet.
Exhibit 99.2
The final allocation of the purchase price will be dependent on a number of factors, including the final valuation of the fair value of tangible and identifiable intangible assets acquired and liabilities assumed as of the closing date of the Merger. Accordingly, the preliminary purchase price allocation and acquisition accounting reflected in the unaudited pro forma condensed combined financial information have been made solely for the purpose of preparing these statements and may change upon the receipt of additional and more detailed information. Such changes could result in a material change to the unaudited pro forma condensed combined financial information.
Note 4 – RECLASSIFICATION ADJUSTMENTS
The unaudited pro forma condensed combined financial information has been adjusted to reflect certain reclassifications of NIC's historical financial information to conform to the Company’s financial statement presentation as shown in the table below:
| Presentation in NIC's historical statement of operations | Amounts | Presentation in the unaudited pro forma condensed combined statement of operations | Amounts | |||
|---|---|---|---|---|---|---|
| (a) | State enterprise revenues | $ | 331,720 | Subscriptions | $ | 428,924 |
| Software & services revenues | $ | 128,734 | Software services | $ | 31,530 | |
| (b) | State enterprise, exclusive of depreciation & amortization | $ | (199,901) | Software services, maintenance and subscriptions | $ | 294,734 |
| Software & services, exclusive of depreciation & amortization | $ | (94,833) | ||||
| (c) | Enterprise technology & product support | $ | (29,491) | Selling, general and administrative expenses | $ | 29,491 |
| (d) | Depreciation & amortization | $ | (14,245) | Acquired software | $ | 3,521 |
| Software services, maintenance and subscriptions | $ | 10,101 | ||||
| Selling, general and administrative expenses | $ | 467 | ||||
| Amortization of intangible assets | $ | 156 | ||||
| (e) | Software services, maintenance and subscriptions | $ | (7,793) | Selling, general and administrative expenses | $ | 7,793 |
| (f) | Interest income (expense), net | $ | (389) | Other income (expense), net | $ | 389 |
Note 5 – TRANSACTION ACCOUNTING ADJUSTMENTS
The adjustments included in the unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2020 are as follows:
(A)Represents pro forma adjustments to the cash balance to reflect the following:
| Gross proceeds from the issuance of the Notes | $ | 1,600,000 | (B) |
|---|---|---|---|
| Payment of debt issuance costs | (17,600) | (C) | |
| Payment of bridge facility commitment fees | (6,400) | (D) | |
| Payment of the purchase price | (2,314,559) | (E) | |
| Payment of merger costs | (43,598) | (F) | |
| Net adjustment to cash | $ | (782,157) | (A) |
(B)Represents the gross proceeds from the issuance of the Notes. Net proceeds from the Notes will be used to pay a portion of the purchase price and other related costs.
Exhibit 99.2
(C)Represents estimated financing costs of $17,600, which are capitalized as debt issuance costs in the unaudited pro forma condensed combined balance sheet.
(D)Represents estimated bridge facility commitment fees of $6,400, which are recorded as interest expense in the unaudited pro forma condensed combined statement of operations
(E)Represents the total purchase price, which will be all paid in cash.
(F)Represents estimated transaction costs for advisory, banking, printing, legal, and accounting fees that are not capitalized as a part of the Merger.
(G)Represents an adjustment to record estimated acquisition goodwill of $1,479,018 and to eliminate the historical goodwill of NIC of $5,965. Goodwill largely consists of geographic expansion of services and other synergies of the combined companies, the value of the assembled workforce and other intangible assets that did not qualify for separate recognition. Goodwill is expected to not be deductible for tax purposes.
(H)Represents an adjustment to record the estimated fair value of the intangibles to be acquired of $754,000 and to eliminate NIC’s historical intangible assets of $20,737. Based on the preliminary assessment, the acquired intangible asset categories, estimated fair value and useful lives are as follows:
| Intangible Assets | Fair Value | Useful Life (in years) | |
|---|---|---|---|
| Customer relationships | $ | 571,000 | 20 |
| Developed technology | 160,000 | 8 | |
| Trade name | 23,000 | 10 | |
| Total | $ | 754,000 |
(I)Represents an adjustment to reduce NIC’s historical deferred revenue of $6,651 to its estimated fair value of $3,865.
(J)Represents the impact of deferred income taxes on fair value adjustments to intangible assets and deferred revenue, and merger costs and bridge facility commitment fees.
(K)Represents an adjustment to eliminate NIC’s historical common stock at par value.
(L)Represents an adjustment to eliminate NIC’s historical additional paid-in capital.
(M)Represents the following adjustments to retained earnings:
| Elimination of NIC's historical retained earnings | $ | (163,686) | |
|---|---|---|---|
| Merger costs | (43,598) | (F) | |
| Bridge facility commitment fees | (6,400) | (D) | |
| Tax adjustment on merger costs and commitment fees | 9,414 | ||
| Net adjustment to retained earnings | $ | (204,270) |
Exhibit 99.2
(N)Represents adjustments to record amortization expense attributable to the fair value of intangible assets acquired and to eliminate NIC’s historical amortization in various line items in the unaudited pro forma condensed combined statement of operations.
| Amortization expense related to developed technology | $ | 20,000 |
|---|---|---|
| Elimination of NIC's historical amortization expense - acquired software | (3,521) | |
| Total | $ | 16,479 |
| Elimination of NIC's historical amortization expense - internally developed software | $ | (6,465) |
| Amortization expense related to customer relationships | $ | 28,550 |
| Amortization expense related to trade names | 2,300 | |
| Elimination of NIC's historical amortization expense - customer relationships | (156) | |
| Total | $ | 30,694 |
(O)Represents adjustments to the other income (expense) line item related to interest expense consisting of the following:
| Amortization of debt issuance costs | $ | 3,143 | (C) |
|---|---|---|---|
| Payment of bridge facility commitment fees | 6,400 | (D) | |
| Interest incurred on the Notes | 3,000 | ||
| Total | $ | 12,543 |
(P)Represents an adjustment to record the income tax consequences of the transaction accounting adjustments included herein. The adjustments have been tax effected at the effective tax rate of 25.5%. The Company is in the process of evaluating its current tax structure to support its current and future business requirements. Therefore, the actual amounts reflected in the statement of operations may differ materially from those included in the unaudited pro forma condensed combined statement of operations.
(Q)Pro forma diluted weighted average shares outstanding consists of the historical diluted weighted average shares outstanding of 41,526. The Notes, which are convertible into cash and, if applicable, shares of the Company’s stock, did not impact the diluted weighted average shares outstanding as the conversion was deemed antidilutive when using the Company’s stock price as of January 1, 2020 and the average stock price for 2020. It should be noted that the Company’s determination of the impact of the Notes’ conversion feature on the diluted weighted average shares outstanding was in accordance with Accounting Standards Update 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity, which the Company adopted in 2020.
Document
Exhibit 99.3
Set forth below are certain risks relating to the Company’s acquisition of NIC (the “NIC Acquisition”). Capitalized terms used and not defined herein shall have the meanings ascribed to them in the Current Report on Form 8-K to which this Exhibit 99.3 is attached (the “Report”). As used herein, (i) “Commitment Letter” means the Company’s commitment letter for a $1.6 billion 364-day senior unsecured bridge loan facility; and (ii) “Merger Agreement” means the Agreement and Plan of Merger, dated as of February 9, 2021, by and among the Company, Topos Acquisition, Inc., a Delaware corporation, and NIC.
Risk Factors
Risks Related to the NIC Acquisition
The NIC Acquisition may not be consummated, and if consummated, may not perform as expected.
Completion of the NIC Acquisition is subject to a number of risks and uncertainties, and we can provide no assurance that the various closing conditions to the Merger Agreement will be satisfied. To fund the NIC Acquisition, we have obtained the Commitment Letter, which is subject to certain conditions; however, we intend to raise the necessary funds to provide permanent financing through this offering of notes, which is subject to market conditions and other risks and uncertainties. In addition, if we are not able to raise gross proceeds from this offering in the amounts contemplated or at all, we may draw funds under the bridge facility. There can be no assurance that we will be able to raise the necessary funds on terms we consider favorable, or at all. The inability to complete the NIC Acquisition, or to obtain permanent financing on terms that are favorable, or at all, could have a material adverse effect on our results of operations, financial condition and prospects.
The NIC Acquisition is also subject to other risks and uncertainties, including, among others: (i) the risk that the NIC Acquisition may not be completed, or completed within the expected timeframe; (ii) costs relating to the NIC Acquisition (including in respect of the financing transactions described above) may be greater than expected; and (iii) the possibility that the closing conditions in the Merger Agreement will not be satisfied in a timely manner or at all. We cannot assure you that NIC’s business after the NIC Acquisition, assuming it occurs, will perform as expected, that integration or other one-time costs will not be greater than expected, that we will not incur unforeseen obligations or liabilities or that the rate of return from such businesses will justify our decision to invest capital to acquire them.
We may experience difficulties in integrating the operations of NIC into our business and in realizing the expected benefits of the NIC Acquisition.
The success of the proposed acquisition of NIC, if completed, will depend in part on our ability to realize the anticipated business opportunities from combining the operations of NIC with our business in an efficient and effective manner. The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the NIC Acquisition, and could harm our financial performance. If we are unable to successfully or timely integrate the operations of NIC with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, alignments and other anticipated benefits resulting from the NIC Acquisition, and our business, results of operations and financial condition could be materially and adversely affected.
The NIC Acquisition also involves risks associated with acquisitions and integrating acquired assets into existing operations which could have a material adverse effect on our business, financial condition, results of operations and cash flows, including, among others:
•failure to implement our business plan for the combined business;
•unanticipated issues in integrating equipment, logistics, information, communications and other systems;
•possible inconsistencies in standards, controls, contracts, procedures and policies;
•impacts of change in control provisions in contracts and agreements;
•failure to retain key customers and suppliers;
•unanticipated changes in applicable laws and regulations;
•failure to recruit and retain key employees to operate the combined business;
•increased competition within the industries in which NIC operates;
•difficulties in managing the expanded operations of a significantly larger and more complex combined company;
Exhibit 99.3
•inherent operating risks in the business;
•unanticipated issues, expenses and liabilities;
•additional reporting requirements pursuant to applicable rules and regulations;
•additional requirements relating to internal control over financial reporting;
•diversion of our senior management’s attention from the management of daily operations to the integration of the assets acquired in the NIC Acquisition;
•significant unknown and contingent liabilities we incur for which we have limited or no contractual remedies or insurance coverage;
•the assets to be acquired failing to perform as well as we anticipate; and
•unexpected costs, delays and challenges arising from integrating the assets acquired in the NIC Acquisition into our existing operations.
Even if we successfully integrate NIC’s operations into our operations, it may not be possible to realize the full benefits we anticipate or we may not realize these benefits within the expected time frame. If we fail to realize the benefits we anticipate from the NIC Acquisition, our business, results of operations and financial condition may be adversely affected.
NIC may have liabilities that are not known, probable or estimable at this time.
As a result of the NIC Acquisition, NIC will become our subsidiary and will remain subject to all of its existing liabilities. There could be unasserted claims or assessments that we failed or were unable to discover or identify in the course of performing due diligence investigations of NIC. In addition, there may be liabilities that are neither probable nor estimable at this time that may become probable or estimable in the future. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results.
Additionally, NIC is subject to various rules, regulations, laws and other legal requirements, enforced by governments or other public authorities. Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by any of NIC’s directors, officers, employees or agents could have a significant impact on NIC’s business and reputation and could subject NIC to fines and penalties and criminal, civil and administrative legal sanctions, resulting in reduced revenues and profits.
We will incur significant transaction costs and merger-related integration costs in connection with the NIC Acquisition.
We will incur significant costs in connection with the NIC Acquisition. The substantial majority of these costs will be non-recurring expenses related to the NIC Acquisition. These non-recurring costs and expenses are not reflected in the unaudited pro forma condensed consolidated statements of income attached as Exhibit 99.2 to the Report. We may incur additional costs in the integration of the businesses of NIC, and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of the NIC Acquisition.
The NIC Acquisition may significantly increase our goodwill and other intangible assets.
We have a significant amount, and following the NIC Acquisition we expect to have an additional amount, of goodwill and other intangible assets on our consolidated financial statements that are subject to impairment based upon future adverse changes in our business or prospects. The impairment of any goodwill and other intangible assets may have a negative impact on our consolidated results of operations.
The NIC Acquisition may not achieve its intended results, including anticipated investment opportunities and earnings growth.
Although we expect the NIC Acquisition to result in various benefits, we cannot assure you regarding when or the extent to which we will be able to realize these or other benefits. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the businesses acquired can be operated in the manner we intend and whether our costs to finance the NIC Acquisition will be consistent with our expectations. Events outside of our control, including but not limited to regulatory changes or developments, could also adversely affect our ability to realize the anticipated benefits from the NIC Acquisition. Thus, the integration of NIC may be unpredictable, subject to delays or changed circumstances, and we cannot assure you that NIC will perform in accordance with our expectations or that our expectations with respect to NIC will be achieved. While we expect NIC to be accretive to non-GAAP earnings and EBITDA in the first year following the NIC Acquisition, excluding transaction-related amortization and one-time costs, we cannot assure you that the NIC Acquisition will be accretive to the extent we anticipate or at all. In addition, we cannot assure you that the NIC Acquisition will result in higher operating or EBITDA margins, greater cash flow predictability or that the NIC
Exhibit 99.3
Acquisition will lead to the return on invested capital currently anticipated. We cannot assure you that we will be able to drive further operating improvements to NIC’s businesses, improve or expand NIC’s operating or EBITDA margins or be able to grow NIC’s business, revenues or profitability.
Integrating NIC’s business into our business may divert management’s attention away from operations, and we may also encounter significant difficulties in integrating the two businesses.
The NIC Acquisition involves, among other things, the integration into our business platform of NIC. The success of the NIC Acquisition and its anticipated financial and operational benefits, including increased revenues, synergies and cost savings, will depend in part on our ability to successfully combine and integrate NIC’s business into ours, and there can be no assurance regarding when or the extent to which we will be able to realize these increased revenues, synergies, cost savings or other benefits. These benefits may not be achieved within the anticipated time frame, or at all and the cost to achieve such benefits may exceed the amounts we anticipate. Successful integration of NIC’s operations, products and personnel may place a significant burden on management and other internal resources. The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm our business, financial condition and results of operations.