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Tyler Technologies Reports Earnings for Second Quarter 2018

July 26, 2018 4:17 PM

Double-digit revenue growth fueled by subscription and software license revenue increases

PLANO, Texas--(BUSINESS WIRE)-- Tyler Technologies, Inc. (NYSE: TYL) today announced financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Financial Highlights:

“We delivered very strong results for the second quarter with respect to revenues, earnings and cash flows,” said Lynn Moore Jr., Tyler’s president and chief executive officer. “Total revenues grew more than 13 percent, with greater than 11 percent organic growth - our 27th consecutive quarter with double-digit revenue growth. Revenues from both subscriptions and software licenses were robust, growing 31 percent and 16 percent, respectively. Our non-GAAP operating margin declined 40 basis points due to the expected dilution from acquisitions, as well as our increased investment in research and development.

“We faced a difficult comparison with last year's second quarter bookings, which included the $35 million courts contract with Cook County, Illinois. Bookings for the current quarter declined 8 percent compared to the record high in last year's second quarter, but grew sequentially 34 percent over the first quarter of 2018, led by strong signings for our public safety and ERP products. Our backlog at the end of the quarter was $1.2 billion, up 11 percent over last year.

“We are pleased with the results of both Socrata and Sage during their first 60 days as a part of Tyler. The integrations of their operations and products into Tyler are well underway, and we remain excited about the opportunities for the future. With our strong second quarter results and positive outlook for the second half of the year, we have also increased our full-year earnings guidance,” said Moore.

Guidance for 2018

As of July 26, 2018, Tyler Technologies is providing the following guidance for the full year 2018:

GAAP to non-GAAP guidance reconciliation

Non-GAAP total revenues is derived from adding back the estimated full year impact of write-downs of acquisition-related deferred revenue and amortization of acquired leases of approximately $5 million. Non-GAAP diluted earnings per share is derived by adding back the estimated full year impact of non-cash share-based compensation expense and employer portion of payroll tax related to employee stock transactions of approximately $54 million, and amortization of acquired software and intangible assets of approximately $40 million. Additionally, the non-GAAP tax rate of 24 percent is estimated periodically as described below under "Non-GAAP Financial Measures" and excludes approximately $26 million of estimated discrete tax benefits related to share-based compensation that are included in the GAAP estimated annual effective tax rate.

Conference Call

Tyler Technologies will hold a conference call on Friday, July 27, at 10:00 a.m. EDT 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/10121185. Registered participants will receive an email with a calendar reminder and a dial-in number and PIN that will allow them immediate access to the call on July 27.

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 August 3, 2018. 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 10121185.

The live webcast and archived replay can also be accessed at http://investors.tylertech.com/presentations.

About Tyler Technologies, Inc.

Tyler Technologies (NYSE: TYL) is a leading provider of end-to-end information management solutions and services for local governments. Tyler partners with clients to empower the public sector - cities, counties, schools and other government entities - to become more efficient, more accessible and more responsive to the needs of their constituents. Tyler's client base includes more than 15,000 local government offices in all 50 states, Canada, the Caribbean, Australia, and other international locations. In 2017, Forbes ranked Tyler on its "Most Innovative Growth Companies" list, and Fortune included Tyler on its "100 Fastest-Growing 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 leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, and expenses associated with amortization of intangibles arising from business combinations.

Tyler currently uses a non-GAAP tax rate of 24 percent. 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) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (2) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (3) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (4) material portions of our business require the Internet infrastructure to be adequately maintained; (5) 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; (6) general economic, political and market conditions; (7) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (8) 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; (9) 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 (10) 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 CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
As Adjusted As Adjusted
Revenues:
Software licenses and royalties $ 22,400 $ 19,306 $ 45,176 $ 41,064
Subscriptions 53,009 40,517 102,037 80,379
Software services 50,674 45,860 96,613 88,356
Maintenance 96,076 88,811 189,973 175,118
Appraisal services 5,532 6,366 10,926 12,978
Hardware and other 8,369 7,903 12,509 10,597
Total revenues 236,060 208,763 457,234 408,492
Cost of revenues:
Software licenses and royalties 1,204 647 1,982 1,378
Acquired software 5,724 5,360 11,106 10,770
Software services, maintenance and subscriptions 109,487 96,172 215,572 189,712
Appraisal services 3,568 4,282 7,349 8,479
Hardware and other 6,801 6,799 9,144 8,115
Total cost of revenues 126,784 113,260 245,153 218,454
Gross profit 109,276 95,503 212,081 190,038
Selling, general and administrative expenses 52,262 43,000 99,866 85,780
Research and development expense 15,831 11,874 28,879 23,473
Amortization of customer and trade name intangibles 4,041 3,331 7,356 6,656
Operating income 37,142 37,298 75,980 74,129
Other income (expense), net 558 (101 ) 1,157 (291 )
Income before income taxes 37,700 37,197 77,137 73,838
Income tax (benefit) provision (1,461 ) 5,427 151 9,299
Net income $ 39,161 $ 31,770 $ 76,986 $ 64,539
Earnings per common share:
Basic $ 1.02 $ 0.86 $ 2.00 $ 1.74
Diluted $ 0.97 $ 0.81 $ 1.91 $ 1.65
Weighted average common shares outstanding:
Basic 38,390 37,154 38,416 37,144
Diluted 40,224 39,201 40,250 39,211
TYLER TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
As Adjusted As Adjusted

Reconciliation of non-GAAP total revenues

GAAP total revenues $ 236,060 $ 208,763 $ 457,234 $ 408,492
Non-GAAP adjustments:
Add: Write-downs of acquisition-related deferred revenue 1,551 184 1,651 388
Add: Amortization of acquired leases 111 111 222 222
Non-GAAP total revenues $ 237,722 $ 209,058 $ 459,107 $ 409,102

Reconciliation of non-GAAP gross profit and margin

GAAP gross profit $ 109,276 $ 95,503 $ 212,081 $ 190,038
Non-GAAP adjustments:
Add: Write-downs of acquisition-related deferred revenue 1,551 184 1,651 388
Add: Amortization of acquired leases 111 111 222 222
Add: Share-based compensation expense included in cost of revenues 2,955 2,253 5,731 4,350
Add: Amortization of acquired software 5,724 5,360 11,106 10,770
Non-GAAP gross profit $ 119,617 $ 103,411 $ 230,791 $ 205,768
GAAP gross margin 46.3 % 45.7 % 46.4 % 46.5 %
Non-GAAP gross margin 50.3 % 49.5 % 50.3 % 50.3 %

Reconciliation of non-GAAP operating income and margin

GAAP operating income $ 37,142 $ 37,298 $ 75,980 $ 74,129
Non-GAAP adjustments:
Add: Write-downs of acquisition-related deferred revenue 1,551 184 1,651 388
Add: Amortization of acquired leases 111 111 222 222
Add: Share-based compensation expense 12,933 8,901 23,490 17,577
Add: Employer portion of payroll tax related to employee stock transactions 604 128 924 511
Add: Amortization of acquired software 5,724 5,360 11,106 10,770
Add: Amortization of customer and trade name intangibles 4,041 3,331 7,356 6,656
Non-GAAP adjustments subtotal $ 24,964 $ 18,015 $ 44,749 $ 36,124
Non-GAAP operating income $ 62,106 $ 55,313 $ 120,729 $ 110,253
GAAP operating margin 15.7 % 17.9 % 16.6 % 18.1 %
Non-GAAP operating margin 26.1 % 26.5 % 26.3 % 27.0 %
TYLER TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
As Adjusted As Adjusted

Reconciliation of non-GAAP net income and earnings per share

GAAP net income $ 39,161 $ 31,770 $ 76,986 $ 64,539
Non-GAAP adjustments:
Add: Total non-GAAP adjustments to operating income 24,964 18,015 44,749 36,124
Less: Tax impact related to non-GAAP adjustments (16,500 )

(14,173

) (29,101 )

(29,737

)
Non-GAAP net income $ 47,625 $

35,612

$ 92,634 $

70,926

GAAP earnings per diluted share $ 0.97 $ 0.81 $

1.91

$ 1.65
Non-GAAP earnings per diluted share $ 1.18 $ 0.91 $ 2.30 $ 1.81

Detail of share-based compensation expense

Cost of software services, maintenance and subscriptions $ 2,955 $ 2,253 $ 5,731 $ 4,350
Selling, general and administrative expenses 9,978 6,648 17,759 13,227
Total share-based compensation expense $ 12,933 $ 8,901 $ 23,490 $ 17,577

Reconciliation of EBITDA and adjusted EBITDA

GAAP net income $ 39,161 $ 31,770 $ 76,986 $ 64,539
Amortization of customer and trade name intangibles 4,041 3,331 7,356 6,656
Depreciation and other amortization included in
cost of revenues, SG&A and other expenses 11,209

9,804

22,006

19,446

Interest expense included in other expense, net 189 189 378 380
Income tax (benefit) provision (1,461 ) 5,427 151 9,299
EBITDA $ 53,139 $

50,521

$ 106,877 $

100,320

Write-downs of acquisition-related deferred revenue 1,551 184 1,651 388
Share-based compensation expense 12,933 8,901 23,490 17,577
Adjusted EBITDA $ 67,623 $

59,606

$ 132,018 $

118,285

TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
June 30, 2018 December 31, 2017
As Adjusted
ASSETS
Current assets:
Cash and cash equivalents $ 93,247 $ 185,926
Accounts receivable, net 299,253 246,188
Current investments and other assets 96,388 77,362
Income tax receivable 13,100 11,339
Total current assets 501,988 520,815
Accounts receivable, long-term portion 12,387 12,107
Property and equipment, net 154,464 152,315
Other assets:
Goodwill 740,146 657,987
Other intangibles, net 293,194 229,617
Non-current investments and other assets 57,580 38,510
Total assets $ 1,759,759 $ 1,611,351
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 57,798 $ 72,849
Deferred revenue 316,084 298,613
Total current liabilities 373,882 371,462
Deferred revenue, long-term 785 1,274
Deferred income taxes 44,803 46,879
Shareholders' equity 1,340,289 1,191,736
Total liabilities and shareholders' equity $ 1,759,759 $ 1,611,351
TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
As Adjusted As Adjusted
Cash flows from operating activities:
Net income $ 39,161 $ 31,770 $ 76,986 $ 64,539
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 15,537 13,135 29,649 26,102
Share-based compensation expense 12,933 8,901 23,490 17,577
Deferred income tax benefit (2,538 ) (4,977 ) (5,196 ) (8,847 )
Changes in operating assets and liabilities,
exclusive of effects of acquired companies (42,494 ) (47,433 ) (57,699 ) (49,796 )
Net cash provided by operating activities 22,599 1,396 67,230 49,575
Cash flows from investing activities:
Additions to property and equipment (6,057 ) (10,303 ) (14,952 ) (30,123 )
Purchase of marketable security investments (30,888 ) (14,264 ) (74,850 ) (21,392 )
Proceeds from marketable security investments 28,077 10,133 39,154 17,029
Cost of acquisitions. net of cash acquired (157,152 ) (5,855 ) (157,152 ) (5,855 )
Increase in other (929 ) (52 ) (186 ) (68 )
Net cash used by investing activities (166,949 ) (20,341 ) (207,986 ) (40,409 )
Cash flows from financing activities:
Decrease in net borrowings on revolving line of credit — — — (10,000 )
Purchase of treasury shares — — — (7,032 )
Proceeds from exercise of stock options 25,019 8,509 44,317 23,360
Contributions from employee stock purchase plan 1,962 1,777 3,760 3,427
Net cash provided by financing activities 26,981 10,286 48,077 9,755
Net (decrease) increase in cash and cash equivalents (117,369 ) (8,659 ) (92,679 ) 18,921
Cash and cash equivalents at beginning of period 210,616 63,731 185,926 36,151
Cash and cash equivalents at end of period $ 93,247 $ 55,072 $ 93,247 $ 55,072

Tyler Technologies, Inc.

Brian K. Miller, 972-713-3720

Executive Vice President & CFO

[email protected]

Source: Tyler Technologies, Inc.

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