TYL Tyler Technologies Corp

Tyler Technologies, Inc. (NYSE: TYL) today announced financial results for the quarter ended June 30, 2011. Tyler reported total revenue of $76.7 million and net income of $5.6 million, or $0.17 per diluted share. In the same quarter last year, the Company had revenue of $72.6 million and net income of $6.2 million, or $0.17 per diluted share. Gross margin decreased 20 basis points to 44.5 percent compared to 44.7 percent in the year-ago quarter.

Recurring software revenue from maintenance and subscriptions was $42.3 million in the second quarter of 2011, an increase of 8.5 percent compared to the second quarter of 2010, and comprised 55.2 percent of the quarter’s total revenue.

Free cash flow for the second quarter of 2011 was $1.3 million (cash provided by operating activities of $1.9 million minus capital expenditures of $0.6 million) compared to negative $8.6 million (cash used by operating activities of $7.3 million minus capital expenditures of $1.3 million) in the second quarter of last year. Capital expenditures in the second quarter of 2010 included $0.4 million related to real estate.

EBITDA, or earnings before interest, income taxes, depreciation and amortization, was $12.3 million in the second quarter of 2011, compared to $13.1 million in the prior-year quarter.

Total backlog was a record high $296.0 million at June 30, 2011, up 14.7 percent from $258.0 million at June 30, 2010. Software-related backlog (excluding appraisal services) was $272.2 million compared to $223.9 million at June 30, 2010.

Tyler ended the second quarter of 2011 with $3.5 million in cash and investments and $110.2 million of availability under its $150.0 million revolving line of credit. During the second quarter, Tyler repurchased approximately 578,000 shares of its common stock at an average price of $24.28 per share. As of June 30, 2011, the Company was authorized to repurchase up to 1.8 million additional shares.

“We are encouraged by Tyler’s second-quarter results in a market that continues to be characterized by longer sales cycles and delays in the timing of new business,” said John S. Marr Jr., Tyler’s president and chief executive officer. “Our growth was driven by strength in our recurring revenues from maintenance and subscriptions, which rose 6 percent and 25 percent, respectively, over last year’s second quarter, as more new and existing customers are opting for our SaaS offerings. Although both license and professional services revenues declined from last year, the declines narrowed from those experienced in the past several quarters.

“We are closely managing our operating costs and staffing levels, as well as our SG&A expenses, which generally grew in line with revenues in the second quarter. Our research and development expenses increased more than 34 percent from the same period last year, primarily due to the timing of recognition of research and development offsets related to our Microsoft Dynamics® AX project. During the second quarter of 2011, we did not recognize any offsets to R&D expense, compared to $1.1 million of offsets recognized in last year’s second quarter. We currently expect to recognize approximately $3.0 million in offsets in the second half of this year.

“We are also pleased with the level of new contract signings in the second quarter, highlighted by a $31 million contract with the state of Oregon for our Odyssey® court management system. In addition to finishing the quarter with our backlog of signed contracts at its highest level ever, our new business pipeline remains very active,” said Mr. Marr. “However, the timing of new business signings and revenue recognition remain somewhat unpredictable as a result of local government budget pressures.”

Annual Guidance for 2011

Total revenues for 2011 are currently expected to be in the range of $305 million to $310 million. Tyler expects that diluted earnings per share will be approximately $0.74 to $0.79. These estimates include assumed pretax non-cash stock-based compensation expense of approximately $6.5 million, or $0.15 per share after taxes. The Company currently estimates that its effective tax rate for 2011 will be approximately 39.6 percent. Tyler expects that capital expenditures for the year will be between $12.5 million and $13.0 million, including approximately $6.6 million related to real estate, and that depreciation and amortization expense will be between $10.5 million and $11.0 million.

Tyler Technologies will hold a conference call on Thursday, July 28, at noon Eastern Time to discuss the Company’s results. To participate in the teleconference, please dial into the call a few minutes before the start time: (877) 317-6789 (U.S. callers) and (412) 317-6789 (international callers), and reference confirmation code 451939 when prompted. A replay will be available two hours after the completion of the call through Aug. 5, 2011. To access the replay, please dial (877) 344-7529 (U.S. callers) and (412) 317-0088 (international callers) and reference passcode 451939. The live webcast and archived replay can also be accessed at www.tylertech.com.

About Tyler Technologies, Inc.

Based in Dallas, Tyler Technologies 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 citizens. Tyler’s client base includes more than 9,000 local government offices throughout all 50 states, Canada, the Caribbean and the United Kingdom. Forbes Magazine named Tyler as one of “America’s 200 Best Small Companies” for three consecutive years. More information about Tyler Technologies can be found at www.tylertech.com.

Non-GAAP Measures

This press release discloses the financial measures of EBITDA and free cash flow. These financial measures are not prepared in accordance with generally accepted accounting principles (GAAP) and are therefore considered non-GAAP financial measures. The non-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures used by Tyler Technologies may be different from non-GAAP measures used by other companies. We believe the presentation of these non-GAAP financial measures provides useful information to users of our financial statements and is helpful to fully understand our past financial performance and prospects for the future. We believe EBITDA and free cash flow are widely used by investors, analysts, and other users of our financial statements to analyze operating performance, provide meaningful comparisons to prior periods and to compare our results to those of other companies, and they provide a more complete understanding of our underlying operational results and trends, as well as our marketplace performance and our ability to generate cash. In addition, we internally monitor and review these non-GAAP financial measures on a consolidated basis as some of the primary indicators management uses to evaluate Company performance and for planning and forecasting future periods. Therefore, management believes that EBITDA and free cash flow provide meaningful supplemental information to the investor to fully assess the financial performance, trends and future prospects of Tyler’s core operations.

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 customers, primarily local and state governments, that could negatively impact information technology spending; (2) our ability to achieve our financial forecasts due to various factors, including project delays by our customers, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (3) economic, political and market conditions, including the recent global economic and financial crisis, and the general tightening of access to debt or equity capital; (4) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (5) our ability to successfully complete acquisitions and achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (6) competition in the industry in which we conduct business and the impact of competition on pricing, customer retention and pressure for new products or services; (7) 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 (8) 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 INCOME STATEMENTS (Amounts in thousands, except per share data) (Unaudited)         Three Months Ended June 30, Six Months Ended June 30,   2011     2010     2011     2010   Revenues: Software licenses $ 8,308 $ 8,735 $ 15,130 $ 17,184 Subscriptions 7,277 5,807 14,241 11,060 Software services 17,992 18,506 34,756 35,562 Maintenance 35,056 33,212 70,568 66,628 Appraisal services 5,987 4,925 12,184 9,200 Hardware and other   2,115     1,415     3,249     2,786   Total revenues 76,735 72,600 150,128 142,420   Cost of revenues: Software licenses 989 852 1,784 1,559 Acquired software 244 398 539 796 Software services, maintenance and subscriptions 35,502 34,595 70,682 69,476 Appraisal services 3,702 3,131 7,526 6,008 Hardware and other   2,161     1,149     2,837     2,087   Total cost of revenues 42,598 40,125 83,368 79,926   Gross profit 34,137 32,475 66,760 62,494   Selling, general and administrative expenses 18,466 17,439 35,754 35,000 Research and development expense 5,035 3,744 9,584 7,260 Amortization of customer and trade name intangibles   803     807     1,607     1,613   Operating income 9,833 10,485 19,815 18,621 Other expense, net   (524 )   (102 )   (1,024 )   (144 ) Income before income taxes 9,309 10,383 18,791 18,477 Income tax provision   3,685     4,134     7,439     7,356   Net income $ 5,624   $ 6,249   $ 11,352   $ 11,121     Earnings per common share: Basic $ 0.18   $ 0.18   $ 0.36   $ 0.32   Diluted $ 0.17   $ 0.17   $ 0.34   $ 0.31     EBITDA (1) $ 12,338   $ 13,141   $ 24,749   $ 23,926     Weighted average common shares outstanding: Basic 32,005 34,862 31,912 34,815 Diluted 33,848 36,203 33,650 36,262     (1) Reconciliation of EBITDA Three Months Ended June 30, Six Months Ended June 30,   2011     2010     2011     2010   Net income $ 5,624 $ 6,249 $ 11,352 $ 11,121 Amortization of customer and trade name intangibles 803 807 1,607 1,613 Depreciation and other amortization included in cost of revenues and selling, general and administrative expenses 1,831 1,862 3,612 3,705 Interest expense included in other expense, net 395 89 739 131 Income tax provision   3,685     4,134     7,439     7,356   EBITDA $ 12,338   $ 13,141   $ 24,749   $ 23,926     TYLER TECHNOLOGIES, INC. CONDENSED BALANCE SHEETS (Amounts in thousands)         June 30, December 31, 2011 2010 (Unaudited)   ASSETS   Current assets: Cash and cash equivalents $ 1,412 $ 2,114 Short-term investments available-for-sale 25 25 Accounts receivable, net 90,486 81,860 Other current assets 12,305 11,344 Deferred income taxes   3,106   3,106 Total current assets 107,334 98,449   Accounts receivable, long-term portion 631 1,231 Property and equipment, net 40,511 34,851 Non-current investments available-for-sale 2,101 2,126   Other assets: Goodwill and other intangibles, net 122,789 125,138 Other   1,788   2,237   Total assets $ 275,154 $ 264,032     LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities: Accounts payable and accrued liabilities $ 22,797 $ 22,059 Deferred revenue   110,455   102,590 Total current liabilities 133,252 124,649   Revolving line of credit 31,500 26,500 Deferred income taxes 5,952 5,911 Shareholders' equity   104,450   106,972   Total liabilities and shareholders' equity $ 275,154 $ 264,032     TYLER TECHNOLOGIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)     Six months ended June 30,   2011     2010   Cash flows from operating activities: Net income $ 11,352 $ 11,121 Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation and amortization 5,219 5,318 Share-based compensation expense 2,969 3,073 Excess tax benefit from exercise of share-based arrangements (1,692 ) (1,161 ) Changes in operating assets and liabilities, exclusive of effects of acquired companies   1,479     (18,725 ) Net cash provided (used) by operating activities   19,327     (374 )   Cash flows from investing activities: Proceeds from sale of investments 25 50 Cost of acquisitions, net of cash acquired - (9,661 ) Additions to property and equipment (8,416 ) (3,493 ) Decrease in restricted investments - 1,000 Decrease in other   214     3   Net cash used by investing activities   (8,177 )   (12,101 )   Cash flows from financing activities: Purchase of treasury shares (20,884 ) (14,398 ) Increase in net borrowings on revolving line of credit 5,000 14,650 Contributions from employee stock purchase plan 924 951 Proceeds from exercise of stock options 1,416 1,607 Excess tax benefit from exercise of share-based arrangements   1,692     1,161   Net cash (used) provided by financing activities   (11,852 )   3,971     Net decrease in cash and cash equivalents (702 ) (8,504 ) Cash and cash equivalents at beginning of period   2,114     9,696     Cash and cash equivalents at end of period $ 1,412   $ 1,192