Tyler Technologies Reports Earnings for Third Quarter 2009

October 28, 2009 5:30 PM EDT

Quarterly Revenues and Operating Income Reach New Highs

DALLAS--(BUSINESS WIRE)-- Tyler Technologies, Inc. (NYSE: TYL) today reported the following financial results for the quarter ended September 30, 2009:

    --  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. More information about Tyler Technologies can be found at www.tylertech.com.

Non-GAAP Measures:

This press release discloses the financial measures of EBITDA and free cash flow as well as operating income, net income, earnings per share and EBITDA excluding the effects of a non-cash legal settlement related to warrants. These financial measures are not prepared in accordance with generally accepted accounting principles (GAAP) and are therefore considered non-GAAP financial measures. The non-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures used by Tyler Technologies may be different from non-GAAP measures used by other companies. We believe the presentation of these non-GAAP financial measures provides useful information to users of our financial statements and is helpful to fully understand our past financial performance and prospects for the future. We believe EBITDA and free cash flow are widely used by investors, analysts, and other users of our financial statements to analyze operating performance, provide meaningful comparisons to prior periods and to compare our results to those of other companies, and they provide a more complete understanding of our underlying operational results and trends, as well as our marketplace performance and our ability to generate cash. In addition, we internally monitor and review these non-GAAP financial measures on a consolidated basis as some of the primary indicators management uses to evaluate Company performance and for planning and forecasting future periods.

Therefore, management believes that EBITDA and free cash flow provide meaningful supplemental information to the investor to fully assess the financial performance, trends and future prospects of Tyler's core operations. In addition, Tyler currently has no outstanding warrants or other convertible securities, and we believe the facts and circumstances underlying the legal settlement related to warrants are of a non-recurring nature. We believe excluding the effect of the non-cash legal settlement related to warrants from operating income, net income, earnings per share and EBITDA provides meaningful comparisons to prior periods and to compare our results to those of other companies.

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) economic, political and market conditions, including the recent global economic and financial crisis, and the general tightening of access to debt or equity capital; (2) our ability to achieve our financial forecasts due to various factors, including project delays by our customers, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (3) changes in the budgets or regulatory environments of our customers, primarily local and state governments, that could negatively impact information technology spending; (4) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (5) our ability to successfully complete acquisitions and achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (6) competition in the industry in which we conduct business and the impact of competition on pricing, customer retention and pressure for new products or services; (7) 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 (8) costs of compliance and any failure to comply with government and stock exchange regulations. A detailed discussion of 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.

TYLER TECHNOLOGIES, INC.

CONDENSED INCOME STATEMENTS

(Amounts in thousands, except per share data)

(Unaudited)

                                Three Months Ended      Nine Months Ended

                                September 30,           September 30,

                                2009        2008        2009         2008

Revenues:

Software licenses               $ 10,167    $ 11,372    $ 30,835     $ 31,646

Subscriptions                     4,558       3,526       12,694       10,503

Software services                 20,383      18,600      60,945       54,973

Maintenance                       32,744      28,353      92,106       79,102

Appraisal services                4,692       5,289       14,638       14,249

Hardware and other                1,788       1,497       4,851        5,084

Total revenues                    74,332      68,637      216,069      195,557

Cost of revenues:

Software licenses                 1,366       2,071       4,075        6,838

Acquired software                 369         472         1,042        1,369

Software services, maintenance    35,259      31,988      102,520      93,555
and subscriptions

Appraisal services                2,851       3,098       9,211        9,269

Hardware and other                1,252       1,058       3,697        3,684

Total cost of revenues            41,097      38,687      120,545      114,715

Gross profit                      33,235      29,950      95,524       80,842

Selling, general and              17,114      15,985      51,608       46,155
administrative expenses

Research and development          2,973       1,416       8,047        5,485
expense

Amortization of customer and      685         612         2,034        1,770
trade name intangibles

Non-cash legal settlement         -           -           -            9,045
related to warrants

Operating income                  12,463      11,937      33,835       18,387

Other (expense) income, net       (42    )    398         (119    )    1,044

Income before income taxes        12,421      12,335      33,716       19,431

Income tax provision              4,946       5,976       13,362       9,700

Net income                      $ 7,475     $ 6,359     $ 20,354     $ 9,731

Earnings per common share:

Basic                           $ 0.21      $ 0.17      $ 0.58       $ 0.26

Diluted                         $ 0.20      $ 0.16      $ 0.56       $ 0.25

Weighted average common shares
outstanding:

Basic                             35,118      38,474      35,226       38,093

Diluted                           36,487      40,019      36,559       39,626

Reconciliation of non-GAAP financial measures to reported GAAP financial
measures:

Reconciliation of EBITDA

                                Three Months Ended      Nine Months Ended

                                September 30,           September 30,

                                  2009        2008        2009         2008

Net income                      $ 7,475     $ 6,359     $ 20,354     $ 9,731

Amortization of customer and      685         612         2,034        1,770
trade name intangibles

Depreciation and other
amortization included in cost
of

revenues and selling, general     1,646       2,456       5,031        7,219
and administrative expenses

Interest expense (income)         41          (189   )    103          (857    )
included in other income, net

Income tax provision              4,946       5,976       13,362       9,700

EBITDA                          $ 14,793    $ 15,214    $ 40,884     $ 27,563

Reconciliation of net income and EBITDA before non-cash legal settlement related
to warrants

                                Three Months Ended      Nine Months Ended

                                September 30, 2008      September 30, 2008

                                            Diluted                  Diluted

                                            Earnings                 Earnings

                                Amount      Per Share   Amount       Per Share

Net income                      $ 6,359     $ 0.16      $ 9,731      $ 0.25

Non-cash legal settlement         -           -           9,045        0.23
related to warrants

Income tax provision              1,474       0.04        (1,129  )    (0.03   )

Net income before non-cash
legal settlement related to       7,833     $ 0.20        17,647     $ 0.45
warrants

Amortization of customer and      612                     1,770
trade name intangibles

Depreciation and other
amortization included in cost
of

revenues and selling, general     2,456                   7,219
and administrative expenses

Interest income included in       (189   )                (857    )
other income, net

Income tax provision              4,502                   10,829

EBITDA before non-cash legal    $ 15,214                $ 36,608
settlement

TYLER TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

(Amounts in thousands)

                                            September 30,  December 31,

                                            2009           2008

                                            (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents                   $ 1,895        $ 1,762

Restricted cash equivalents                   6,000          5,082

Short-term investments available-for-sale     -              775

Accounts receivable, net                      85,613         76,989

Other current assets                          9,533          10,046

Deferred income taxes                         2,555          2,570

Total current assets                          105,596        97,224

Accounts receivable, long-term portion        483            197

Property and equipment, net                   31,961         26,522

Non-current investments available-for-sale    2,097          3,779

Other assets:

Goodwill and other intangibles, net           123,268        123,812

Other                                         224            227

Total assets                                $ 263,629      $ 251,761

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities    $ 29,309       $ 25,696

Short-term revolving line of credit           2,101          8,000

Deferred revenue                              99,670         95,773

Total current liabilities                     131,080        129,469

Deferred income taxes                         8,092          8,030

Shareholders' equity                          124,457        114,262

Total liabilities and shareholders' equity  $ 263,629      $ 251,761

TYLER TECHNOLOGIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

                                                 Nine months ended September 30,

                                                 2009         2008

Cash flows from operating activities:

Net income                                       $ 20,354     $ 9,731

Adjustments to reconcile net income to net cash

provided by operations:

Depreciation and amortization                      7,065        8,989

Non-cash legal settlement related to warrants      -            9,045

Share-based compensation expense                   3,653        2,719

Excess tax benefit from exercise of share-based    (525    )    (560    )
arrangements

Changes in operating assets and liabilities,
exclusive of

effects of acquired companies                      702          15,475

Net cash provided by operating activities          31,249       45,399

Cash flows from investing activities:

Proceeds from sale of investments                  2,500        44,565

Purchases of investments                           -            (8,625  )

Cost of acquisitions, net of cash acquired         (2,934  )    (23,868 )

Additions to property and equipment                (8,632  )    (17,375 )

Acquired lease                                     -            (1,387  )

Increase in restricted investments                 (918    )    (620    )

Decrease (increase) in other                       11           (38     )

Net cash used by investing activities              (9,973  )    (7,348  )

Cash flows from financing activities:

Decrease in net borrowings on revolving credit     (5,899  )    -
facility

Purchase of treasury shares                        (18,263 )    (28,968 )

Contributions from employee stock purchase plan    1,069        872

Proceeds from exercise of stock options            1,425        1,617

Excess tax benefit from exercise of share-based    525          560
arrangements

Warrant exercise in connection with legal          -            2,005
settlement

Net cash used by financing activities              (21,143 )    (23,914 )

Net increase in cash and cash equivalents          133          14,137

Cash and cash equivalents at beginning of          1,762        9,642
period

Cash and cash equivalents at end of period       $ 1,895      $ 23,779

    Source: Tyler Technologies, Inc.

Related Categories

Press Releases

Stocks Mentioned

Related Entities

• Banc of America
• Life, Style and Real Estate

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?