Tyler Technologies Reports Earnings for First Quarter 2020

Tyler Technologies Reports Earnings for First Quarter 2020

Revenues grow double-digits as bookings rise 40%
PLANO, Texas–(BUSINESS WIRE)–$TYL #earnings–Tyler Technologies, Inc. (NYSE: TYL) today announced financial results for the first quarter ended March 31, 2020.

First Quarter 2020 Financial Highlights:

Total revenues were $276.5 million, up 11.9% from $247.1 million for the first quarter of 2019. Organic revenue growth was 6.4%. Non-GAAP total revenues were $276.8 million, up 11.3% from $248.8 million for the first quarter of 2019. Non-GAAP organic revenue growth was 5.7%.

Recurring revenues from maintenance and subscriptions were $196.1 million, an increase of 17.1% compared to the first quarter of 2019, and comprised 70.9% of first quarter 2020 revenue.

Operating income was $33.9 million, down 1.7% from $34.5 million for the first quarter of 2019. Non-GAAP operating income was $66.8 million, up 6.1% from $63.0 million for the first quarter of 2019.

Net income was $47.6 million, or $1.16 per diluted share, up 73.9% compared to $27.3 million, or $0.69 per diluted share, for the first quarter of 2019. Non-GAAP net income was $51.5 million, or $1.25 per diluted share, up 6.7% compared to $48.3 million, or $1.22 per diluted share, for the first quarter of 2019.

Cash flows from operations were $56.7 million, up 136.7% compared to $24.0 million for the first quarter of 2019.

Adjusted EBITDA was $73.2 million, up 5.2% compared to $69.5 million for the first quarter of 2019.

Software subscription arrangements comprised approximately 73% of the total new software contract value in the first quarter, compared to approximately 54% in the first quarter of 2019.

Total bookings were $319 million, up 39.8% compared to the first quarter of 2019. Subscription bookings in the first quarter added $12.6 million in annual recurring revenue.

Total backlog was $1.50 billion, up 19.2% from $1.26 billion at March 31, 2019. Software-related backlog (excluding appraisal services) was $1.46 billion, up 20.1% from $1.22 billion at March 31, 2019.

Tyler repurchased 58,804 shares of its common stock during the quarter at an average price of $263.28.

“We had a solid first quarter with a great deal of momentum going into the second half of March, when we began to see the effects of the COVID-19 pandemic,” said Lynn Moore, Tyler’s president and chief executive officer. “The market was active, and we executed at a high level. Our bookings for the quarter were extremely strong, as they rose almost 40%. Non-GAAP revenues grew 11.3%, our 34th consecutive quarter of double-digit growth. Subscription revenue grew 21.5%, and recurring revenues made up nearly 71% of total revenues. Cash flow for the quarter was robust, as cash from operations more than doubled and free cash flow quadrupled last year’s first quarter, and we ended the quarter with $393 million in cash and investments.”

Impact of COVID-19

Our primary focus has been on ensuring that our employees and their families are safe and healthy, while supporting our clients who provide essential services to the public. In mid-March, we implemented work from home and curtailed travel for our employees. Our clients faced increasing disruption to their operations as they dealt with the effects of the pandemic on their communities and focused on providing vital services to their citizens. As a result, we began to see delays in some procurement processes and implementation projects. A few sales pushed out of the first quarter, and professional services revenues were also negatively impacted. We estimate that first quarter revenues were reduced by approximately $6 million as a result of COVID-19.

“We rapidly mobilized our employees to begin working from home and, as a result, our operations continued without interruption,” said Moore. “In addition to continuing to provide ongoing support to our clients, we began online sales demos, delivering implementation services remotely and executing complex go-lives virtually. I couldn’t be prouder of how our dedicated professionals have embraced the challenge and are excelling at meeting the needs of our clients during these turbulent times. I’m inspired each day by the spirit, resilience and compassion shown by our team members.

“Our annual Tyler Connect user conference, which was scheduled to occur this week in Orlando, was canceled, and the associated costs are included in our first quarter results. However, we are pleased that we will be able to provide a significant amount of valuable content to our clients by offering portions of Connect virtually, and we look forward to gathering with our clients in person in San Antonio, Texas, in April 2021,” added Moore.

Looking forward

We anticipate a greater impact from COVID-19 in the second and third quarters. We have not seen meaningful cancellations, but continue to see delays in procurement processes and lengthening sales cycles, as public sector entities focus on issues related to the pandemic. Although the CARES Act provides approximately $424 billion in economic aid to state and local governments and additional stimulus packages are expected to provide more assistance, many of our clients will face near-term budget pressures. We can deliver the majority of our professional services remotely, but expect to continue to see lower services revenues as some projects are delayed by client availability and billable travel is reduced. Approximately $6 million of revenues classified as “hardware and other revenues” will be also eliminated in the second quarter as a result of the cancellation of our Connect conference. We anticipate that recurring revenues, which comprise approximately 70% of our total revenues, will not be significantly affected. We expect to continue to invest in product development and accelerating our move to the cloud at levels consistent with our initial plans for the year. We value the experience and expertise of our employees and do not expect to eliminate any positions, but anticipate that incremental hiring will be reduced somewhat from our original plans.

While we are confident in our long-term outlook, there are significant uncertainties around the continuously evolving COVID-19 pandemic and its impact on our operations and those of our clients. As a result, we are suspending guidance until we have more clarity around the ultimate severity, duration and impact of the pandemic. We currently expect to have greater clarity by the time we report our second quarter results.

“Tyler has significant strengths that position us to continue to perform well, invest at a high level and strengthen our competitive position during difficult economic conditions,” added Moore. “More than two-thirds of our revenues are recurring, with extremely low attrition. Our financial position has never been stronger, with significant cash and no debt on our balance sheet, strong cash flow and additional available liquidity from our $400 million undrawn credit facility. We have a market leading competitive position, strong win rates, and an addressable market that has expanded significantly through investments in a combination of M&A and research and development.

“Although we are not immune to the effects of COVID-19 and the slowdown in the economy, Tyler’s mission-critical software and services power essential functions of government, and the fundamental demand for our products will remain strong in the long term. This crisis is already highlighting the reliance on outdated technology by large segments of the public sector, and the need for and the benefits of connectivity and cloud services, which are priorities for Tyler. Technology is an increasingly critical factor in helping government function effectively, especially during this time. As a company and as a management team, we have faced difficult times in the past, including the Great Recession, and emerged as a stronger company. We expect to do the same in this crisis, emerging with new, innovative ways of doing business for a client base that is confident in our commitment to them,” concluded Moore.

Conference Call

Tyler Technologies will hold a conference call on Thursday, April 30, at 10:00 a.m. Eastern Time to discuss the company’s results. The company is offering participants the opportunity to register in advance for the conference through the following link: http://dpregister.com/10140947. Registered participants will receive an email with a calendar reminder and a dial-in number and PIN that will allow them to listen to the call live.

Participants who do not wish to pre-register for the call may dial in using 844-861-5506 (U.S. callers) or 412-317-6587 (international callers) or 866-450-4696 (Canada callers) and ask for the “Tyler Technologies” call. A replay will be available two hours after completion of the call through May 7, 2020. To access the replay, please dial 877-344-7529 (U.S. callers), 412-317-0088 (international callers) and 855-669-9658 (Canada callers) and reference passcode 10140947.

The live webcast and archived replay can also be accessed at https://tylertech.irpass.com/Presentations.

About Tyler Technologies, Inc.

Tyler Technologies (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 26,000 successful installations across more than 10,000 sites, with clients in all 50 states, Canada, the Caribbean, Australia, and other international locations. A financially strong company, Tyler has achieved double-digit revenue growth every quarter since 2012. It was also named to Forbes’ “Best Midsize Employers” list in 2019 and recognized twice on its “Most Innovative Growth Companies” list. More information about Tyler Technologies, headquartered in Plano, Texas, can be found at tylertech.com.

Non-GAAP Financial Measures

Tyler Technologies has provided in this press release financial measures that have not been prepared in accordance with generally accepted accounting principles (GAAP) and are therefore considered non-GAAP financial measures. This information includes non-GAAP revenues, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP earnings per diluted share, EBITDA, and adjusted EBITDA. We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating Tyler’s ongoing operational performance because they provide additional insight in comparing results from period to period. Tyler believes the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures. Non-GAAP financial measures discussed above exclude write-downs of acquisition-related deferred revenue and acquired subleases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, expenses associated with amortization of intangibles arising from business combinations, acquisition-related expenses, and incremental costs associated with COVID-19.

Tyler currently uses a non-GAAP tax rate of 24%. This rate is based on Tyler’s estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating Tyler’s non-GAAP income, as well as significant non-recurring tax adjustments. The non-GAAP tax rate used in future periods will be reviewed periodically to determine whether it remains appropriate in consideration of factors including Tyler’s periodic effective tax rate calculated in accordance with GAAP, changes resulting from tax legislation, changes in the geographic mix of revenues and expenses, and other factors deemed significant. Due to differences in tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to Tyler’s estimated annual tax rate as described above, the estimated tax rate on non-GAAP income may differ from the GAAP tax rate and from Tyler’s actual tax liabilities.

Non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial information prepared in accordance with GAAP. The non-GAAP measures used by Tyler Technologies may be different from non-GAAP measures used by other companies. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, which has been provided in the financial statement tables included below in this press release.

Forward-looking Statements

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,” “will,” “should,” “projects,” “might,” “could” or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; (2) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (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 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; (7) general economic, political and market conditions; (8) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (9) 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; (10) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel; and (11) costs of compliance and any failure to comply with government and stock exchange regulations. These factors and other risks that affect our business are described in our filings with the Securities and Exchange Commission, including the detailed “Risk Factors” contained in our most recent annual report on Form 10-K. We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

(Comparative results follow)

 

 

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

 

 

 

 

 

Software licenses and royalties

 

$

18,737

 

 

$

21,793

 

Subscriptions

 

81,723

 

 

67,275

 

Software services

 

52,133

 

 

48,443

 

Maintenance

 

114,365

 

 

100,152

 

Appraisal services

 

5,763

 

 

5,214

 

Hardware and other

 

3,820

 

 

4,189

 

Total revenues

 

276,541

 

 

247,066

 

 

 

 

 

 

 

 

 

 

 

Software licenses and royalties

 

740

 

 

818

 

Acquired software

 

8,027

 

 

6,682

 

Software services, maintenance and subscriptions

 

131,779

 

 

117,160

 

Appraisal services

 

4,385

 

 

3,452

 

Hardware and other

 

2,479

 

 

2,906

 

Total cost of revenues

 

147,410

 

 

131,018

 

 

 

 

 

 

Gross profit

 

129,131

 

 

116,048

 

 

 

 

 

 

Selling, general and administrative expenses

 

67,485

 

 

57,766

 

Research and development expense

 

22,361

 

 

18,941

 

Amortization of customer and trade name intangibles

 

5,392

 

 

4,850

 

Operating income

 

33,893

 

 

34,491

 

Other income, net

 

990

 

 

586

 

Income before income taxes

 

34,883

 

 

35,077

 

Income tax (benefit) provision

 

(12,667

)

 

7,729

 

Net income

 

$

47,550

 

 

$

27,348

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

Basic

 

$

1.20

 

 

$

0.71

 

Diluted

 

$

1.16

 

 

$

0.69

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

Basic

 

39,500

 

 

38,308

 

Diluted

 

41,144

 

 

39,585

 

 

 

TYLER TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Reconciliation of non-GAAP total revenues

 

 

 

 

GAAP total revenues

 

$

276,541

 

 

$

247,066

 

Non-GAAP adjustments:

 

 

 

 

Add: Write-downs of acquisition-related deferred revenue

 

160

 

 

1,597

 

Add: Amortization of acquired leases

 

79

 

 

100

 

Non-GAAP total revenues

 

$

276,780

 

 

$

248,763

 

 

 

 

 

 

Reconciliation of non-GAAP gross profit and margin

 

 

 

 

GAAP gross profit

 

$

129,131

 

 

$

116,048

 

Non-GAAP adjustments:

 

 

 

 

Add: Write-downs of acquisition-related deferred revenue

 

160

 

 

1,597

 

Add: Amortization of acquired leases

 

79

 

 

100

 

Add: Share-based compensation expense included in cost of revenues

4,252

 

 

3,798

 

Add: Amortization of acquired software

 

8,027

 

 

6,682

 

Non-GAAP gross profit

 

$

141,649

 

 

$

128,225

 

GAAP gross margin

 

46.7

%

 

47.0

%

Non-GAAP gross margin

 

51.2

%

 

51.5

%

 

 

 

 

 

Reconciliation of non-GAAP operating income and margin

 

 

 

 

GAAP operating income

 

$

33,893

 

 

$

34,491

 

Non-GAAP adjustments:

 

 

 

 

Add: Write-downs of acquisition-related deferred revenue

 

160

 

 

1,597

 

Add: Amortization of acquired leases

 

79

 

 

100

 

Add: Share-based compensation expense

 

17,302

 

 

14,416

 

Add: Employer portion of payroll tax related to employee stock transactions

1,198

 

 

123

 

Add: Acquisition related costs

 

 

695

 

Add: COVID-19 incremental costs

727

 

 

 

Add: Amortization of acquired software

 

8,027

 

 

6,682

 

Add: Amortization of customer and trade name intangibles

 

5,392

 

 

4,850

 

Non-GAAP adjustments subtotal

 

32,885

 

 

28,463

 

Non-GAAP operating income

 

$

66,778

 

 

$

62,954

 

GAAP operating margin

 

12.3

%

 

14.0

%

Non-GAAP operating margin

 

24.1

%

 

25.3

%

 
 
 

 

TYLER TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Reconciliation of non-GAAP net income and earnings per share

 

 

 

 

GAAP net income

 

$

47,550

 

 

$

27,348

 

Non-GAAP adjustments:

 

 

 

 

Add: Total non-GAAP adjustments to operating income

 

32,885

 

 

28,463

 

Less: Tax impact related to non-GAAP adjustments

 

(28,932

)

 

(7,521

)

Non-GAAP net income

 

$

51,503

 

 

$

48,290

 

GAAP earnings per diluted share

 

$

1.16

 

 

$

0.69

 

Non-GAAP earnings per diluted share

 

$

1.25

 

 

$

1.22

 

 

 

 

 

 

Detail of share-based compensation expense

 

 

 

 

Cost of software services, maintenance and subscriptions

 

$

4,252

 

 

$

3,798

 

Selling, general and administrative expenses

 

13,050

 

 

10,618

 

Total share-based compensation expense

 

$

17,302

 

 

$

14,416

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of EBITDA and adjusted EBITDA

 

 

 

 

GAAP net income

 

$

47,550

 

 

$

27,348

 

Amortization of customer and trade name intangibles

 

5,392

 

 

4,850

 

Depreciation and amortization included in

 

 

 

 

cost of revenues, SG&A and other expenses

 

14,549

 

 

12,426

 

Interest expense included in other income, net

 

152

 

 

464

 

Income tax provision

 

(12,667

)

 

7,729

 

EBITDA

 

$

54,976

 

 

$

52,817

 

Write-downs of acquisition-related deferred revenue

 

160

 

 

1,597

 

Share-based compensation expense

 

17,302

 

 

14,416

 

Acquisition related costs

 

 

 

695

 

COVID-19 incremental costs

727

 

 

 

 

Adjusted EBITDA

 

$

73,165

 

 

$

69,525

 

 

 

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 (Unaudited)

 

 

 

March 31, 2020

 

December 31, 2019

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

301,985

 

 

$

232,682

 

Accounts receivable, net

 

318,144

 

 

374,089

 

Current investments and other assets

 

75,434

 

 

66,444

 

Income tax receivable

 

16,657

 

 

6,482

 

Total current assets

 

712,220

 

 

679,697

 

 

 

 

 

 

Accounts receivable, long-term portion

 

21,394

 

 

22,432

 

Operating lease right-of-use assets

 

17,992

 

 

18,992

 

Property and equipment, net

 

175,460

 

 

171,861

 

 

 

 

 

 

Other assets:

 

 

 

 

Goodwill

 

840,028

 

 

840,117

 

Other intangibles, net

 

366,506

 

 

378,914

 

Non-current investments and other assets

 

85,776

 

 

79,601

 

 

 

 

 

 

Total assets

 

$

2,219,376

 

 

$

2,191,614

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and accrued liabilities

 

$

72,723

 

 

$

90,211

 

Operating lease liabilities

 

6,373

 

 

6,387

 

Deferred revenue

 

365,959

 

 

412,495

 

Total current liabilities

 

445,055

 

 

509,093

 

 

 

 

 

 

Revolving line of credit

 

 

 

 

Deferred revenue, long-term

 

167

 

 

199

 

Deferred income taxes

 

45,774

 

 

48,442

 

Operating lease liabilities, long-term

 

15,548

 

 

16,822

 

Shareholders’ equity

 

1,712,832

 

 

1,617,058

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

2,219,376

 

 

$

2,191,614

 

 

 

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

Net income

 

$

47,550

 

 

$

27,348

 

Adjustments to reconcile net income to cash provided by operations:

 

 

 

 

Depreciation and amortization

 

19,985

 

 

17,308

 

Share-based compensation expense

 

17,302

 

 

14,416

 

Operating lease right-of-use assets expense

 

1,457

 

 

1,165

 

Deferred income tax (benefit) expense

 

(2,668

)

 

(4,785

)

Changes in operating assets and liabilities, exclusive of effects of acquired companies

 

(26,920

)

 

(31,495

)

Net cash provided by operating activities

 

56,706

 

 

23,957

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Additions to property and equipment

 

(9,349

)

 

(12,320

)

Purchase of marketable security investments

 

(27,271

)

 

(3,590

)

Proceeds from marketable security investments

 

18,237

 

 

20,276

 

Proceeds from the sale of investment of preferred shares

 

15,000

 

 

Purchase of investment of common shares

 

(10,000

)

 

Investment in software

 

(1,315

)

 

(690

)

Cost of acquisitions, net of cash acquired

 

(261

)

 

(199,130

)

(Increase) decrease in other

 

(48

)

 

564

 

Net cash used by investing activities

 

(15,007

)

 

(194,890

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Decrease in net borrowings on revolving line of credit

 

 

85,000

 

Purchase of treasury shares

 

(15,482

)

 

(17,786

)

Proceeds from exercise of stock options

 

46,236

 

 

6,528

 

Payment of contingent consideration

 

(5,619

)

 

Contributions from employee stock purchase plan

 

2,469

 

 

2,349

 

Net cash provided by financing activities

 

27,604

 

 

76,091

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

69,303

 

 

(94,842

)

Cash and cash equivalents at beginning of period

 

232,682

 

 

134,279

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

301,985

 

 

$

39,437

 

 

 
Contacts
Brian K. Miller
Executive Vice President & CFO
Tyler Technologies, Inc.
972-713-3720
[email protected]
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