Subscription revenues grow 22 percent as cloud
bookings accelerate
Tyler Technologies, Inc. (NYSE: TYL) today announced financial
results for the third quarter ended September 30, 2017.
Third Quarter 2017 Financial Highlights:
- Total revenues were $214.1 million, up
10.1 percent from $194.5 million for the third quarter of
2016.
- Recurring revenue from maintenance and
subscriptions was $137.1 million, an increase of 14.4 percent
compared to the third quarter of 2016, and comprised 64.0 percent
of third quarter 2017 revenue.
- Operating income was $43.4 million, up
17.6 percent from $36.9 million for the third quarter of 2016.
- Net income was $38.3 million, or $0.97
per diluted share, up 8.0 percent compared to $35.4 million, or
$0.91 per diluted share, for the third quarter of 2016.
- Cash flows from operations were $92.8
million, up 17.2 percent compared to $79.2 million for the third
quarter of 2016.
- Non-GAAP total revenues were $214.4
million, up 8.4 percent from $197.8 million for the third quarter
of 2016.
- Non-GAAP operating income was $62.6
million, up 9.1 percent from $57.4 million for the third quarter of
2016.
- Non-GAAP net income was $41.3 million,
or $1.05 per diluted share, up 14.4 percent compared to $36.1
million, or $0.92 per diluted share, for the third quarter of
2016.
- Adjusted EBITDA was $67.4 million, up
11.6 percent compared to $60.4 million for the third quarter of
2016.
- Total backlog was $1.1 billion, up 12.2
percent from $935.6 million at September 30, 2016.
Software-related backlog (excluding appraisal services) was $1.0
billion, up 14.2 percent from $892.1 million at September 30,
2016.
“Tyler executed well during the third quarter and delivered
solid earnings that were in line with our expectations, with our
quarterly non-GAAP operating margin reaching a new high,” said John
S. Marr Jr., Tyler’s chairman and chief executive officer.
“Bookings were very strong against a tough comparison with last
year's third quarter, and we ended the quarter with a record high
backlog. Similar to last quarter, our mix of new software business
had a high proportion of subscription arrangements, with cloud
contracts comprising approximately half of our new deal mix, and
the total contract value of new software subscription contracts
signed in the quarter doubled the value of last year's third
quarter.
"Although the increase in cloud sales over the last two quarters
is a headwind to short-term revenue and earnings growth, these new
cloud clients will drive higher recurring revenues going forward.
We're pleased that so many new clients are selecting Tyler's
solutions, whether they choose to run on premises or in the cloud,
and we expect that the mix of new license and subscription bookings
will vary from quarter to quarter.
“Subscription revenues continued to pace our revenue growth, as
they rose 22 percent. Going back to the beginning of 2010,
subscription revenue growth has exceeded 20 percent in 30 of the
last 31 quarters. E-filing revenues grew nearly 26 percent,
including revenues from our new re:SearchIL agreement to provide
search capabilities for court documents across the state of
Illinois. We continue to pursue new subscription-based revenue
sources, including re:Search and online dispute resolution
offerings for courts, that provide attractive long-term revenue
growth and margin expansion opportunities.
“Cash flow was also robust in the third quarter, and we ended
the quarter with $186.3 million cash, cash equivalents and
investments. We broadened our enterprise licensing and regulatory
solution with the acquisition of Digital Health Department, Inc. in
the quarter, and we continue to invest in internal product
development at a high level. We are pleased with the progress of
our product development initiatives, which we believe are having a
positive impact on sales processes,” said Marr.
Guidance for 2017
As of October 25, 2017, Tyler Technologies is providing the
following guidance for the full year 2017:
- GAAP total revenues are expected to be
in the range of $840 million to $848 million.
- Non-GAAP total revenues are expected to
be in the range of $841 million to $849 million.
- GAAP diluted earnings per share are
expected to be approximately $3.46 to $3.52 and may vary
significantly due to the impact of stock option exercises on the
GAAP effective tax rate under ASU 2016-09.
- Non-GAAP diluted earnings per share are
expected to be approximately $3.86 to $3.92.
- Pretax non-cash, share-based
compensation expense is expected to be approximately $38
million.
- Fully diluted shares for the year are
expected to be between 39.3 million and 39.6 million shares.
- GAAP earnings per share assumes an
estimated annual effective tax rate of approximately 14.0 percent
after discrete tax items, and includes approximately $38 million of
assumed discrete tax benefits related to share-based
compensation.
- The non-GAAP annual effective tax rate
is expected to be 35.0 percent. This was adjusted from 35.5 percent
used in prior quarters to reflect the estimated benefit of the
R&D tax credit, which was not previously included in the
estimated rate.
- Capital expenditures are expected to be
between $53 million and $55 million, including approximately $24
million related to real estate. Total depreciation and amortization
expense is expected to be approximately $50 million, including
approximately $36 million of 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 $1 million. Non-GAAP diluted earnings per share is
derived by adding back 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 $39
million, and amortization of acquired software and intangible
assets of approximately $36 million. Additionally, the non-GAAP tax
rate of 35.0 percent is estimated periodically as described below
under "Non-GAAP Financial Measures" and excludes approximately $38
million of discrete tax benefits related to share-based
compensation that are included in the GAAP estimated annual
effective tax rate.
Conference Call
Tyler Technologies will hold a conference call on Thursday,
October 26, 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/10112474. Registered participants will
receive an email with a calendar reminder and a dial-in number and
PIN that will allow them immediate access to the call on October
26.
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 1, 2017. 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 10112474.
The live webcast and archived replay can also be accessed at
http://investors.tylertech.com/Presentations.
About Tyler Technologies, Inc.
Tyler Technologies (NYSE: TYL) is a leading provider of
end-to-end information management solutions and services for local
governments. Tyler partners with clients to empower the public
sector - cities, counties, schools and other government entities -
to become more efficient, more accessible and more responsive to
the needs of their constituents. Tyler's client base includes more
than 15,000 local government offices in all 50 states, Canada, the
Caribbean, the United Kingdom and other international locations. In
2017, Forbes ranked Tyler on its "Most Innovative Growth Companies"
list, and it has named Tyler one of "America's Best Small
Companies" eight times. The company has been included six times on
the Barron's 400 Index, a measure of the most promising companies
in America. More information about Tyler Technologies,
headquartered in Plano, Texas, can be found at
www.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, acquisition-related
costs, expenses associated with amortization of intangibles arising
from business combinations, and the impact from the adoption of ASU
2016-09, Improvements to Employee Share-Based Payment Accounting,
on our income tax provision.
Historically, for the purpose of determining non-GAAP net
income, Tyler has used a non-GAAP tax rate of 35 percent in its
calculation of the tax impact related to certain non-GAAP
adjustments. Beginning in 2017, Tyler is adjusting non-GAAP
financial income using a tax rate equal to Tyler's annual estimated
tax rate on non-GAAP income. 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. A detailed
discussion of 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 Nine months ended September 30,
September 30,
2017 2016
2017 2016
Revenues: Software licenses and royalties
$ 19,842 $
19,930
$ 55,172 $ 54,331 Subscriptions
44,840
36,869
125,889 104,926 Software services
47,479
44,738
139,869 133,208 Maintenance
92,285 83,000
268,556 237,775 Appraisal services
6,290 6,541
19,268 20,083 Hardware and other
3,410
3,419
14,057 12,439 Total
revenues
214,146 194,497
622,811 562,762 Cost
of revenues: Software licenses and royalties
826 623
2,204 1,927 Acquired software
5,473 5,598
16,243 16,737 Software services, maintenance and
subscriptions
98,036 88,623
287,748 260,610 Appraisal
services
4,089 4,053
12,568 12,473 Hardware and other
2,293 2,120
10,408
8,481 Total cost of revenues
110,717 101,017
329,171 300,228 Gross profit
103,429 93,480
293,640 262,534 Selling, general and administrative
expenses
44,656 42,007
131,249 124,998 Research and
development expense
11,834 11,070
35,307 31,362
Amortization of customer and trade name intangibles
3,492 3,458
10,413
10,273 Operating income
43,447 36,945
116,671
95,901 Other income (expense), net
75 (526 )
(216 ) (1,713 ) Income before income
taxes
43,522 36,419
116,455 94,188 Income tax
provision
5,259 989
14,308 15,527 Net income
$
38,263 $ 35,430
$ 102,147 $
78,661 Earnings per common share: Basic
$ 1.02 $ 0.97
$ 2.74 $
2.16 Diluted
$ 0.97 $ 0.91
$
2.60 $ 2.02 Weighted average common
shares outstanding: Basic
37,391 36,433
37,238 36,438
Diluted
39,342 39,062
39,266 39,014
TYLER TECHNOLOGIES, INC. RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES (Amounts in thousands, except
per share data) (Unaudited) Three
months ended Nine months ended September 30,
September 30,
2017 2016
2017 2016
Reconciliation of
non-GAAP total revenues
GAAP total revenues
$ 214,146 $ 194,497
$
622,811 $ 562,762 Non-GAAP adjustments: Add: Write-downs of
acquisition-related deferred revenue
151 3,149
539
13,399 Add: Amortization of acquired leases
111
111
333 333
Non-GAAP total revenues
$ 214,408 $
197,757
$ 623,683 $ 576,494
Reconciliation of
non-GAAP gross profit and margin
GAAP gross profit
$ 103,429 $ 93,480
$
293,640 $ 262,534 Non-GAAP adjustments: Add: Write-downs of
acquisition-related deferred revenue
151 3,149
539
13,399 Add: Amortization of acquired leases
111 111
333 333 Add: Share-based compensation expense included in
cost of revenues
2,524 1,779
6,874 4,668 Add:
Amortization of acquired software
5,473
5,598
16,243 16,737
Non-GAAP gross profit
$ 111,688 $ 104,117
$ 317,629 $ 297,671 GAAP gross
margin
48.3 % 48.1 %
47.1
% 46.7 % Non-GAAP gross margin
52.1
% 52.6 %
50.9 % 51.6 %
Reconciliation of
non-GAAP operating income and margin
GAAP operating income
$ 43,447 $ 36,945
$
116,671 $ 95,901 Non-GAAP adjustments: Add: Write-downs of
acquisition-related deferred revenue
151 3,149
539
13,399 Add: Amortization of acquired leases
111 111
333 333 Add: Share-based compensation expense
9,791
7,656
27,368 21,348 Add: Employer portion of payroll tax
related to employee stock transactions
173 498
684
690 Add: Amortization of acquired software
5,473 5,598
16,243 16,737 Add: Amortization of customer and trade name
intangibles
3,492 3,458
10,413 10,273 Non-GAAP
adjustments subtotal
$ 19,191 $ 20,470
$ 55,580 $ 62,780 Non-GAAP operating
income
$ 62,638 $ 57,415
$
172,251 $ 158,681 GAAP operating margin
20.3 % 19.0 %
18.7 %
17.0 % Non-GAAP operating margin
29.2 %
29.0 %
27.6 % 27.5 %
TYLER TECHNOLOGIES, INC. RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES (Amounts in thousands, except
per share data) (Unaudited) Three
months ended Nine months ended September 30,
September 30,
2017 2016
2017 2016
Reconciliation of
non-GAAP net income and earnings per share
GAAP net income
$ 38,263 $ 35,430
$
102,147 $ 78,661 Non-GAAP adjustments: Add: Total non-GAAP
adjustments to operating income
19,191 20,470
55,580
62,780 Less: Tax impact related to non-GAAP adjustments
(16,144 ) (19,779 )
(45,905
) (40,822 ) Non-GAAP net income
$
41,310 $ 36,121
$ 111,822
$ 100,619 GAAP earnings per diluted share
$
0.97 $ 0.91
$ 2.60 $ 2.02
Non-GAAP earnings per diluted share
$ 1.05
$ 0.92
$ 2.85 $ 2.58
Detail of
share-based compensation expense
Cost of software services, maintenance and subscriptions
$
2,524 $ 1,779
$ 6,874 $ 4,668 Selling, general
and administrative expenses
7,267 5,877
20,494 16,680 Total
share-based compensation expense
$ 9,791 $
7,656
$ 27,368 $ 21,348
Reconciliation of
EBITDA and adjusted EBITDA
GAAP net income
$ 38,263 $ 35,430
$
102,147 $ 78,661 Amortization of customer and trade name
intangibles
3,492 3,458
10,413 10,273 Depreciation
and other amortization included in cost of revenues, SG&A and
other expenses
10,238 9,214
29,683 27,249 Interest
expense included in other expense, net
191 508
571
1,695 Income tax provision
5,259 989
14,308 15,527 EBITDA
$ 57,443 $ 49,599
$ 157,122 $ 133,405
Write-downs of acquisition-related deferred revenue
151
3,149
539 13,399 Share-based compensation expense
9,791 7,656
27,368
21,348 Adjusted EBITDA
$ 67,385
$ 60,404
$ 185,029 $ 168,152
TYLER TECHNOLOGIES, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
(Unaudited) September 30, 2017
December 31, 2016 ASSETS Current assets: Cash
and cash equivalents
$ 124,603 $ 36,151 Accounts
receivable, net
206,444 200,334 Current investments and
other assets
65,312 43,580 Income tax receivable
3,362 2,895 Total current assets
399,721
282,960 Accounts receivable, long-term portion
3,867
2,480 Property and equipment, net
149,142 124,268
Other assets: Goodwill
655,068 650,237 Other intangibles,
net
245,520 267,259 Non-current investments and other assets
39,800 30,741 Total assets
$
1,493,118 $ 1,357,945 LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable
and accrued liabilities
$ 62,146 $ 63,284 Deferred
revenue
297,163 298,217 Total current
liabilities
359,309 361,501 Revolving line of credit
— 10,000 Deferred revenue, long-term
1,468 2,140
Deferred income taxes
54,563 68,779 Shareholders' equity
1,077,778 915,525 Total liabilities and
shareholders' equity
$ 1,493,118 $ 1,357,945
TYLER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three months ended Nine months
ended September 30, September 30,
2017
2016
2017
2016 Cash flows from operating activities: Net income
$ 38,263 $ 35,430
$ 102,147 $ 78,661
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization
13,730 12,671
40,096
37,521 Share-based compensation expense
9,791 7,656
27,368 21,348 Deferred income tax benefit
(5,119
) (11,716 )
(14,216 ) (11,289 ) Changes in
operating assets and liabilities, exclusive of effects of acquired
companies
36,141 35,172
(13,014 ) 13,813 Net cash provided by
operating activities
92,806 79,213
142,381 140,054
Cash flows from investing activities: Additions to property and
equipment
(7,611 ) (7,570 )
(37,734 )
(29,529 ) Purchase of marketable security investments
(28,513 ) (2,520 )
(49,905 ) (13,127 )
Proceeds from marketable security investments
4,146 2,730
21,175 9,256 Cost of acquisitions, net of cash acquired
(3,906 ) —
(9,761 ) (9,394 ) Decrease
(increase) in other
486 229
418 (52 ) Net cash used by investing
activities
(35,398 ) (7,131 )
(75,807 ) (42,846 ) Cash flows from
financing activities: Decrease in net borrowings on revolving line
of credit
— (101,000 )
(10,000 ) (32,000 )
Purchase of treasury shares
— (2 )
(7,032 )
(94,499 ) Proceeds from exercise of stock options
10,208
9,296
33,568 15,089 Contributions from employee stock
purchase plan
1,915 1,611
5,342 4,429 Net cash provided (used) by
financing activities
12,123 (90,095 )
21,878 (106,981 ) Net increase
(decrease) in cash and cash equivalents
69,531 (18,013 )
88,452 (9,773 ) Cash and cash equivalents at beginning of
period
55,072 41,327
36,151 33,087 Cash and cash
equivalents at end of period
$ 124,603 $
23,314
$ 124,603 $ 23,314
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171025006166/en/
Tyler Technologies, Inc.Brian K. Miller, 972-713-3720Executive
Vice President - CFObrian.miller@tylertech.com
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