Double-digit revenue growth fueled by
subscription and software license revenue increases
Tyler Technologies, Inc. (NYSE: TYL) today announced financial
results for the second quarter ended June 30, 2018.
Second Quarter 2018 Financial Highlights:
- Total revenues were $236.1 million, up
13.1 percent from $208.8 million for the second quarter of 2017.
Organic growth was 11.2 percent.
- Recurring revenues from maintenance and
subscriptions were $149.1 million, an increase of 15.3 percent
compared to the second quarter of 2017, and comprised 63.2 percent
of second quarter 2018 revenue.
- Operating income was $37.1 million,
down 0.4 percent from $37.3 million for the second quarter of
2017.
- Net income was $39.2 million, or $0.97
per diluted share, up 23.3 percent compared to $31.8 million, or
$0.81 per diluted share, for the second quarter of 2017.
- Cash flows from operations were $22.6
million compared to $1.4 million for the second quarter of
2017.
- Non-GAAP total revenues were $237.7
million, up 13.7 percent from $209.1 million for the second quarter
of 2017. Non-GAAP organic growth was 11.8 percent.
- Non-GAAP operating income was $62.1
million, up 12.3 percent from $55.3 million for the second quarter
of 2017.
- Non-GAAP net income was $47.6 million,
or $1.18 per diluted share, up 33.7 percent compared to $35.6
million, or $0.91 per diluted share, for the second quarter of
2017.
- Adjusted EBITDA was $67.6 million, up
13.4 percent compared to $59.6 million for the second quarter of
2017.
- Total backlog was $1.2 billion, up 10.9
percent from $1.1 billion at June 30, 2017.
- Subscription bookings in the second
quarter added $6.6 million in new annual recurring revenue.
- Tyler completed the acquisitions of
Socrata, Inc. and Sage Data Security, LLC on April 30, 2018, and
their results are included in Tyler's consolidated results from the
date of acquisition.
- Effective January 1, 2018, Tyler
adopted the requirements of ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606), utilizing the full retrospective method
of transition. Prior year amounts have been restated from
previously reported amounts to reflect the impact of the full
retrospective adoption of Topic 606.
“We delivered very strong results for the second quarter with
respect to revenues, earnings and cash flows,” said Lynn Moore Jr.,
Tyler’s president and chief executive officer. “Total revenues grew
more than 13 percent, with greater than 11 percent organic growth -
our 27th consecutive quarter with double-digit revenue growth.
Revenues from both subscriptions and software licenses were robust,
growing 31 percent and 16 percent, respectively. Our non-GAAP
operating margin declined 40 basis points due to the expected
dilution from acquisitions, as well as our increased investment in
research and development.
“We faced a difficult comparison with last year's second quarter
bookings, which included the $35 million courts contract with Cook
County, Illinois. Bookings for the current quarter declined 8
percent compared to the record high in last year's second quarter,
but grew sequentially 34 percent over the first quarter of 2018,
led by strong signings for our public safety and ERP products. Our
backlog at the end of the quarter was $1.2 billion, up 11 percent
over last year.
“We are pleased with the results of both Socrata and Sage during
their first 60 days as a part of Tyler. The integrations of their
operations and products into Tyler are well underway, and we remain
excited about the opportunities for the future. With our strong
second quarter results and positive outlook for the second half of
the year, we have also increased our full-year earnings guidance,”
said Moore.
Guidance for 2018
As of July 26, 2018, Tyler Technologies is providing the
following guidance for the full year 2018:
- GAAP total revenues are expected to be
in the range of $934 million to $948 million.
- Non-GAAP total revenues are expected to
be in the range of $940 million to $954 million.
- GAAP diluted earnings per share are
expected to be in the range of $3.50 to $3.58 and may vary
significantly due to the impact of stock option exercises on the
GAAP effective tax rate.
- Non-GAAP diluted earnings per share are
expected to be in the range of $4.76 to $4.84.
- Pretax non-cash, share-based
compensation expense is expected to be approximately $54
million.
- Research and development expense is
expected to be in the range of $62 million to $64 million.
- Fully diluted shares for the year are
expected to be in the range of 40.0 million to 40.5 million
shares.
- GAAP earnings per share assumes an
estimated annual effective tax rate of approximately 10 percent
after discrete tax items and includes approximately $26 million of
assumed discrete tax benefits related to share-based
compensation.
- The non-GAAP annual effective tax rate
is expected to be 24 percent.
- Capital expenditures are expected to be
in the range of $23 million to $26 million, including approximately
$2 million related to real estate. Total depreciation and
amortization expense is expected to be approximately $62 million,
including approximately $40 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 $5 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 $54
million, and amortization of acquired software and intangible
assets of approximately $40 million. Additionally, the non-GAAP tax
rate of 24 percent is estimated periodically as described below
under "Non-GAAP Financial Measures" and excludes approximately $26
million of estimated 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 Friday, July
27, 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/10121185. 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 July
27.
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 August 3, 2018. 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 10121185.
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, Australia, and other international locations. In 2017,
Forbes ranked Tyler on its "Most Innovative Growth Companies" list,
and Fortune included Tyler on its "100 Fastest-Growing 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, and expenses
associated with amortization of intangibles arising from business
combinations.
Tyler currently uses a non-GAAP tax rate of 24 percent. 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 Six Months Ended June 30, June 30,
2018 2017
2018 2017
As Adjusted As Adjusted Revenues: Software licenses
and royalties
$ 22,400 $ 19,306
$
45,176 $ 41,064 Subscriptions
53,009 40,517
102,037 80,379 Software services
50,674 45,860
96,613 88,356 Maintenance
96,076 88,811
189,973 175,118 Appraisal services
5,532 6,366
10,926 12,978 Hardware and other
8,369
7,903
12,509 10,597 Total
revenues
236,060 208,763
457,234 408,492 Cost
of revenues: Software licenses and royalties
1,204 647
1,982 1,378 Acquired software
5,724 5,360
11,106 10,770 Software services, maintenance and
subscriptions
109,487 96,172
215,572 189,712
Appraisal services
3,568 4,282
7,349 8,479 Hardware
and other
6,801 6,799
9,144 8,115 Total cost of revenues
126,784 113,260
245,153 218,454 Gross profit
109,276 95,503
212,081 190,038 Selling,
general and administrative expenses
52,262 43,000
99,866 85,780 Research and development expense
15,831
11,874
28,879 23,473 Amortization of customer and trade name
intangibles
4,041 3,331
7,356 6,656 Operating income
37,142
37,298
75,980 74,129 Other income (expense), net
558 (101 )
1,157 (291 )
Income before income taxes
37,700 37,197
77,137
73,838 Income tax (benefit) provision
(1,461 )
5,427
151 9,299 Net
income
$ 39,161 $ 31,770
$
76,986 $ 64,539 Earnings per common
share: Basic
$ 1.02 $ 0.86
$
2.00 $ 1.74 Diluted
$ 0.97 $
0.81
$ 1.91 $ 1.65 Weighted
average common shares outstanding: Basic
38,390 37,154
38,416 37,144 Diluted
40,224 39,201
40,250
39,211
TYLER TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Amounts in thousands, except per share data)
(Unaudited) Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017 As Adjusted As Adjusted
Reconciliation of
non-GAAP total revenues
GAAP total revenues
$ 236,060 $ 208,763
$
457,234 $ 408,492 Non-GAAP adjustments: Add: Write-downs of
acquisition-related deferred revenue
1,551 184
1,651
388 Add: Amortization of acquired leases
111
111
222 222
Non-GAAP total revenues
$ 237,722 $ 209,058
$ 459,107 $ 409,102
Reconciliation of
non-GAAP gross profit and margin
GAAP gross profit
$ 109,276 $ 95,503
$
212,081 $ 190,038 Non-GAAP adjustments: Add: Write-downs of
acquisition-related deferred revenue
1,551 184
1,651
388 Add: Amortization of acquired leases
111 111
222
222 Add: Share-based compensation expense included in cost of
revenues
2,955 2,253
5,731 4,350 Add: Amortization of
acquired software
5,724 5,360
11,106 10,770 Non-GAAP gross
profit
$ 119,617 $ 103,411
$
230,791 $ 205,768 GAAP gross margin
46.3 % 45.7 %
46.4 %
46.5 % Non-GAAP gross margin
50.3 %
49.5 %
50.3 % 50.3 %
Reconciliation of
non-GAAP operating income and margin
GAAP operating income
$ 37,142 $ 37,298
$
75,980 $ 74,129 Non-GAAP adjustments: Add: Write-downs of
acquisition-related deferred revenue
1,551 184
1,651
388 Add: Amortization of acquired leases
111 111
222
222 Add: Share-based compensation expense
12,933 8,901
23,490 17,577 Add: Employer portion of payroll tax related
to employee stock transactions
604 128
924 511 Add:
Amortization of acquired software
5,724 5,360
11,106
10,770 Add: Amortization of customer and trade name intangibles
4,041 3,331
7,356
6,656 Non-GAAP adjustments subtotal
$
24,964 $ 18,015
$ 44,749
$ 36,124 Non-GAAP operating income
$ 62,106
$ 55,313
$ 120,729 $ 110,253
GAAP operating margin
15.7 %
17.9 %
16.6 % 18.1 % Non-GAAP operating
margin
26.1 % 26.5 %
26.3
% 27.0 %
TYLER TECHNOLOGIES,
INC. RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES (Amounts in thousands, except per share data)
(Unaudited) Three Months Ended June 30,
Six Months Ended June 30,
2018
2017
2018
2017 As Adjusted As Adjusted
Reconciliation of
non-GAAP net income and earnings per share
GAAP net income
$ 39,161 $ 31,770
$
76,986 $ 64,539 Non-GAAP adjustments: Add: Total non-GAAP
adjustments to operating income
24,964 18,015
44,749
36,124 Less: Tax impact related to non-GAAP adjustments
(16,500 )
(14,173
)
(29,101 )
(29,737
) Non-GAAP net income
$ 47,625 $
35,612
$ 92,634 $
70,926
GAAP earnings per diluted share
$ 0.97
$ 0.81
$
1.91
$ 1.65 Non-GAAP earnings per diluted share
$
1.18 $ 0.91
$ 2.30 $ 1.81
Detail of
share-based compensation expense
Cost of software services, maintenance and subscriptions
$
2,955 $ 2,253
$ 5,731 $ 4,350 Selling, general
and administrative expenses
9,978 6,648
17,759 13,227 Total
share-based compensation expense
$ 12,933 $
8,901
$ 23,490 $ 17,577
Reconciliation of
EBITDA and adjusted EBITDA
GAAP net income
$ 39,161 $ 31,770
$
76,986 $ 64,539 Amortization of customer and trade name
intangibles
4,041 3,331
7,356 6,656 Depreciation and
other amortization included in cost of revenues, SG&A and other
expenses
11,209
9,804
22,006
19,446
Interest expense included in other expense, net
189 189
378 380 Income tax (benefit) provision
(1,461
) 5,427
151 9,299
EBITDA
$ 53,139 $
50,521
$ 106,877 $
100,320
Write-downs of acquisition-related deferred revenue
1,551
184
1,651 388 Share-based compensation expense
12,933 8,901
23,490
17,577 Adjusted EBITDA
$ 67,623
$
59,606
$ 132,018 $
118,285
TYLER TECHNOLOGIES, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (Amounts in thousands)
(Unaudited) June 30, 2018
December 31, 2017 As Adjusted ASSETS Current
assets: Cash and cash equivalents
$ 93,247 $ 185,926
Accounts receivable, net
299,253 246,188 Current investments
and other assets
96,388 77,362 Income tax receivable
13,100 11,339 Total current assets
501,988
520,815 Accounts receivable, long-term portion
12,387
12,107 Property and equipment, net
154,464 152,315
Other assets: Goodwill
740,146 657,987 Other intangibles,
net
293,194 229,617 Non-current investments and other assets
57,580 38,510 Total assets
$
1,759,759 $ 1,611,351 LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable
and accrued liabilities
$ 57,798 $ 72,849 Deferred
revenue
316,084 298,613 Total current
liabilities
373,882 371,462 Deferred revenue,
long-term
785 1,274 Deferred income taxes
44,803
46,879 Shareholders' equity
1,340,289
1,191,736 Total liabilities and shareholders' equity
$ 1,759,759 $ 1,611,351
TYLER
TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (Amounts in thousands) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2018
2017
2018 2017
As Adjusted As Adjusted Cash flows from
operating activities: Net income
$ 39,161 $ 31,770
$ 76,986 $ 64,539 Adjustments to reconcile net income
to cash provided by operations: Depreciation and amortization
15,537 13,135
29,649 26,102 Share-based compensation
expense
12,933 8,901
23,490 17,577 Deferred income
tax benefit
(2,538 ) (4,977 )
(5,196 )
(8,847 ) Changes in operating assets and liabilities, exclusive of
effects of acquired companies
(42,494 )
(47,433 )
(57,699 ) (49,796 ) Net cash
provided by operating activities
22,599
1,396
67,230 49,575
Cash flows from investing activities: Additions to property
and equipment
(6,057 ) (10,303 )
(14,952
) (30,123 ) Purchase of marketable security investments
(30,888 ) (14,264 )
(74,850 ) (21,392 )
Proceeds from marketable security investments
28,077 10,133
39,154 17,029 Cost of acquisitions. net of cash acquired
(157,152 ) (5,855 )
(157,152 ) (5,855 )
Increase in other
(929 ) (52 )
(186 ) (68 ) Net cash used by investing
activities
(166,949 ) (20,341 )
(207,986 ) (40,409 ) Cash flows from
financing activities: Decrease in net borrowings on revolving line
of credit
— —
— (10,000 ) Purchase of treasury shares
— —
— (7,032 ) Proceeds from exercise of stock
options
25,019 8,509
44,317 23,360 Contributions from
employee stock purchase plan
1,962
1,777
3,760 3,427 Net
cash provided by financing activities
26,981
10,286
48,077 9,755
Net (decrease) increase in cash and cash equivalents
(117,369 ) (8,659 )
(92,679 ) 18,921
Cash and cash equivalents at beginning of period
210,616 63,731
185,926
36,151 Cash and cash equivalents at end
of period
$ 93,247 $ 55,072
$
93,247 $ 55,072
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180726005791/en/
Tyler Technologies, Inc.Brian K. Miller, 972-713-3720Executive
Vice President & CFObrian.miller@tylertech.com
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