Tyler Technologies (TYL) Tops Q3 EPS by 17c, Revenues Beat; Offers FY20 EPS Guidance Above Consensus

Tyler Technologies (NYSE: TYL) reported Q3 EPS of $1.50, $0.17 better than the analyst estimate of $1.33. Revenue for the quarter came in at $285.7 million versus the consensus estimate of $283.96 million.

Third Quarter 2020 Financial Highlights:

• Total revenues were $285.7 million, up 3.8% from $275.4 million for the third quarter of 2019. Organic revenue growth was 3.3%. Non-GAAP total revenues were $285.9 million, up 3.2% from $277.2 million for the third quarter of 2019. Non-GAAP organic revenue growth was 2.7%.
• Recurring revenues from maintenance and subscriptions were $207.3 million, up 12.0% from $185.1 million for the third quarter of 2019, and comprised 72.5% of third quarter 2020 revenue.
• Operating income was $49.7 million, up 24.0% from $40.1 million for the third quarter of 2019. Non-GAAP operating income was $81.8 million, up 15.2% from $71.0 million for the third quarter of 2019.
• Net income was $39.3 million, or $0.94 per diluted share, down 2.7% compared to $40.4 million, or $1.00 per diluted share, for the third quarter of 2019. Non-GAAP net income was $62.4 million, or $1.50 per diluted share, up 14.8% compared to $54.3 million, or $1.35 per diluted share, for the third quarter of 2019.
• Cash flows from operations were $169.8 million, up 30.5% compared to $130.1 million for the third quarter of 2019.
• Adjusted EBITDA was $88.9 million, up 15.4% compared to $77.1 million for the third quarter of 2019.
• Software subscription arrangements comprised approximately 47% of the total new software contract value in the third quarter, compared to approximately 51% in the third quarter of 2019.
• Total bookings were $292 million, up 12.9% compared to the third quarter of 2019. Subscription bookings in the third quarter added $9.9 million in annual recurring revenue.
• Total backlog was $1.55 billion, up 9.2% from $1.41 billion at September 30, 2019. Software-related backlog (excluding appraisal services) was $1.51 billion, up 9.5% from $1.38 billion at September 30, 2019.

“We are pleased with our third quarter results, particularly in light of the continuing impact of the COVID-19 pandemic, as we achieved double-digit growth in operating income and record highs for free cash flow and adjusted EBITDA,” said Lynn Moore, Tyler’s president and chief executive officer. “Revenues continued to be impacted by the COVID-19 pandemic. We returned to positive revenue growth in the third quarter, driven by strong recurring revenues with subscription revenues up 18.6%. Software license, professional services, and appraisal services revenues declined due to longer sales cycles, delays in projects, and the near elimination of billable travel revenue. We experienced an IT security incident in late September which also reduced services revenues in the quarter by an estimated $1.5 million.

"We continued to experience significant savings in operating expenses in the third quarter, in part driven by the successful deployment of more efficient service delivery and operating models. As a result, our operating margins expanded significantly, with our non-GAAP operating margin up 300 basis points to 28.6%, and our adjusted EBITDA rose to a new quarterly high. Cash flows from operations and free cash flow also reached record levels, growing 30.5% and 34.8%, respectively. Our balance sheet is stronger than ever, and we ended the quarter with $650 million in cash and investments and no outstanding debt.

"Bookings in the third quarter grew 12.9% and were particularly strong for our justice and public safety solutions. We signed significant contracts for our Odyssey® court case management solution with the Washington State Administrative Office of the Courts and Dallas County, Texas, that culminated extended sales processes, and public safety bookings more than doubled last year's third quarter. We finished the quarter with a new record high backlog of $1.55 billion," added Moore.

"As we continue to work through the challenges brought about by the COVID-19 pandemic and obtain a clearer understanding of the near-term impacts on our results, we have revised our guidance for the full year of 2020 to reflect higher earnings expectations. I'm extremely proud of how the entire Tyler team has risen to face the challenges of this year head-on, supporting our clients as well as each other. We remain confident in the fundamental strengths of the public sector market and in our ability to grow and invest in strategic initiatives in a difficult environment," said Moore.

GUIDANCE:

Tyler Technologies sees FY2020 EPS of $5.48-$5.58, versus the consensus of $5.42. Tyler Technologies sees FY2020 revenue of $1.118-1.13 million, versus the consensus of $1.13 million.

As of September 30, 2020, Tyler Technologies is providing the following guidance for the full year 2020:

• GAAP total revenues are expected to be in the range of $1.117 billion to $1.129 billion. Non-GAAP total revenues are expected to be in the range of $1.118 billion to $1.130 billion.
• GAAP diluted earnings per share are expected to be in the range of $4.53 to $4.63 and may vary significantly due to the impact of stock incentive awards on the GAAP effective tax rate.
• Non-GAAP diluted earnings per share are expected to be in the range of $5.48 to $5.58.
• Pre-tax non-cash, share-based compensation expense is expected to be approximately $77 million.
• Research and development expense is expected to be in the range of $88 million to $90 million.
• Fully diluted shares for the year are expected to be in the range of 41.5 million to 42.0 million shares.
• GAAP earnings per share assumes an estimated annual effective tax rate of approximately negative 12% after discrete tax items and includes approximately $65 million of discrete tax benefits related to share-based compensation.
• The non-GAAP annual effective tax rate is expected to be 24%.
• Capital expenditures are expected to be in the range of $30 million to $31 million, including approximately $10 million related to real estate and approximately $6 million of capitalized software development costs. Total depreciation and amortization expense is expected to be approximately $81 million, including approximately $54 million from amortization of acquisition intangibles.

For earnings history and earnings-related data on Tyler Technologies (TYL) click here.

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