Morningstar

Tyler Earnings: Healthy Environment Drives a Strong Quarter All Around

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Securities In This Article
Tyler Technologies Inc
(TYL)

Wide-moat Tyler TYL reported second-quarter results that were ahead of our estimates for both revenue and profitability despite the accelerating software as a service transition, which tends to mute both measures. Management believes the demand environment remains at healthy levels at or above prepandemic levels, and we concur. Additionally, the firm tweaked 2023 guidance, with the revenue range narrowed around the same midpoint, while non-GAAP EPS was moved $0.10 higher at the midpoint. Changes, therefore, were modest within our model, which in turn holds our fair value estimate stable at $475 per share. We continue to see federal stimulus funds as supporting the healthy environment and see consistent growth and margin expansion over time. We believe Tyler is the clear leader for municipal software needs and therefore continue to view shares as attractive.

The pipeline remains healthy, and state budgets are in good shape; this helps drive all revenue lines to be stronger than we anticipated. Total revenue grew 8% year over year to $504 million, compared with FactSet consensus of $491 million. Excluding COVID-19-related revenue from the NIC acquisition, revenue grew 10% year over year. Importantly, SaaS revenue was up 20% year over year as reported. We see the most notable strength in Subscriptions, Maintenance, and Hardware relative to our model.

SaaS deals drove 82% of annual contract value, versus 87% last quarter and 74% a year ago. We expect this to inch up to more than 95% over the next several years, as the public sector is clearly onboard with SaaS consumption at this point. Non-GAAP annual recurring revenue, or ARR, was $1.657 billion, up 11% year over year; bookings were flat year over year against a difficult comparison; and backlog increased 3% year over year. SaaS ARR grew 20% year over year. Further, about a third of the installed base has converted to SaaS from on-premises, so the runway remains long. We see these forward-looking indicators as healthy.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff, CPA

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity analyst, AM Technology, for Morningstar*. He covers software, including Microsoft, Salesforce, Adobe, ServiceNow, and Amazon, among others, and also serves on Morningstar’s Moat Committee.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds both a bachelor’s degree in accountancy and a master of business administration in finance from University of Illinois at Urbana-Champaign’s Gies College of Business. He also holds the Certified Public Accountant designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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