SaaS revenues grew 26%; cash from operations
rose 37.2%
Tyler Technologies, Inc. (NYSE: TYL) today announced financial
results for the third quarter ended September 30, 2023.
Third Quarter 2023 Financial Highlights:
Revenues
Total revenues were $494.7 million, up 4.5% from the third
quarter of 2022. On an organic basis, revenues grew 6.0%.
Recurring Revenues
Recurring revenues from maintenance and subscriptions were
$412.7 million, up 11.0% from the third quarter of 2022, and
comprised 83.4% of total revenues (compared to 78.5% for the third
quarter of 2022). On an organic basis, recurring revenues grew
9.8%.
- Subscription revenues were $295.2 million, up 16.1% from the
third quarter of 2022. On an organic basis, subscription revenues
grew 14.7%. Within subscriptions:
- SaaS revenues grew organically 26.0% to $138.5 million.
- Transaction-based revenues grew 8.5% to $156.7 million. On an
organic basis, transaction-based revenues grew 6.0%.
- SaaS arrangements comprised approximately 80% of the total new
software contract value, compared to approximately 91% for the
third quarter of 2022.
- Annualized recurring revenue (ARR) was $1.65 billion, up 11.0%
from the third quarter of 2022.
Earnings/EBITDA
- GAAP operating income was $63.9 million, up 5.0% from the third
quarter of 2022. Non-GAAP operating income was $122.5 million, up
4.0% from the third quarter of 2022.
- GAAP net income was $47.0 million, or $1.10 per diluted share,
down 11.7% from the third quarter of 2022. Non-GAAP net income was
$91.6 million, or $2.14 per diluted share, up 4.9% from the third
quarter of 2022.
- Adjusted EBITDA was $132.5 million, up 4.4% from the third
quarter of 2022.
Cash Flow
Cash flows from operations were $177.5 million, up 37.2%,
compared to $129.4 million for the third quarter of 2022. Free cash
flow was $162.7 million, up 40.7%, compared to $115.6 million for
the third quarter of 2022. During the third quarter, cash tax
payments included approximately $22 million related to IRS Section
174 capitalization rules.
Acquisition
During the third quarter, we completed the acquisition of
Computer Systems Innovations (CSI) for a cash purchase price of
approximately $36 million, net of cash acquired.
"Our third quarter earnings and cash flow surpassed expectations
and reflect a continuation of solid execution on key operational
initiatives," said Lynn Moore, Tyler's president and chief
executive officer. "We achieved strong performance across our key
metrics, with double-digit recurring revenue growth and free cash
flow growth of more than 40%. We're pleased that SaaS revenues grew
26% organically, exceeding our near-term SaaS growth expectations
of a 20% CAGR outlined during our June Investor Day. This
represents our 11th consecutive quarter of SaaS revenue growth of
20% or more. Additionally, operating margins exceeded our plan and
we remain on track to return to operating margin expansion in
2024.
"Our results demonstrate the strength and resilience of our
business model against a backdrop of stable public sector demand,
as our leading sales activity indicators remain strong. M&A is
one of our key growth pillars, and during the quarter we enhanced
our product portfolio by acquiring CSI, which brings AI-driven
automation and enhanced document processing technology that can be
leveraged across many of Tyler's vertical applications. We continue
to prioritize debt reduction with our free cash flow, and we
reduced our term debt by $135 million during the quarter, bringing
our net leverage to 1.24 times proforma EBITDA. Our strong
year-to-date performance is underpinned by our powerful growth
algorithm, strong balance sheet, and our unique ability to deliver
mission-critical cloud-based solutions enabling the public sector's
ongoing digital transformation," concluded Moore.
Guidance for 2023
As of November 1, 2023, Tyler Technologies is providing the
following guidance for the full year 2023:
- Total revenues are expected to be in the range of $1.942
billion to $1.962 billion.
- GAAP diluted earnings per share are expected to be in the range
of $3.82 to $3.96 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 $7.66 to $7.80.
- Interest expense is expected to be approximately $24 million,
including approximately $5 million of non-cash amortization of debt
discounts and issuance costs.
- Pretax non-cash, share-based compensation expense is expected
to be approximately $110 million.
- Research and development expense is expected to be in the range
of $114 million to $115 million.
- Fully diluted shares for the year are expected to be in the
range of 42.5 million to 43.0 million shares.
- GAAP earnings per share assumes an estimated annual effective
tax rate of approximately 16.5% after discrete tax items, including
approximately $9 million of discrete tax benefits related to
share-based compensation.
- The non-GAAP annual effective tax rate is expected to be
22.0%.
- Capital expenditures are expected to be in the range of $58
million to $60 million, including approximately $35 million of
capitalized software development costs. Total depreciation and
amortization expense is expected to be approximately $148 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 $110 million, amortization of
acquired software and intangible assets of approximately $109
million, and acquisition-related costs, lease restructuring costs
and other of approximately $6 million. Additionally, the non-GAAP
tax rate of 22.0% is estimated periodically as described below
under "Non-GAAP Financial Measures" and excludes approximately $9
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,
November 2, 2023, at 10:00 a.m. ET to discuss the company’s
results. Participants can pre-register for the teleconference at
the following link: https://conferencingportals.com/event/eqivMdEU.
Registered participants will receive an email with a calendar
reminder, dial-in number, and conference ID that allows them
immediate access to the 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 transparently with residents and each
other. By connecting data and processes across disparate systems,
Tyler's solutions transform how clients turn actionable insights
into opportunities and solutions for their communities. Tyler has
more than 40,000 successful installations across nearly 13,000
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. 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
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
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 and
other. Annualized recurring revenues (ARR) is calculated by
annualizing the current quarter's recurring revenues from
maintenance and subscriptions.
Tyler currently uses a non-GAAP tax rate of 22.0%. 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) changes in the
budgets or regulatory environments of our clients, primarily local
and state governments, that could negatively impact information
technology spending; (2) disruption to our business and harm to our
competitive position resulting from cyber-attacks and security
vulnerabilities; (3) our ability to protect client information from
security breaches and provide uninterrupted operations of data
centers; (4) our ability to achieve growth or operational synergies
through the integration of acquired businesses, while avoiding
unanticipated costs and disruptions to existing operations; (5)
material portions of our business require the Internet
infrastructure to be adequately maintained; (6) 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; (7)
general economic, political and market conditions, including
continued inflation and rising interest rates; (8) technological
and market risks associated with the development of new products or
services or of new versions of existing or acquired products or
services; (9) 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; (10) 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
(11) 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)
#TYL_Financial
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,
2023
2022
2023
2022
Revenues:
Subscriptions
$
295,190
$
254,346
$
873,444
$
755,604
Maintenance
117,484
117,338
349,154
351,182
Professional services
61,126
71,818
188,475
213,770
Software licenses and royalties
10,554
20,269
30,463
51,784
Hardware and other
10,330
9,420
29,281
25,643
Total revenues
494,684
473,191
1,470,817
1,397,983
Cost of revenues:
Subscriptions, maintenance, and
professional services
247,781
245,711
755,985
738,712
Software licenses and royalties
3,120
1,655
7,865
4,647
Amortization of software development
3,083
1,507
8,568
3,993
Amortization of acquired software
9,035
13,622
26,879
40,882
Hardware and other
6,505
6,033
23,346
19,219
Total cost of revenues
269,524
268,528
822,643
807,453
Gross profit
225,160
204,663
648,174
590,530
Sales and marketing expense
35,898
33,688
110,104
100,776
General and administrative expense
78,519
69,931
228,560
200,440
Research and development expense
28,282
25,190
83,421
72,517
Amortization of other intangibles
18,526
14,941
55,300
43,259
Operating income
63,935
60,913
170,789
173,538
Interest expense
(5,808
)
(9,258
)
(19,879
)
(20,276
)
Other income, net
787
131
2,676
712
Income before income taxes
58,914
51,786
153,586
153,974
Income tax provision (benefit)
11,903
(1,447
)
26,570
20,811
Net income
$
47,011
$
53,233
$
127,016
$
133,163
Earnings per common share:
Basic
$
1.12
$
1.28
$
3.02
$
3.21
Diluted
$
1.10
$
1.26
$
2.97
$
3.14
Weighted average common shares
outstanding:
Basic
42,087
41,600
42,002
41,523
Diluted
42,841
42,407
42,736
42,425
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 gross profit
and margin
2023
2022
2023
2022
GAAP gross profit
$
225,160
$
204,663
$
648,174
$
590,530
Non-GAAP adjustments:
Add: Share-based compensation expense
included in cost of
revenues
6,847
7,181
19,626
20,820
Add: Amortization of acquired software
9,035
13,622
26,879
40,882
Non-GAAP gross profit
$
241,042
$
225,466
$
694,679
$
652,232
GAAP gross margin
45.5
%
43.3
%
44.1
%
42.2
%
Non-GAAP gross margin
48.7
%
47.6
%
47.2
%
46.7
%
Three months ended September
30,
Nine months ended September
30,
Reconciliation of non-GAAP operating
income and margin
2023
2022
2023
2022
GAAP operating income
$
63,935
$
60,913
$
170,789
$
173,538
Non-GAAP adjustments:
Add: Share-based compensation expense
26,981
26,912
80,905
77,991
Add: Employer portion of payroll tax
related to employee stock
transactions
43
86
1,191
1,196
Add: Acquisition-related costs
183
183
255
1,214
Add: Lease restructuring costs and
other
3,812
1,159
5,357
1,159
Add: Amortization of acquired software
9,035
13,622
26,879
40,882
Add: Amortization of other intangibles
18,526
14,941
55,300
43,259
Non-GAAP adjustments subtotal
58,580
56,903
169,887
165,701
Non-GAAP operating income
$
122,515
$
117,816
$
340,676
$
339,239
GAAP operating margin
12.9
%
12.9
%
11.6
%
12.4
%
Non-GAAP operating margin
24.8
%
24.9
%
23.2
%
24.3
%
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
2023
2022
2023
2022
GAAP net income
$
47,011
$
53,233
$
127,016
$
133,163
Non-GAAP adjustments:
Add: Total non-GAAP adjustments to
operating income
58,580
56,903
169,887
165,701
Less: Tax impact related to non-GAAP
adjustments
(13,946
)
(22,737
)
(44,594
)
(51,115
)
Non-GAAP net income
$
91,645
$
87,399
$
252,309
$
247,749
GAAP earnings per diluted share
$
1.10
$
1.26
$
2.97
$
3.14
Non-GAAP earnings per diluted share
$
2.14
$
2.06
$
5.90
$
5.84
Three months ended September
30,
Nine months ended September
30,
Detail of share-based compensation
expense
2023
2022
2023
2022
Subscriptions, maintenance, and
professional services
$
6,847
$
7,181
$
19,626
$
20,820
Sales and marketing expense
2,628
2,206
7,388
6,571
General and administrative expense
17,506
17,525
53,891
50,600
Total share-based compensation expense
$
26,981
$
26,912
$
80,905
$
77,991
Three months ended September
30,
Nine months ended September
30,
Reconciliation of EBITDA and adjusted
EBITDA
2023
2022
2023
2022
GAAP net income
$
47,011
$
53,233
$
127,016
$
133,163
Amortization of other intangibles
18,526
14,941
55,300
43,259
Depreciation and amortization included in
cost of revenues, sales and marketing expense, general and
administrative expense, and research and development expense
17,420
22,646
55,199
67,262
Interest expense
6,640
9,257
19,879
20,276
Income tax provision (benefit)
11,903
(1,447
)
26,570
20,811
EBITDA
$
101,500
$
98,630
$
283,964
$
284,771
Share-based compensation expense
26,981
26,912
80,905
77,991
Acquisition-related costs
183
183
255
1,214
Lease restructuring costs and other asset
write-offs
3,812
1,159
5,357
1,159
Adjusted EBITDA
$
132,476
$
126,884
$
370,481
$
365,135
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
2023
2022
2023
2022
Net cash provided by operating
activities
$
177,496
$
129,378
$
233,021
$
259,598
Less: additions to property and
equipment
(6,136
)
(4,684
)
(12,506
)
(17,441
)
Less: capitalized software development
(8,694
)
(9,094
)
(27,447
)
(25,557
)
Free cash flow
$
162,666
$
115,600
$
193,068
$
216,600
TYLER TECHNOLOGIES,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Amounts in thousands)
(Unaudited)
September 30, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
131,486
$
173,857
Accounts receivable, net
623,613
577,257
Short-term investments
11,623
37,030
Prepaid expenses and other current
assets
67,636
59,098
Income tax receivable
7,633
—
Total current assets
841,991
847,242
Accounts receivable, long-term portion
10,123
8,271
Operating lease right-of-use assets
42,513
50,989
Property and equipment, net
165,737
172,786
Other assets:
Software development costs, net
66,434
48,189
Goodwill
2,510,488
2,489,308
Other intangibles, net
938,277
1,002,164
Non-current investments
9,553
18,508
Other non-current assets
52,313
49,960
Total assets
$
4,637,429
$
4,687,417
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities
$
267,068
$
236,754
Operating lease liabilities
11,527
10,736
Current income tax payable
—
43,667
Deferred revenue
600,439
568,538
Current portion of term loans
30,000
30,000
Total current liabilities
909,034
889,695
Term loans
109,395
362,905
Convertible senior notes due 2026, net
595,775
594,484
Deferred revenue, long-term
727
2,037
Deferred income taxes
105,002
148,891
Operating lease liabilities, long-term
42,098
48,049
Other long-term liabilities
22,547
16,967
Total liabilities
1,784,578
2,063,028
Shareholders' equity
$
2,852,851
$
2,624,389
Total liabilities and shareholders'
equity
$
4,637,429
$
4,687,417
TYLER TECHNOLOGIES,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Three months ended September
30,
Nine months ended September
30,
2023
2022
2023
2022
Cash flows from operating activities:
Net income
$
47,011
$
53,233
$
127,016
$
133,163
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization
38,450
41,084
114,198
116,950
(Gains) losses from sale of
investments
(1
)
97
1
44
Share-based compensation expense
26,981
26,912
80,905
77,991
Operating lease right-of-use assets
expense
5,689
4,136
12,258
9,240
Deferred income tax benefit
(4,335
)
(13,709
)
(44,000
)
(32,845
)
Other
(47
)
—
398
—
Changes in operating assets and
liabilities, exclusive of effects of acquired companies
63,748
17,625
(57,755
)
(44,945
)
Net cash provided by operating
activities
177,496
129,378
233,021
259,598
Cash flows from investing activities:
Additions to property and equipment
(6,136
)
(4,684
)
(12,506
)
(17,441
)
Purchase of marketable security
investments
—
(15,836
)
(10,617
)
(20,428
)
Proceeds and maturities from marketable
security investments
8,345
14,457
45,452
55,052
Investment in software development
(8,694
)
(9,094
)
(27,447
)
(25,557
)
Cost of acquisitions, net of cash
acquired
(33,665
)
(393
)
(35,540
)
(117,706
)
Other
32
174
48
326
Net cash used by investing activities
(40,118
)
(15,376
)
(40,610
)
(125,754
)
Cash flows from financing activities:
Payment on term loans
(135,000
)
(190,000
)
(255,000
)
(270,000
)
Proceeds from exercise of stock options,
net of withheld shares for taxes upon equity award settlement
6,315
4,405
8,438
298
Contributions from employee stock purchase
plan
4,029
4,458
11,780
12,614
Net cash used by financing activities
(124,656
)
(181,137
)
(234,782
)
(257,088
)
Net increase (decrease) in cash and cash
equivalents
12,722
(67,135
)
(42,371
)
(123,244
)
Cash and cash equivalents at beginning of
period
118,764
253,062
173,857
309,171
Cash and cash equivalents at end of
period
$
131,486
$
185,927
$
131,486
$
185,927
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231101076235/en/
Hala Elsherbini Senior Director, Investor Relations Tyler
Technologies, Inc. 972-713-3770 ext. 1143
hala.elsherbini@tylertech.com
Tyler Technologies (NYSE:TYL)
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