Tyler Technologies, Inc. (TYL)

[abrooklyn]

Tyler Technologies Reports Earnings for Third Quarter 2022

Source: Business Wire
Revenues grew approximately 9% organically, excluding COVID-related revenues

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

Third Quarter 2022 Financial Highlights:

Both GAAP and non-GAAP total revenues were $473.2 million, up 2.9% from $459.9 million and 2.7% from $460.6 million, respectively, for the third quarter of 2021. On an organic basis (excluding COVID-related revenues), GAAP revenues grew 9.0% and non-GAAP revenues grew 8.8%.
Recurring revenues from maintenance and subscriptions were $371.7 million, up 0.2% from $370.8 million for the third quarter of 2021, and comprised 78.5% of third quarter 2022 revenues, compared to 80.6% for the third quarter of 2021. On an organic basis (excluding COVID-related revenues), recurring revenues were $364.5 million, up 9.3%.
Revenues included a total of $11.7 million from NIC's COVID-related initiatives, which are expected to end in the fourth quarter. Revenues from COVID-related initiatives totaled $43.3 million in the third quarter of 2021.
Operating income was $60.9 million, up 8.4% from $56.2 million for the third quarter of 2021. Non-GAAP operating income was $117.8 million, up 0.9% from $116.8 million for the third quarter of 2021.
Net income was $53.2 million, or $1.26 per diluted share, up 20.5% from $44.2 million, or $1.04 per diluted share, for the third quarter of 2021. Non-GAAP net income was $87.4 million, or $2.06 per diluted share, up 2.8% from $85.0 million, or $2.01 per diluted share, for the third quarter of 2021.
The annual non-GAAP effective tax rate is 22.5%, down from 24.0% in 2021, as the result of an increase in the estimated research tax credit. For the third quarter, the non-GAAP effective tax rate was 19.6% to reflect the change in tax rate for the first nine months of the year.
Cash flows from operations were $129.4 million compared to $205.4 million for the third quarter of 2021. Free cash flow was $115.6 million compared to $192.8 million for the third quarter of 2021.
Adjusted EBITDA was $126.9 million, up 1.5% from $125.0 million for the third quarter of 2021.
Software subscription arrangements comprised approximately 91% of the total new software contract value for the third quarter, compared to approximately 74% for the third quarter of 2021.
Software subscription bookings for the third quarter added $28.1 million in annual recurring revenue.
Annualized non-GAAP recurring revenues (ARR) were $1.49 billion, unchanged from $1.49 billion for the third quarter of 2021 due to a reduction in COVID-related subscription revenue. On an organic basis, excluding COVID-related revenues, annualized non-GAAP ARR grew 11.2%.
Total backlog was $1.88 billion, up 6.3% from $1.77 billion at September 30, 2021.
"Third quarter results were highlighted by strong execution and robust public sector market demand, supported by healthy budgets," said Lynn Moore, Tyler's president and chief executive officer. "We are carrying strong momentum across our divisions, and market activity continues to build and drive larger opportunities and multi-suite wins. Professional services revenue continues to be pressured as we onboard new implementation team members and build capacity to support our growing backlog.

"Overall, we reported solid top and bottom-line results while advancing our cloud-first strategy. Total contract value for new software subscription agreements reached a new high and comprised 91% of our new software contract value this quarter. Contract signings were highlighted by a five-year $54 million contract with the U.S. Department of State for our Case Management Development Platform. This represents the largest win in our Federal Division's history, although only approximately $8 million of the contract value was included in the third quarter bookings due to certain contract provisions.

"In light of the rising interest rate environment, we continue to prioritize the use of excess cash to aggressively reduce debt, while being opportunistic toward strategic acquisitions and investments that enhance our long-term growth strategy. During the quarter, we reduced term debt by $190 million and our net leverage is now under two times proforma EBITDA.

"Looking forward, we are encouraged by continued strength in the public sector markets as reflected in stable or increasing RFP and demo activity across our business units. We are also pleased that our software revenue mix continues to arc towards SaaS even more rapidly than previously expected, even though the increased mix of SaaS arrangements is putting pressure on near-term revenue growth, as license revenue will decline faster than planned this year and in 2023. We have reduced the upper end of our full year revenue guidance to reflect lower license revenue, as well as pressure on professional services revenue related to staffing. The midpoint of our annual non-GAAP EPS guidance, adjusted for the reduction in our effective tax rate, is unchanged," concluded Moore.

Guidance for 2022

As of October 26, 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 $1.837 billion to $1.857 billion.
Total revenues are expected to include approximately $49 million of COVID-related revenues from NIC's TourHealth and rent relief services. Revenue from TourHealth concluded in the second quarter, while revenue from the rent relief program are expected to end in the fourth quarter.
GAAP diluted earnings per share are expected to be in the range of $3.89 to $4.05 and may vary significantly due to the impact of stock option activity on the GAAP effective tax rate.
Non-GAAP diluted earnings per share are expected to be in the range of $7.51 to $7.65.
Interest expense is expected to be approximately $28 million, including approximately $7 million of non-cash amortization of debt discounts and issuance costs.
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 $97 million to $100 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 14.0% 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 22.5%, down from 24% based on a change in our estimated research tax credit and its effect on our annual effective GAAP tax rate.
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 $147 million, including approximately $112 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 $112 million, acquisition-related costs of approximately $1 million, and lease restructuring costs of approximately $1 million. Additionally, the non-GAAP tax rate of 22.5% 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, October 27, 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 https://investors.tylertech.com/events-and-presentations/default.aspx.

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, acquisition-related expenses, and lease restructuring costs. Annualized non-GAAP recurring revenues (ARR) is calculated by annualizing the current quarter's non-GAAP recurring revenues from maintenance and subscriptions.

Tyler currently uses a non-GAAP tax rate of 22.5%. 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 September 30,



Nine Months Ended September 30,



2022



2021



2022



2021

















Software licenses and royalties

$

20,269





$

22,673





$

51,784





$

55,210



Subscriptions



254,346







252,942







755,604







554,979



Professional services



63,180







54,624







187,802







155,601



Maintenance



117,338







117,833







351,182







356,566



Appraisal services



8,638







7,146







25,968







19,876



Hardware and other



9,420







4,655







25,643







16,518



Total revenues



473,191







459,873







1,397,983







1,158,750



















Software licenses and royalties



3,162







1,547







8,640







4,151



Amortization of acquired software



13,622







12,896







40,882







32,683



Subscriptions, professional services and maintenance



239,928







241,944







721,017







576,035



Appraisal services



5,783







4,506







17,695







13,552



Hardware and other



6,033







2,764







19,219







9,845



Total cost of revenues



268,528







263,657







807,453







636,266



















Gross profit



204,663







196,216







590,530







522,484



















Selling, general and administrative expenses



103,619







101,847







301,216







289,543



Research and development expense



25,190







24,002







72,517







69,243



Amortization of customer and trade name intangibles



14,941







14,183







43,259







31,015



















Operating income



60,913







56,184







173,538







132,683



















Interest expense



(9,258

)





(5,396

)





(20,276

)





(18,311

)

Other income, net



131







445







712







1,249



Income before income taxes



51,786







51,233







153,974







115,621



Income tax (benefit) provision



(1,447

)





7,063







20,811







8,945



Net income

$

53,233





$

44,170





$

133,163





$

106,676



















Earnings per common share:















Basic

$

1.28





$

1.08





$

3.21





$

2.61



Diluted

$

1.26





$

1.04





$

3.14





$

2.53



















Weighted average common shares outstanding:















Basic



41,600







40,888







41,523







40,805



Diluted



42,407







42,286







42,425







42,196



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,

Reconciliation of non-GAAP total revenues



2022



2021



2022



2021

GAAP total revenues



$

473,191





$

459,873





$

1,397,983





$

1,158,750



Non-GAAP adjustments:

















Add: Write-downs of acquisition-related deferred revenue





—







751







—







2,039



Non-GAAP total revenues



$

473,191





$

460,624





$

1,397,983





$

1,160,789








Three Months Ended September 30,



Nine Months Ended September 30,

Reconciliation of non-GAAP gross profit and margin



2022



2021



2022



2021

GAAP gross profit



$

204,663





$

196,216





$

590,530





$

522,484



Non-GAAP adjustments:

















Add: Write-downs of acquisition-related deferred revenue





—







751







—







2,039



Add: Share-based compensation expense included in cost of

revenues





7,181







6,303







20,820







17,212



Add: Amortization of acquired software





13,622







12,896







40,882







32,683



Non-GAAP gross profit



$

225,466





$

216,166





$

652,232





$

574,418



GAAP gross margin





43.3

%





42.7

%





42.2

%





45.1

%

Non-GAAP gross margin





47.6

%





46.9

%





46.7

%





49.5

%






Three Months Ended September 30,



Nine Months Ended September

Reconciliation of non-GAAP operating income and margin



2022



2021



2022



2021

GAAP operating income



$

60,913





$

56,184





$

173,538





$

132,683



Non-GAAP adjustments:

















Add: Write-downs of acquisition-related deferred revenue





—







751







—







2,039



Add: Share-based compensation expense





26,912







29,461







77,991







80,360



Add: Employer portion of payroll tax related to employee stock

transactions





86







401







1,196







1,561



Add: Acquisition related costs





183







2,888







1,214







22,718



Add: Lease restructuring costs





1,159







—







1,159







—



Add: Amortization of acquired software





13,622







12,896







40,882







32,683



Add: Amortization of customer and trade name intangibles





14,941







14,183







43,259







31,015



Non-GAAP adjustments subtotal





56,903







60,580







165,701







170,376



Non-GAAP operating income



$

117,816





$

116,764





$

339,239





$

303,059



GAAP operating margin





12.9

%





12.2

%





12.4

%





11.5

%

Non-GAAP operating margin





24.9

%





25.3

%





24.3

%





26.1

%

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,

Reconciliation of non-GAAP net income and earnings per share



2022



2021



2022



2021

GAAP net income



$

53,233





$

44,170





$

133,163





$

106,676



Non-GAAP adjustments:

















Add: Total non-GAAP adjustments to operating income





56,903







60,580







165,701







170,376



Add: Acquisition related costs in interest expense





—











—







6,407



Less: Tax impact related to non-GAAP adjustments





(22,737

)





(19,772

)





(51,115

)





(61,232

)

Non-GAAP net income



$

87,399





$

84,978





$

247,749





$

222,227



GAAP earnings per diluted share



$

1.26





$

1.04





$

3.14





$

2.53



Non-GAAP earnings per diluted share



$

2.06





$

2.01





$

5.84





$

5.27








Three Months Ended September 30,



Nine Months Ended September 30,

Detail of share-based compensation expense



2022



2021



2022



2021

Subscriptions, professional services and maintenance



$

7,181





$

6,303





$

20,820





$

17,212



Selling, general and administrative expenses





19,731







23,158







57,171







63,148



Total share-based compensation expense



$

26,912





$

29,461





$

77,991





$

80,360








Three Months Ended September 30,



Nine Months Ended September 30,

Reconciliation of EBITDA and adjusted EBITDA



2022



2021



2022



2021

GAAP net income



$

53,233





$

44,170





$

133,163





$

106,676



Amortization of customer and trade name intangibles





14,941







14,183







43,259







31,015



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





22,646







21,112







67,262







55,290



Amortization of debt discounts and issuance costs included in interest expense





3,329







1,133







5,600







10,083



Interest expense





5,928







4,262







14,676







8,228



Income tax (benefit) provision





(1,447

)





7,063







20,811







8,945



EBITDA



$

98,630





$

91,923





$

284,771





$

220,237



Write-downs of acquisition-related deferred revenue





—







751







—







2,039



Share-based compensation expense





26,912







29,461







77,991







80,360



Acquisition related costs





183







2,888







1,214







22,718



Lease restructuring costs





1,159







—







1,159







—



Adjusted EBITDA



$

126,884





$

125,023





$

365,135





$

325,354



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,

Reconciliation of free cash flow



2022



2021



2022



2021

Net cash provided by operating activities



$

129,378





$

205,387





$

259,598





$

256,743



Less: additions to property and equipment





(4,684

)





(6,547

)





(17,441

)





(20,770

)

Less: capitalized software development costs





(9,094

)





(6,019

)





(25,557

)





(14,966

)

Free cash flow



$

115,600





$

192,821





$

216,600





$

221,007



TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)




September 30, 2022



December 31, 2021

ASSETS







Current assets:







Cash and cash equivalents

$

185,927



$

309,171

Accounts receivable, net



561,780





521,059

Short-term investments



39,360





52,300

Prepaid expenses and other current assets



65,704





63,664

Income tax receivable



7,379





18,137

Total current assets



860,150





964,331









Accounts receivable, long-term portion



9,213





13,937

Operating lease right-of-use assets



53,202





39,720

Property and equipment, net



175,196





181,193









Other assets:







Software development costs, net



51,092





28,489

Goodwill



2,449,405





2,359,674

Other intangibles, net



1,004,045





1,052,493

Non-current investments



22,627





46,353

Other non-current assets



50,443





45,971

Total assets

$

4,675,373



$

4,732,161









LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Accounts payable and accrued liabilities

$

242,434



$

278,412

Operating lease liabilities



10,581





10,560

Deferred revenue



529,233





510,529

Current portion of term loans



30,000





30,000

Total current liabilities



812,248





829,501









Revolving line of credit



—





—

Term loans



452,138





718,511

Convertible senior notes due 2026, net



594,054





592,765

Deferred revenue, long-term



2,473





38

Deferred income taxes



203,204





228,085

Operating lease liabilities, long-term



49,759





36,336

Other long-term liabilities



14,199





2,893

Total liabilities



2,128,075





2,408,129









Shareholders' equity

$

2,547,298



$

2,324,032

Total liabilities and shareholders' equity

$

4,675,373



$

4,732,161

TYLER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)






Three Months Ended September 30,



Nine Months Ended September 30,





2022



2021



2022



2021

Cash flows from operating activities:

















Net income



$

53,233





$

44,170





$

133,163





$

106,676



Adjustments to reconcile net income to cash

provided by operations:

















Depreciation and amortization





41,084







36,888







116,950







97,864



Losses (gains) from sale of investments





97







—







44







—



Share-based compensation expense





26,912







29,461







77,991







80,360



Operating lease right-of-use assets expense





4,136







2,982







9,240







7,016



Deferred income tax benefit





(13,709

)





(9,251

)





(32,845

)





(15,681

)

Changes in operating assets and liabilities,

exclusive of effects of acquired companies





17,625







101,137







(44,945

)





(19,492

)

Net cash provided by operating activities





129,378







205,387







259,598







256,743





















Cash flows from investing activities:

















Additions to property and equipment





(4,684

)





(6,547

)





(17,441

)





(20,770

)

Purchase of marketable security investments





(15,836

)





(7,630

)





(20,428

)





(75,684

)

Proceeds and maturities from marketable security investments





14,457







23,168







55,052







114,563



Investment in software





(9,094

)





(6,019

)





(25,557

)





(14,966

)

Cost of acquisitions, net of cash acquired





(393

)





(89,492

)





(117,706

)





(2,088,394

)

Other





174







424







326







463



Net cash provided (used) by investing activities





(15,376

)





(86,096

)





(125,754

)





(2,084,788

)



















Cash flows from financing activities:

















Decrease in net borrowings on revolving line of credit





—







(65,000

)





—







—



Payment on term loans





(190,000

)





(57,500

)





(270,000

)





(57,500

)

Proceeds from term loans





—







—







—







900,000



Proceeds from issuance of convertible senior notes





—







—







—







600,000



Payment of debt issuance costs





—







(38

)





—







(27,165

)

Purchase of treasury shares





—







—







—







(12,975

)

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





4,405







17,045







298







46,433



Contributions from employee stock purchase plan





4,458







3,557







12,614







9,757



Net cash (used) provided by financing activities





(181,137

)





(101,936

)





(257,088

)





1,458,550





















Net (decrease) increase in cash and cash equivalents





(67,135

)





17,355







(123,244

)





(369,495

)

Cash and cash equivalents at beginning of period





253,062







216,773







309,171







603,623





















Cash and cash equivalents at end of period



$

185,927





$

234,128





$

185,927





$

234,128



#TYL_Financial


View source version on businesswire.com: https://www.businesswire.com/news/home/20221026005745/en/

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