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Tyler Technologies Reports Earnings for Second Quarter 2019

July 31, 2019 4:17 PM

Subscription revenues grew 39% as bookings rose 72%

PLANO, Texas--(BUSINESS WIRE)-- Tyler Technologies, Inc. (NYSE: TYL) today announced financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Financial Highlights:

“We are pleased with our strong second quarter results as both revenue and bookings growth accelerated from the first quarter,” said Lynn Moore, Tyler’s president and chief executive officer. “Subscription revenues continue to pace our growth, with an increase of 38.6% over the second quarter of 2018. Our non-GAAP gross margin rose 90 basis points while our non-GAAP operating margin fell 150 basis points, as research and development expenses rose 27% over the second quarter of 2018, reflecting our high level of investment in products across the company.

"Bookings in the second quarter grew more than 72% to $452 million, a new quarterly record. We signed the two largest SaaS contracts in our history during the quarter - both for our Odyssey® courts suite. One is a 10-year arrangement with the North Carolina Administrative Office of the Courts and North Carolina Judicial Branch valued at approximately $85 million, which also includes statewide e-filing services, and the other is a $20 million contract with Bexar County, Texas. Our strong bookings drove backlog to a new high of $1.43 billion, up 17%.

"While the high level of SaaS arrangements in our new bookings mix continues to pressure short-term revenue growth, we expect growth to accelerate in the second half of the year, and our outlook for the full year remains positive," added Moore.

Guidance for 2019

As of July 31, 2019, Tyler Technologies is providing the following guidance for the full year 2019:

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 $10 million. Non-GAAP diluted earnings per share excludes 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 $62 million, and amortization of acquired software and intangible assets of approximately $51 million. Additionally, the non-GAAP tax rate of 24% is estimated periodically as described below under "Non-GAAP Financial Measures" and excludes approximately $27 million of estimated discrete tax benefits that are included in the GAAP estimated annual effective tax rate.

Conference Call

Tyler Technologies will hold a conference call on Thursday, August 1, 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/10132510. 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 August 8, 2019. 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 10132510.

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

About Tyler Technologies, Inc.

Tyler Technologies (NYSE: TYL) is the largest and most established provider of integrated software and technology services focused on 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 21,000 successful installations across 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 2018 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 leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, expenses associated with amortization of intangibles arising from business combinations, and acquisition-related expenses.

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) 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. 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 June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Revenues:

Software licenses and royalties

$

20,675

$

22,400

$

42,468

$

45,176

Subscriptions

73,475

53,009

140,750

102,037

Software services

57,401

50,674

105,844

96,613

Maintenance

106,689

96,076

206,841

189,973

Appraisal services

6,233

5,532

11,447

10,926

Hardware and other

10,651

8,369

14,840

12,509

Total revenues

275,124

236,060

522,190

457,234

Cost of revenues:

Software licenses and royalties

891

1,204

1,709

1,982

Acquired software

7,988

5,724

14,670

11,106

Software services, maintenance and subscriptions

125,759

109,487

242,919

215,572

Appraisal services

3,758

3,568

7,210

7,349

Hardware and other

8,868

6,801

11,774

9,144

Total cost of revenues

147,264

126,784

278,282

245,153

Gross profit

127,860

109,276

243,908

212,081

Selling, general and administrative expenses

65,827

52,262

123,593

99,866

Research and development expense

20,101

15,831

39,042

28,879

Amortization of customer and trade name intangibles

5,266

4,041

10,116

7,356

Operating income

36,666

37,142

71,157

75,980

Other (expense) income, net

(247

)

558

339

1,157

Income before income taxes

36,419

37,700

71,496

77,137

Income tax provision (benefit)

4,420

(1,461

)

12,149

151

Net income

$

31,999

$

39,161

$

59,347

$

76,986

Earnings per common share:

Basic

$

0.83

$

1.02

$

1.54

$

2.00

Diluted

$

0.80

$

0.97

$

1.49

$

1.91

Weighted average common shares outstanding:

Basic

38,402

38,390

38,462

38,416

Diluted

39,813

40,224

39,806

40,250

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,

2019

2018

2019

2018

Reconciliation of non-GAAP total revenues

GAAP total revenues

$

275,124

$

236,060

$

522,190

$

457,234

Non-GAAP adjustments:

Add: Write-downs of acquisition-related deferred revenue

2,757

1,551

4,354

1,651

Add: Amortization of acquired leases

100

111

200

222

Non-GAAP total revenues

$

277,981

$

237,722

$

526,744

$

459,107

Reconciliation of non-GAAP gross profit and margin

GAAP gross profit

$

127,860

$

109,276

$

243,908

$

212,081

Non-GAAP adjustments:

Add: Write-downs of acquisition-related deferred revenue

2,757

1,551

4,354

1,651

Add: Amortization of acquired leases

100

111

200

222

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

3,756

2,955

7,554

5,731

Add: Amortization of acquired software

7,988

5,724

14,670

11,106

Non-GAAP gross profit

$

142,461

$

119,617

$

270,686

$

230,791

GAAP gross margin

46.5

%

46.3

%

46.7

%

46.4

%

Non-GAAP gross margin

51.2

%

50.3

%

51.4

%

50.3

%

Reconciliation of non-GAAP operating income and margin

GAAP operating income

$

36,666

$

37,142

$

71,157

$

75,980

Non-GAAP adjustments:

Add: Write-downs of acquisition-related deferred revenue

2,757

1,551

4,354

1,651

Add: Amortization of acquired leases

100

111

200

222

Add: Share-based compensation expense

15,066

12,933

29,482

23,490

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

308

604

431

924

Add: Acquisition related costs

245

—

940

—

Add: Amortization of acquired software

7,988

5,724

14,670

11,106

Add: Amortization of customer and trade name intangibles

5,266

4,041

10,116

7,356

Non-GAAP adjustments subtotal

31,730

24,964

$

60,193

$

44,749

Non-GAAP operating income

$

68,396

$

62,106

$

131,350

$

120,729

GAAP operating margin

13.3

%

15.7

%

13.6

%

16.6

%

Non-GAAP operating margin

24.6

%

26.1

%

24.9

%

26.3

%

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,

2019

2018

2019

2018

Reconciliation of non-GAAP net income and earnings per share

GAAP net income

$

31,999

$

39,161

$

59,347

$

76,986

Non-GAAP adjustments:

Add: Total non-GAAP adjustments to operating income

31,730

24,964

60,193

44,749

Less: Tax impact related to non-GAAP adjustments

(11,935

)

(16,500

)

(19,456

)

(29,101

)

Non-GAAP net income

$

51,794

$

47,625

$

100,084

$

92,634

GAAP earnings per diluted share

$

0.80

$

0.97

$

1.49

$

1.91

Non-GAAP earnings per diluted share

$

1.30

$

1.18

$

2.51

$

2.30

Detail of share-based compensation expense

Cost of software services, maintenance and subscriptions

$

3,756

$

2,955

$

7,554

$

5,731

Selling, general and administrative expenses

11,310

9,978

21,928

17,759

Total share-based compensation expense

$

15,066

$

12,933

$

29,482

$

23,490

Reconciliation of EBITDA and adjusted EBITDA

GAAP net income

$

31,999

$

39,161

$

59,347

$

76,986

Amortization of customer and trade name intangibles

5,266

4,041

10,116

7,356

Depreciation and amortization included in

cost of revenues, SG&A and other expenses

14,136

11,209

26,562

22,006

Interest expense included in other income, net

709

189

1,173

378

Income tax provision

4,420

(1,461

)

12,149

151

EBITDA

$

56,530

$

53,139

$

109,347

$

106,877

Write-downs of acquisition-related deferred revenue

2,757

1,551

4,354

1,651

Share-based compensation expense

15,066

12,933

29,482

23,490

Acquisition related costs

245

—

$

940

$

—

Adjusted EBITDA

$

74,598

$

67,623

$

144,123

$

132,018

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

June 30, 2019

December 31, 2018

ASSETS

Current assets:

Cash and cash equivalents

$

11,187

$

134,279

Accounts receivable, net

381,379

298,912

Current investments and other assets

61,004

80,970

Income tax receivable

—

4,697

Total current assets

453,570

518,858

Accounts receivable, long-term portion

20,511

16,020

Operating lease right-of-use assets

20,349

—

Property and equipment, net

170,150

155,177

Other assets:

Goodwill

835,911

753,718

Other intangibles, net

377,478

276,852

Non-current investments and other assets

71,462

70,338

Total assets

$

1,949,431

$

1,790,963

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

78,956

$

73,390

Current income tax payable

249

—

Operating lease liabilities

6,039

—

Deferred revenue

368,488

350,512

Total current liabilities

453,732

423,902

Revolving line of credit

15,000

—

Deferred revenue, long-term

551

424

Deferred income taxes

39,749

41,791

Operating lease liabilities, long-term

18,769

—

Shareholders' equity

1,421,630

1,324,846

Total liabilities and shareholders' equity

$

1,949,431

$

1,790,963

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Cash flows from operating activities:

Net income

$

31,999

$

39,161

$

59,347

$

76,986

Adjustments to reconcile net income to cash

provided by operations:

Depreciation and amortization

19,436

15,537

36,744

29,649

Share-based compensation expense

15,066

12,933

29,482

23,490

Deferred income tax benefit

(2,655

)

(2,538

)

(7,440

)

(5,196

)

Changes in operating assets and liabilities,

exclusive of effects of acquired companies

(39,349

)

(42,494

)

(69,679

)

(57,699

)

Net cash provided by operating activities

24,497

22,599

48,454

67,230

Cash flows from investing activities:

Additions to property and equipment

(11,732

)

(6,057

)

(24,052

)

(14,952

)

Purchase of marketable security investments

(6,527

)

(30,888

)

(10,117

)

(74,850

)

Proceeds from marketable security investments

19,412

28,077

39,688

39,154

Investment in software

(1,542

)

—

(2,232

)

—

Cost of acquisitions, net of cash acquired

(90

)

(157,152

)

(199,220

)

(157,152

)

(Increase) decrease in other

(132

)

(929

)

432

(186

)

Net cash used by investing activities

(611

)

(166,949

)

(195,501

)

(207,986

)

Cash flows from financing activities:

(Decrease) increase in net borrowings on revolving line of credit

(70,000

)

—

15,000

—

Purchase of treasury shares

—

—

(17,786

)

—

Proceeds from exercise of stock options

15,604

25,019

22,132

44,317

Contributions from employee stock purchase plan

2,260

1,962

4,609

3,760

Net cash (used) provided by financing activities

(52,136

)

26,981

23,955

48,077

Net decrease in cash and cash equivalents

(28,250

)

(117,369

)

(123,092

)

(92,679

)

Cash and cash equivalents at beginning of period

39,437

210,616

134,279

185,926

Cash and cash equivalents at end of period

$

11,187

$

93,247

$

11,187

$

93,247

Brian K. Miller

Executive Vice President & CFO

Tyler Technologies, Inc.

972-713-3720

[email protected]

Source: Tyler Technologies, Inc.

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