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Tyler Technologies Reports Earnings for Third Quarter 2019

October 30, 2019 4:17 PM

Revenues grow 16.7% as operating cash flows reach new quarterly high

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

Third Quarter 2019 Financial Highlights:

“Our execution in the third quarter was solid as we continued to build on a strong first half of the year,” said Lynn Moore, Tyler’s president and chief executive officer. “We achieved double-digit growth over last year in all of our software-related revenue lines, and organic revenue growth continued to accelerate sequentially. Subscription revenue once again led our growth, rising 28.2%, and software license and royalty revenue grew 13.1%. In addition, non-GAAP diluted earnings per share and free cash flow both reached new quarterly highs.

"Bookings in the third quarter were solid at approximately $259 million, up 1.6% over the prior year. For the trailing twelve months, bookings were up 18.9%. We signed a record number of new software contracts this quarter, and for the first nine months of 2019, the total number of new software contracts signed has already surpassed the total signed for the full year of 2018. Bookings and revenue growth in the quarter were both affected by delays in the timing of several federal contracts at MicroPact, as an increasing amount of that business is coming through its partner channel. Several significant deals were signed by partners at the end of the quarter, but the related contracts with MicroPact were not executed until October and will be recognized in the fourth quarter.

"We're excited about the recently announced strategic collaboration agreement with Amazon Web Services (AWS), which deepens our existing relationship by leveraging the AWS cloud to lay the groundwork for the future of cloud services for the public sector. This agreement provides the framework for development, training and collaboration in order to support next-generation applications that have the scalability, resiliency and security AWS offers. We look forward to working with AWS on accelerating innovation and the development of strategic initiatives.

"We're also pleased to announce today the acquisition of Courthouse Technologies (CHT), a leading provider of jury management systems. CHT's software-as-a-service solution serves courts of all sizes across the United States and Canada and complements and elevates Tyler's existing solutions for courts," added Moore.

Guidance for 2019

As of October 30, 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 $8 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 $52 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, October 31, 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/10134985. 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 November 7, 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 10134985.

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 September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Software licenses and royalties

$

25,379

$

22,444

$

67,847

$

67,620

Subscriptions

75,272

58,699

216,022

160,736

Software services

54,997

48,199

160,841

144,812

Maintenance

109,833

96,215

316,674

286,188

Appraisal services

6,008

5,544

17,455

16,470

Hardware and other

3,911

4,966

18,751

17,475

Total revenues

275,400

236,067

797,590

693,301

Software licenses and royalties

971

957

2,680

2,939

Acquired software

7,975

5,897

22,645

17,003

Software services, maintenance and subscriptions

128,545

111,508

371,464

327,080

Appraisal services

4,096

3,505

11,306

10,854

Hardware and other

3,096

2,574

14,870

11,718

Total cost of revenues

144,683

124,441

422,965

369,594

Gross profit

130,717

111,626

374,625

323,707

Selling, general and administrative expenses

63,888

52,605

187,481

152,471

Research and development expense

21,130

17,050

60,172

45,929

Amortization of customer and trade name intangibles

5,646

4,386

15,762

11,742

Operating income

40,053

37,585

111,210

113,565

Other income, net

499

1,041

838

2,198

Income before income taxes

40,552

38,626

112,048

115,763

Income tax provision (benefit)

162

(298

)

12,311

(147

)

Net income

$

40,390

$

38,924

$

99,737

$

115,910

Earnings per common share:

Basic

$

1.04

$

1.00

$

2.58

$

3.01

Diluted

$

1.00

$

0.96

$

2.49

$

2.87

Weighted average common shares outstanding:

Basic

38,765

38,761

38,614

38,533

Diluted

40,280

40,528

40,015

40,345

TYLER TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Reconciliation of non-GAAP total revenues

GAAP total revenues

$

275,400

$

236,067

$

797,590

$

693,301

Non-GAAP adjustments:

Add: Write-downs of acquisition-related deferred revenue

1,698

1,397

6,052

3,048

Add: Amortization of acquired leases

89

104

289

326

Non-GAAP total revenues

$

277,187

$

237,568

$

803,931

$

696,675

Reconciliation of non-GAAP gross profit and margin

GAAP gross profit

$

130,717

$

111,626

$

374,625

$

323,707

Non-GAAP adjustments:

Add: Write-downs of acquisition-related deferred revenue

1,698

1,397

6,052

3,048

Add: Amortization of acquired leases

89

104

289

326

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

3,612

3,909

11,166

9,640

Add: Amortization of acquired software

7,975

5,897

22,645

17,003

Non-GAAP gross profit

$

144,091

$

122,933

$

414,777

$

353,724

GAAP gross margin

47.5

%

47.3

%

47.0

%

46.7

%

Non-GAAP gross margin

52.0

%

51.7

%

51.6

%

50.8

%

Reconciliation of non-GAAP operating income and margin

GAAP operating income

$

40,053

$

37,585

$

111,210

$

113,565

Non-GAAP adjustments:

Add: Write-downs of acquisition-related deferred revenue

1,698

1,397

6,052

3,048

Add: Amortization of acquired leases

89

104

289

326

Add: Share-based compensation expense

14,887

14,476

44,369

37,966

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

621

484

1,052

1,408

Add: Acquisition related costs

5

—

945

—

Add: Amortization of acquired software

7,975

5,897

22,645

17,003

Add: Amortization of customer and trade name intangibles

5,646

4,386

15,762

11,742

Non-GAAP adjustments subtotal

30,921

26,744

$

91,114

$

71,493

Non-GAAP operating income

$

70,974

$

64,329

$

202,324

$

185,058

GAAP operating margin

14.5

%

15.9

%

13.9

%

16.4

%

Non-GAAP operating margin

25.6

%

27.1

%

25.2

%

26.6

%

TYLER TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Reconciliation of non-GAAP net income and earnings per share

GAAP net income

$

40,390

$

38,924

$

99,737

$

115,910

Non-GAAP adjustments:

Add: Total non-GAAP adjustments to operating income

30,921

26,744

91,114

71,493

Less: Tax impact related to non-GAAP adjustments

(16,992

)

(15,987

)

(36,448

)

(45,088

)

Non-GAAP net income

$

54,319

$

49,681

$

154,403

$

142,315

GAAP earnings per diluted share

$

1.00

$

0.96

$

2.49

$

2.87

Non-GAAP earnings per diluted share

$

1.35

$

1.23

$

3.86

$

3.53

Detail of share-based compensation expense

Cost of software services, maintenance and subscriptions

$

3,612

$

3,909

$

11,166

$

9,640

Selling, general and administrative expenses

11,275

10,567

33,203

28,326

Total share-based compensation expense

$

14,887

$

14,476

$

44,369

$

37,966

Reconciliation of EBITDA and adjusted EBITDA

GAAP net income

$

40,390

$

38,924

$

99,737

$

115,910

Amortization of customer and trade name intangibles

5,646

4,386

15,762

11,742

Depreciation and amortization included in

cost of revenues, SG&A and other expenses

14,076

11,466

40,639

33,472

Interest expense included in other income, net

236

192

1,409

570

Income tax provision

162

(298

)

12,311

(147

)

EBITDA

$

60,510

$

54,670

$

169,858

$

161,547

Write-downs of acquisition-related deferred revenue

1,698

1,397

6,052

3,048

Share-based compensation expense

14,887

14,476

44,369

37,966

Acquisition related costs

5

—

$

945

$

—

Adjusted EBITDA

$

77,100

$

70,543

$

221,224

$

202,561

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

September 30, 2019

December 31, 2018

ASSETS

Current assets:

Cash and cash equivalents

$

161,438

$

134,279

Accounts receivable, net

347,982

298,912

Current investments and other assets

60,382

80,970

Income tax receivable

4

4,697

Total current assets

569,806

518,858

Accounts receivable, long-term portion

20,437

16,020

Operating lease right-of-use assets

20,172

—

Property and equipment, net

169,950

155,177

Other assets:

Goodwill

826,040

753,718

Other intangibles, net

377,580

276,852

Non-current investments and other assets

71,104

70,338

Total assets

$

2,055,089

$

1,790,963

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

78,841

$

73,390

Current income tax payable

—

—

Operating lease liabilities

6,413

—

Deferred revenue

391,560

350,512

Total current liabilities

476,814

423,902

Revolving line of credit

—

—

Deferred revenue, long-term

241

424

Deferred income taxes

40,303

41,791

Operating lease liabilities, long-term

18,134

—

Shareholders' equity

1,519,597

1,324,846

Total liabilities and shareholders' equity

$

2,055,089

$

1,790,963

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Cash flows from operating activities:

Net income

$

40,390

$

38,924

$

99,737

$

115,910

Adjustments to reconcile net income to cash

provided by operations:

Depreciation and amortization

19,803

15,978

56,547

45,627

Share-based compensation expense

14,887

14,476

44,369

37,966

Operating lease right-of-use assets - non cash

3,979

—

3,979

—

Deferred income tax (benefit) expense

(2,889

)

162

(10,329

)

(5,034

)

Changes in operating assets and liabilities,

exclusive of effects of acquired companies

53,903

42,583

(15,776

)

(15,116

)

Net cash provided by operating activities

130,073

112,123

178,527

179,353

Cash flows from investing activities:

Additions to property and equipment

(4,781

)

(8,508

)

(28,833

)

(23,460

)

Purchase of marketable security investments

(17,205

)

(17,788

)

(27,322

)

(92,638

)

Proceeds from marketable security investments

17,166

21,054

56,854

60,208

Investment in software

(1,308

)

—

(3,540

)

—

Cost of acquisitions, net of cash acquired

(650

)

(10,156

)

(199,870

)

(167,308

)

(Increase) decrease in other

(925

)

1,043

(493

)

857

Net cash used by investing activities

(7,703

)

(14,355

)

(203,204

)

(222,341

)

Cash flows from financing activities:

Decrease in net borrowings on revolving line of credit

(15,000

)

—

—

—

Purchase of treasury shares

—

—

(17,786

)

—

Proceeds from exercise of stock options

40,163

26,219

62,295

70,536

Contributions from employee stock purchase plan

2,718

2,218

7,327

5,978

Net cash provided by financing activities

27,881

28,437

51,836

76,514

Net increase in cash and cash equivalents

150,251

126,205

27,159

33,526

Cash and cash equivalents at beginning of period

11,187

93,247

134,279

185,926

Cash and cash equivalents at end of period

$

161,438

$

219,452

$

161,438

$

219,452

Brian K. Miller

Executive Vice President & CFO

Tyler Technologies, Inc.

972-713-3720

[email protected]

Source: Tyler Technologies, Inc.

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