Tyler Technologies (NYSE: TYL) reported Q2 EPS of $1.38, $0.18 better than the analyst estimate of $1.20. Revenue for the quarter came in at $271.1 million versus the consensus estimate of $278.17 million.

Second Quarter 2020 Financial Highlights:

Total revenues were $271.1 million, down 1.5% from $275.1 million for the second quarter of 2019. Organic revenues declined by 1.9%. Non-GAAP total revenues were $271.3 million, down 2.4% from $278.0 million for the second quarter of 2019. Non-GAAP organic revenues declined by 2.8%.
Recurring revenues from maintenance and subscriptions were $202.4 million, up 12.3% from $180.2 million for the second quarter of 2019, and comprised 74.7% of second quarter 2020 revenue.
Operating income was $41.3 million, up 12.8% from $36.7 million for the second quarter of 2019. Non-GAAP operating income was $74.6 million, up 9.1% from $68.4 million for the second quarter of 2019.
Net income was $53.9 million, or $1.30 per diluted share, up 68.4% compared to $32.0 million, or $0.80 per diluted share, for the second quarter of 2019. Non-GAAP net income was $57.1 million, or $1.38 per diluted share, up 10.2% compared to $51.8 million, or $1.30 per diluted share, for the second quarter of 2019.
Cash flows from operations were $39.8 million, up 62.5% compared to $24.5 million for the second quarter of 2019.
Adjusted EBITDA was $80.7 million, up 8.2% compared to $74.6 million for the second quarter of 2019.
Software subscription arrangements comprised approximately 43% of the total new software contract value in the second quarter, compared to approximately 80% in the second quarter of 2019.
Total bookings were $309 million, down 31.6% compared to the second quarter of 2019. Subscription bookings in the second quarter added $9.2 million in annual recurring revenue.
Total backlog was $1.54 billion, up 7.4% from $1.43 billion at June 30, 2019. Software-related backlog (excluding appraisal services) was $1.51 billion, up 8.0% from $1.40 billion at June 30, 2019.

“We are very pleased with our execution during the second quarter in light of the extraordinary impact of the COVID-19 pandemic, with earnings that exceeded our expectations and extremely strong cash flow,” said Lynn Moore, Tyler’s president and chief executive officer. “Total revenues were approximately $35 million below our pre-COVID plan. As expected, recurring revenue growth remained strong, and subscription revenues grew 16.6%. However, some procurement processes encountered delays as clients focused on addressing COVID-19, which resulted in several decisions being pushed out of the quarter, affecting license revenue. In addition, professional services revenues declined as a result of delays in projects and the near-elimination of billable travel revenue. The cancellation of our Connect user conference also impacted revenues by more than $6 million.

"Our operating expenses in the quarter were also well below plan, with significant savings in commissions, travel, marketing, health claims and other employee-related costs. As a result, our non-GAAP operating margin expanded 290 basis points to 27.5%. Cash flow was very robust in the quarter, and we ended the quarter with $473 million in cash and investments. Cash flows from operations grew 62.5%, and free cash flow rose 226%. With our strong financial position, we continued to invest in strategic initiatives at a high level, resulting in a 9.2% increase in research and development expense for the quarter.

"As expected, bookings declined in the face of a difficult comparison to last year's second quarter, when we signed two very large SaaS deals, including an $85 million contract that was the largest in the company's history," added Moore. "Although we have not experienced meaningful cancellations, we continue to see longer sales cycles as a result of COVID-19. Nonetheless, our backlog at quarter-end rose 7.4% over last year to reach a new all-time high.

"I couldn't be prouder of how our team of 5,500 professionals are supporting each other, delivering exceptional client service and displaying the spirit of innovation that has long been a hallmark of Tyler's success. We're delivering solutions that help our clients cope with current challenges, from providing critical information regarding the pandemic to government leaders and citizens to enabling courts to conduct virtual hearings. While we remain confident in our long-term outlook, it is clear that the COVID-19 pandemic will continue to have a significant effect on our business in the second half of 2020, and that is reflected in our reinstituted annual guidance for 2020," concluded Moore.

GUIDANCE:

Tyler Technologies sees FY2020 EPS of $5.30-$5.50, versus the consensus of $5.26. Tyler Technologies sees FY2020 revenue of $1.124-1.144 billion, versus the consensus of $1.15 billion.

As of June 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 $1.124 billion to $1.144 billion. Non-GAAP total revenues are expected to be in the range of $1.125 billion and $1.145 billion.
• GAAP diluted earnings per share are expected to be in the range of $4.71 to $4.91 and may vary significantly due to the impact of stock incentive awards on the GAAP effective tax rate, as well as final valuation of acquired intangibles.
• Non-GAAP diluted earnings per share are expected to be in the range of $5.30 to $5.50.
• Pre-tax non-cash, share-based compensation expense is expected to be approximately $79 million.
• Research and development expense is expected to be in the range of $90 million to $92 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 23% after discrete tax items and includes approximately $82 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 $34 million to $35 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.

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