Tyler Technologies, Inc. (TYL)

[abrooklyn]

Tyler Technologies Reports Earnings for Second Quarter 2022

Source: Business Wire
Total revenues grew 16.0% driven by 28.2% growth in subscriptions

Tyler Technologies, Inc. (NYSE: TYL) today announced financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights:

Both GAAP and non-GAAP total revenues were $468.7 million, up 16.0% from $404.1 million and 15.6% from $405.4 million, respectively, for the second quarter of 2021. On an organic basis (excluding COVID-related revenues), GAAP revenues grew 6.2% and non-GAAP revenues grew 5.8%.
Recurring revenues from maintenance and subscriptions were $372.6 million, up 16.7% from $319.2 million for the second quarter of 2021, and comprised 79.5% of second quarter 2022 revenue, up from 79.0% for the second quarter of 2021. On an organic basis (excluding COVID-related revenues), recurring revenues were $331.4 million, up 7.7%.
Subscription revenue and software services revenue included a total of $15.2 million from NIC's COVID-related initiatives. Revenues from TourHealth concluded in the second quarter, and revenues from the Virginia rent relief program are expected to wind down in the third quarter.
Operating income was $56.8 million, up 48.2% from $38.3 million for the second quarter of 2021. Non-GAAP operating income was $110.6 million, up 3.0% from $107.4 million for the second quarter of 2021.
Net income was $39.9 million, or $0.94 per diluted share, up 56.5% from $25.5 million, or $0.61 per diluted share, for the second quarter of 2021. Non-GAAP net income was $79.5 million, or $1.88 per diluted share, up 2.9% from $77.2 million, or $1.83 per diluted share, for the second quarter of 2021.
Cash flows from operations were $76.7 million compared to negative $20.3 million for the second quarter of 2021. Free cash flow was $60.0 million compared to negative $33.5 million for the second quarter of 2021.
Adjusted EBITDA was $119.0 million, up 3.8% from $114.7 million for the second quarter of 2021.
Software subscription arrangements comprised approximately 74% of the total new software contract value for the second quarter, compared to approximately 65% for the second quarter of 2021.
Software subscription bookings for the second quarter added $27.6 million in annual recurring revenue.
Annualized non-GAAP recurring revenue (ARR) was $1.49 billion, up 16.3% from $1.28 billion for the second quarter of 2021.
Total backlog was $1.85 billion, up 13.9% from $1.63 billion at June 30, 2021.
“Our market conditions remain strong, reflected by request for proposal and demo activities that continue to trend positively," said Lynn Moore, Tyler's president and chief executive officer. Total revenues grew approximately 16.0%, with organic revenue growth of 6.2%. Subscription revenues grew 28.2% in total and 14.1% organically, marking our 66th consecutive quarter of double-digit subscription revenue growth. Services revenues were flat on an organic basis, as we work to grow our implementation teams to support our growing backlog and anticipated continued sales growth.

"Our NIC division continued to exhibit strength in the second quarter, with core revenue growth of 8%, excluding COVID-related revenues, which we expect to end in the third quarter. Our enthusiasm around cross-sell opportunities with NIC remains high, and the pipeline of those opportunities doubled this quarter.

"Cash flows from operations and free cash flow were both robust at $76.7 million and $60.0 million, respectively. As interest rates continue to rise, we're prioritizing the use of excess cash to aggressively reduce debt, while maintaining flexibility to take advantage of opportunities to pursue strategic acquisitions and investments that survive long-term value.

"Our strong competitive position and the active public sector market resulted in robust second quarter bookings of approximately $562 million, which grew 21% over last year. Excluding NIC, bookings grew 16%. For the trailing twelve months, bookings were approximately $2.0 billion, up 53%, and excluding NIC, were approximately $1.5 billion, growing 21%.

"Subscription agreements comprised 74% of our new software contract value this quarter, as we continue to see an acceleration in the shift of our new contract mix from license to SaaS. In addition, the number of clients converting from on-premises to SaaS reached a new high of 96 in the second quarter. As expected, margins compressed compared to the second quarter of 2021, reflecting changes in revenue mix and costs related to our accelerated transition to the cloud.

"We're pleased with our results for the first half of 2022 and remain confident in our ability to perform at a high level even against a challenging macroeconomic backdrop. That confidence is driven by the unique characteristics of the public sector market, the durability of our business model, and the reliability of our growing recurring revenues from providing mission-critical solutions to our clients.

"While our revenue and operating margin expectations for the full year have not changed, we have adjusted our earnings guidance to reflect changes in our assumptions around interest expense, given current expectations for interest rate hikes and accelerated non-cash amortization of debt discounts and issuance costs associated with our prepayment of debt," concluded Moore.

Guidance for 2022

As of July 27, 2022, Tyler Technologies is providing the following guidance for the full year 2022:

GAAP and non-GAAP total revenues are both expected to be in the range of $1.835 billion to $1.870 billion.
Total revenues are expected to include approximately $44 million of COVID-related revenues from NIC's TourHealth and rent relief services. Revenues from TourHealth concluded in the second quarter, while revenues from the rent relief program are expected to wind down in the third quarter.
GAAP diluted earnings per share are expected to be in the range of $3.60 to $3.76 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 $7.36 to $7.52.
Interest expense is expected to be approximately $30 million, including approximately $7.5 million of non-cash amortization of debt discounts and issuance costs. This represents an increase of approximately $7 million compared to our previous guidance, based on current expectations for rate hikes and accelerated non-cash amortization of debt discounts and issuance costs associated with debt repayments, with an impact on both GAAP and non-GAAP diluted earnings per share of approximately $0.12 per share.
Pretax non-cash, share-based compensation expense is expected to be approximately $107 million.
Research and development expense is expected to be in the range of $98 million to $101 million.
Fully diluted shares for the year are expected to be in the range of 42.4 million to 42.8 million shares.
GAAP earnings per share assumes an estimated annual effective tax rate of approximately 22.0% after discrete tax items, including approximately $8 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 $58 million to $62 million, including approximately $34 million of capitalized software development costs. Total depreciation and amortization expense is expected to be approximately $144 million, including approximately $109 million from amortization of acquisition intangibles.
GAAP to non-GAAP guidance reconciliation

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 $107 million, amortization of acquired software and intangible assets of approximately $109 million, and acquisition-related costs of approximately $1 million. Additionally, the non-GAAP tax rate of 24% is estimated periodically as described below under "Non-GAAP Financial Measures" and excludes approximately $8 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, July 28, 2022 at 10:00 a.m. ET to discuss the company’s results. The company is offering participants the opportunity to register in advance for the conference through the following link: https://conferencingportals.com/event/dXimaDxA. Registered participants will receive an email with a calendar reminder and 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 888-330-2506 (U.S. and Canada callers) or 240-789-2712 (international callers) and ask for the “Tyler Technologies” call. The live audio webcast and archived replay can also be accessed at http://investors.tylertech.com/Presentations.

About Tyler Technologies, Inc.

Tyler Technologies (NYSE: TYL) provides integrated software and technology services to 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 37,000 successful installations across more than 12,000 locations, with clients in all 50 states, Canada, the Caribbean, Australia, and other international locations. Tyler has been recognized numerous times for growth and innovation, including Government Technology's GovTech 100 list and Forbes' "Most Innovative Growth Companies" list. More information about Tyler Technologies, an S&P 500 company 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, adjusted EBITDA, and free cash flow. 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, 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 annual 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) the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; (2) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (3) disruption to our business and harm to our competitive position resulting from cyber-attacks and security vulnerabilities; (4) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (5) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (6) material portions of our business require the Internet infrastructure to be adequately maintained; (7) 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; (8) general economic, political and market conditions, including inflation and increases in interest rates; (9) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (10) 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; (11) 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 (12) 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 and quarterly report on Form 10-Q. We expressly disclaim any obligation to publicly update or revise our forward-looking statements.

(Comparative results follow)

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,



2022



2021



2022



2021

















Software licenses and royalties

$

15,009





$

17,604





$

31,515





$

32,537



Subscriptions



255,816







199,558







501,259







302,037



Software services



63,125







53,337







124,622







100,977



Maintenance



116,815







119,621







233,844







238,733



Appraisal services



8,812







6,265







17,330







12,730



Hardware and other



9,108







7,690







16,222







11,863



Total revenues



468,685







404,075







924,792







698,877



















Software licenses and royalties



2,869







1,368







5,478







2,604



Amortization of acquired software



14,039







11,823







27,260







19,787



Subscriptions, software services and maintenance



244,192







199,771







481,088







334,091



Appraisal services



5,976







4,429







11,912







9,046



Hardware and other



8,161







4,623







13,188







7,081



Total cost of revenues



275,237







222,014







538,926







372,609



















Gross profit



193,448







182,061







385,866







326,268



















Selling, general and administrative expenses



99,701







108,922







197,596







187,696



Research and development expense



23,386







23,428







47,327







45,241



Amortization of customer and trade name intangibles



13,604







11,420







28,318







16,832



















Operating income



56,757







38,291







112,625







76,499



















Interest expense



(6,214

)





(12,437

)





(11,018

)





(12,915

)

Other income, net



216







238







581







804



Income before income taxes



50,759







26,092







102,188







64,388



Income tax provision



10,813







562







22,258







1,882



Net income

$

39,946





$

25,530





$

79,930





$

62,506



















Earnings per common share:















Basic

$

0.96





$

0.63





$

1.93





$

1.53



Diluted

$

0.94





$

0.61





$

1.88





$

1.48



















Weighted average common shares outstanding:















Basic



41,500







40,765







41,499







40,761



Diluted



42,321







42,094







42,449







42,148



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,

Reconciliation of non-GAAP total revenues



2022



2021



2022



2021

GAAP total revenues



$

468,685



$

404,075



$

924,792



$

698,877

Non-GAAP adjustments:

















Add: Write-downs of acquisition-related deferred revenue





—





1,288





—





1,288

Non-GAAP total revenues



$

468,685



$

405,363



$

924,792



$

700,165





Three Months Ended June 30,



Six Months Ended June 30,

Reconciliation of non-GAAP gross profit and margin



2022



2021



2022



2021

GAAP gross profit



$

193,448





$

182,061





$

385,866





$

326,268



Non-GAAP adjustments:

















Add: Write-downs of acquisition-related deferred revenue





—







1,288







—







1,288



Add: Share-based compensation expense included in cost of

revenues





6,867







5,909







13,639







10,909



Add: Amortization of acquired software





14,039







11,823







27,260







19,787



Non-GAAP gross profit



$

214,354





$

201,081





$

426,765





$

358,252



GAAP gross margin





41.3

%





45.1

%





41.7

%





46.7

%

Non-GAAP gross margin





45.7

%





49.6

%





46.1

%





51.2

%





Three Months Ended June 30,



Six Months Ended June 30,

Reconciliation of non-GAAP operating income and margin



2022



2021



2022



2021

GAAP operating income



$

56,757





$

38,291





$

112,625





$

76,499



Non-GAAP adjustments:

















Add: Write-downs of acquisition-related deferred revenue





—







1,288







—







1,288



Add: Share-based compensation expense





25,800







25,175







51,079







50,899



Add: Employer portion of payroll tax related to employee stock

transactions





398







393







1,110







1,160



Add: Acquisition related costs





—







19,017







1,031







19,830



Add: Amortization of acquired software





14,039







11,823







27,260







19,787



Add: Amortization of customer and trade name intangibles





13,604







11,420







28,318







16,832



Non-GAAP adjustments subtotal





53,841







69,116







108,798







109,796



Non-GAAP operating income



$

110,598





$

107,407





$

221,423





$

186,295



GAAP operating margin





12.1

%





9.5

%





12.2

%





10.9

%

Non-GAAP operating margin





23.6

%





26.5

%





23.9

%





26.6

%





Three Months Ended June 30,



Six Months Ended June 30,

Reconciliation of non-GAAP net income and earnings per share



2022



2021



2022



2021

GAAP net income



$

39,946





$

25,530





$

79,930





$

62,506



Non-GAAP adjustments:

















Add: Total non-GAAP adjustments to operating income





53,841







69,116







108,798







109,796



Add: Acquisition related costs in interest expense





—







6,407







—







6,407



Less: Tax impact related to non-GAAP adjustments





(14,290

)





(23,826

)





(28,378

)





(41,460

)

Non-GAAP net income



$

79,497





$

77,227





$

160,350





$

137,249



GAAP earnings per diluted share



$

0.94





$

0.61





$

1.88





$

1.48



Non-GAAP earnings per diluted share



$

1.88





$

1.83





$

3.78





$

3.26







Three Months Ended June 30,



Six Months Ended June 30,

Detail of share-based compensation expense



2022



2021



2022



2021

Subscriptions, software services and maintenance



$

6,867



$

5,909



$

13,639



$

10,909

Selling, general and administrative expenses





18,933





19,266





37,440





39,990

Total share-based compensation expense



$

25,800



$

25,175



$

51,079



$

50,899





Three Months Ended June 30,



Six Months Ended June 30,

Reconciliation of EBITDA and adjusted EBITDA



2022



2021



2022



2021

GAAP net income



$

39,946



$

25,530



$

79,930



$

62,506

Amortization of customer and trade name intangibles





13,604





11,420





28,318





16,832

Depreciation and amortization included in cost of revenues, SG&A and other expenses





22,681





19,248





44,616





34,178

Amortization of debt discounts and issuance costs included in interest expense





1,139





8,706





2,271





8,950

Interest expense





5,066





3,732





8,747





3,966

Income tax provision (benefit)





10,813





562





22,258





1,882

EBITDA



$

93,249



$

69,198



$

186,139



$

128,314

Write-downs of acquisition-related deferred revenue





—





1,288





—





1,288

Share-based compensation expense





25,800





25,175





51,079





50,899

Acquisition related costs





—





19,017





1,031





19,830

Adjusted EBITDA



$

119,049



$

114,678



$

238,249



$

200,331





Three Months Ended June 30,



Six Months Ended June 30,

Reconciliation of free cash flow



2022



2021



2022



2021

Net cash provided by operating activities



$

76,679





$

(20,347

)



$

130,220





$

51,356



Less: additions to property and equipment





(8,178

)





(7,659

)





(12,757

)





(14,223

)

Less: capitalized software development costs





(8,516

)





(5,471

)





(16,463

)





(8,947

)

Free cash flow



$

59,985





$

(33,477

)



$

101,000





$

28,186



TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)




June 30, 2022



December 31, 2021

ASSETS







Current assets:







Cash and cash equivalents

$

253,062



$

309,171

Accounts receivable, net



597,560





521,059

Short-term investments



34,466





52,300

Prepaid expenses and other current assets



69,647





63,664

Income tax receivable



2,552





18,137

Total current assets



957,287





964,331









Accounts receivable, long-term portion



12,665





13,937

Operating lease right-of-use assets



40,577





39,720

Property and equipment, net



177,907





181,193









Other assets:







Software development costs, net



43,505





28,489

Goodwill



2,449,638





2,359,674

Other intangibles, net



1,032,786





1,052,493

Non-current investments



26,464





46,353

Other non-current assets



46,217





45,971

Total assets

$

4,787,046



$

4,732,161









LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Accounts payable and accrued liabilities

$

264,908



$

278,412

Operating lease liabilities



10,363





10,560

Deferred revenue



528,588





510,529

Current portion of term loans



30,000





30,000

Total current liabilities



833,859





829,501









Revolving line of credit



—





—

Term loans



639,464





718,511

Convertible senior notes due 2026, net



593,624





592,765

Deferred revenue, long-term



—





38

Deferred income taxes



216,947





228,085

Operating lease liabilities, long-term



36,018





36,336

Other long-term liabilities



8,807





2,893

Total liabilities



2,328,719





2,408,129









Shareholders' equity

$

2,458,327



$

2,324,032

Total liabilities and shareholders' equity

$

4,787,046



$

4,732,161

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)






Three Months Ended June 30,



Six Months Ended June 30,





2022



2021



2022



2021

Cash flows from operating activities:

















Net income



$

39,946





$

25,530





$

79,930





$

62,506



Adjustments to reconcile net income to cash provided by operations:

















Depreciation and amortization





37,717







39,876







75,866







60,976



Losses (gains) from sale of investments





2







—







(53

)





—



Share-based compensation expense





25,800







25,175







51,079







50,899



Operating lease right-of-use assets expense





2,022







2,488







5,104







4,034



Deferred income tax benefit





(9,698

)





(3,163

)





(19,136

)





(6,430

)

Changes in operating assets and liabilities, exclusive of effects of acquired companies





(19,110

)





(110,253

)





(62,570

)





(120,629

)

Net cash provided (used) by operating activities





76,679







(20,347

)





130,220







51,356





















Cash flows from investing activities:

















Additions to property and equipment





(8,178

)





(7,659

)





(12,757

)





(14,223

)

Purchase of marketable security investments





—







(15,299

)





(4,592

)





(68,054

)

Proceeds and maturities from marketable security investments





17,923







56,364







40,595







91,395



Investment in software





(8,516

)





(5,471

)





(16,463

)





(8,947

)

Cost of acquisitions, net of cash acquired





(615

)





(1,986,853

)





(117,313

)





(1,998,902

)

Other





181







(80

)





152







39



Net cash provided (used) by investing activities





795







(1,958,998

)





(110,378

)





(1,998,692

)



















Cash flows from financing activities:

















Decrease in net borrowings on revolving line of credit





—







65,000







—







65,000



Payment on term loans





(60,000

)





—







(80,000

)





—



Proceeds from term loans





—







900,000







—







900,000



Proceeds from issuance of convertible senior notes





—







—







—







600,000



Payment of debt issuance costs





—







(21,107

)





—







(27,127

)

Purchase of treasury shares





—







(12,975

)





—







(12,975

)

Proceeds from exercise of stock options, net of withheld shares for taxes upon equity award





(12,152

)





11,286







(4,107

)





29,388



Contributions from employee stock purchase plan





4,478







3,162







8,156







6,200



Net cash (used) provided by financing activities





(67,674

)





945,366







(75,951

)





1,560,486





















Net increase (decrease) in cash and cash equivalents





9,800







(1,033,979

)





(56,109

)





(386,850

)

Cash and cash equivalents at beginning of period





243,262







1,250,752







309,171







603,623





















Cash and cash equivalents at end of period



$

253,062





$

216,773





$

253,062





$

216,773






View source version on businesswire.com: https://www.businesswire.com/news/home/20220727005970/en/

Brian K. Miller
Executive Vice President & CFO
Tyler Technologies, Inc.
972-713-3720
[e-mail]