Revenues grow 16.7% as operating cash flows
reach new quarterly high
Tyler Technologies, Inc. (NYSE: TYL) today announced financial
results for the third quarter ended September 30, 2019.
Third Quarter 2019 Financial Highlights:
- Total revenues were $275.4 million, up 16.7% from $236.1
million for the third quarter of 2018. Organic revenue growth was
8.9%. Non-GAAP total revenues were $277.2 million, up 16.7% from
$237.6 million for the third quarter of 2018. Non-GAAP organic
revenue growth was 8.3%.
- Recurring revenues from maintenance and subscriptions were
$185.1 million, an increase of 19.5% compared to the third quarter
of 2018, and comprised 67.2% of third quarter 2019 revenue.
- Operating income was $40.1 million, up 6.6% from $37.6 million
for the third quarter of 2018. Non-GAAP operating income was $71.0
million, up 10.3% from $64.3 million for the third quarter of
2018.
- Net income was $40.4 million, or $1.00 per diluted share, up
3.8% compared to $38.9 million, or $0.96 per diluted share, for the
third quarter of 2018. Non-GAAP net income was $54.3 million, or
$1.35 per diluted share, up 9.3% compared to $49.7 million, or
$1.23 per diluted share, for the third quarter of 2018.
- Cash flows from operations were $130.1 million, up 16.0%
compared to $112.1 million for the third quarter of 2018.
- Adjusted EBITDA was $77.1 million, up 9.3% compared to $70.5
million for the third quarter of 2018.
- Software subscription arrangements comprised approximately 51%
of the total new software contract value in the third quarter,
compared to approximately 37% in the third quarter of 2018.
- Subscription bookings in the third quarter added $10.6 million
in annual recurring revenue.
- Total backlog was $1.41 billion, up 13.9% from $1.24 billion at
September 30, 2018. Software-related backlog (excluding appraisal
services) was $1.38 billion, up 14.9% from $1.20 billion at
September 30, 2018.
- Effective January 1, 2019, Tyler adopted the requirements of
ASU No. 2016-02, Leases (Topic 842), utilizing the modified
retrospective method of transition.
“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 total revenues are expected to be in the range of $1.082
billion to $1.095 billion. Non-GAAP total revenues are expected to
be in the range of $1.090 billion to $1.103 billion.
- GAAP diluted earnings per share are expected to be in the range
of $3.50 to $3.63 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 $5.22 to $5.35.
- Pretax non-cash, share-based compensation expense is expected
to be approximately $62 million.
- Research and development expense is expected to be in the range
of $81 million to $83 million.
- Fully diluted shares for the year are expected to be in the
range of $40 million to $40.5 million shares.
- GAAP earnings per share assumes an estimated annual effective
tax rate of approximately 10% after discrete tax items and includes
approximately $27 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 $45
million to $47 million, including approximately $20 million related
to real estate and approximately $6 million of capitalized software
development costs related to MicroPact. Total depreciation and
amortization expense is expected to be approximately $76 million,
including approximately $52 million from amortization of
acquisition intangibles.
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191030005920/en/
Brian K. Miller Executive Vice President & CFO Tyler
Technologies, Inc. 972-713-3720 brian.miller@tylertech.com
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