Tyler Technologies Reports Earnings for Second Quarter 2010

July 28, 2010, 4:07 p.m. EDT
Tyler Technologies Reports Earnings for Second Quarter 2010
DALLAS, Jul 28, 2010 (BUSINESS WIRE) –Tyler Technologies, Inc.today reported the followingfinancial results for the quarter ended June 30, 2010:
–Total revenues were $72.6 million compared to $72.2 million in thesame period last year. Software-related revenues (software licenses,subscriptions, software services, and maintenance) were $66.3 millionversus $65.6 for the second quarter of 2009.
–Operating income was $10.5 million compared with operating income of$11.4 million in the same quarter of 2009.
–The effective income tax rate was 39.8 percent compared to 39.4percent in the second quarter of 2009.
–Net income was $6.2 million, or $0.17 per diluted share, compared tothe prior year’s second quarter of $6.9 million, or $0.19 per dilutedshare.
–Free cash flow was negative $8.6 million (cash used by operatingactivities of $7.3 million minus capital expenditures of $1.3million). For the second quarter of 2009, free cash flow was negative$6.1 million (cash used by operating activities of $3.9 million minuscapital expenditures of $2.2 million). For the six months ended June30, 2010, free cash flow was negative $3.9 million (cash used byoperating activities of $374,000 minus capital expenditures of $3.5million). For the six months ended June 30, 2009, free cash flow was$3.8 million (cash provided by operating activities of $8.3 millionminus capital expenditures of $4.5 million). Capital expenditures forthe six-month periods ending June 30, 2010 and 2009 included $1.6million and $3.3 million, respectively, related to acquisitions ofreal estate for the company’s current and future office requirements.Excluding the real estate acquisitions, free cash flow for the sixmonths ended June 30, 2010 was negative $2.2 million compared to $7.1million for the same period in 2009.
–EBITDA, or earnings before interest, income taxes, depreciation andamortization, totaled $13.1 million compared to $13.8 million for thesecond quarter of 2009.
–Gross margin increased 40 basis points to 44.7 percent, compared to44.3 percent in the quarter ended June 30, 2009. Sequentially, grossmargin for the second quarter improved from 43.0 percent, or 170 basispoints, in the first quarter of 2010.
–Selling, general and administrative expenses were $17.4 million (24.0percent of revenues), compared to $17.1 million (23.7 percent ofrevenues) in the same quarter last year. Sequentially, SGA expensesas a percentage of revenue decreased 110 basis points from 25.1percent for the first quarter of 2010.
–Share-based compensation expense for the second quarter totaled $1.6million, of which $180,000 was included in cost of revenues and $1.4million was included in selling, general and administrative expenses.For the second quarter of 2009, share-based compensation expense was$1.2 million, of which $134,000 was included in cost of revenues and$1.1 million was included in selling, general and administrativeexpenses.
–Total backlog was $258.0 million at June 30, 2010, compared to $218.8million at March 31, 2010 and $235.3 million at June 30, 2009.Software-related backlog (excluding appraisal services) was $223.9million compared to $209.4 million at June 30, 2009.
–Tyler ended the second quarter of 2010 with $8.3 million in cash andinvestments and $7.1 million of availability under its $25.0 millionrevolving line of credit. The Company is currently engaged indiscussions with banks regarding an expanded long-term revolvingcredit facility to provide additional flexibility for working capital,potential acquisitions and/or share repurchases. However, there can beno assurances that such discussions will be successful.
–During the quarter, the Company repurchased 739,856 shares of itscommon stock for $12.5 million at an average price of $16.85 pershare. For the first six months of 2010, Tyler repurchased 868,489shares at an average price of $17.13 per share. On July 27, 2010Tyler’s board of directors authorized the repurchase of up to anadditional two million shares of the Company’s common stock andtogether with previous authorizations, Tyler may repurchase up to 3.4million shares.
Revenues for the six months ended June 30, 2010 were $142.4 millioncompared to $141.7 million for the same period in 2009. Operating incomefor the first half of 2010 was $18.6 million versus operating income of$21.4 for the first half of 2009. Net income for the six months endedJune 30, 2010 was $11.1 million, or $0.31 per diluted share compared tonet income of $12.9 million, or $0.35 per share for the comparableperiod of 2009.
“Tyler Technologies’ results for the second quarter of 2010 weresomewhat mixed,” said John S. Marr, Jr., Tyler’s President and ChiefExecutive Officer. “As in the first quarter of this year, our totalrevenues grew only slightly, and revenues from both software licensesand software services were below last year’s levels. However, recurringrevenues showed solid growth, with maintenance up 10 percent andsubscriptions up 40 percent. Despite lower software license revenues,our gross margin improved by 40 basis points over last year’s secondquarter to 44.7 percent.
“We continued to invest aggressively in product development, and ourresearch and development expenses rose 32 percent over last year. Webelieve that the investments we are making today in both new andexisting products are important strategically and that they will resultin significant long-term competitive advantages for Tyler.
“It is encouraging that new contract signings were very strong in themost recent quarter, and we enter the second half of the year with arecord high backlog of signed contracts and new business pipelines thatare active. Nonetheless, we continue to experience longer sales cycles,as well as extended implementation timelines on signed business. As aresult, the timing of both new contract signings and revenue recognitionafter signing remains unpredictable in the current environment,” saidMr. Marr.
Total revenues for 2010 are currently expected to be in the range of$298 million to $302 million. Tyler expects to have diluted earnings pershare of approximately $0.72 to $0.77. These estimates include assumednon-cash pretax expense for the year of approximately $6.1 million, or$0.13 per share after taxes, related to stock options and the Company’sstock purchase plan. The Company currently estimates that its effectiveincome tax rate for 2010 will be approximately 39.8 percent.
Tyler expects that free cash flow for the year 2010 will be between$34.0 million and $39.5 million (cash provided by operations of $40.0million to $45.0 million minus capital expenditures of between $5.5million and $6.0 million). Excluding estimated real estate capitalexpenditures of approximately $2.0 million, free cash flow for 2010 isexpected to be between $36.0 million and $41.5 million.
Tyler Technologies will hold a conference call on Thursday, July 29 at12:00 p.m. Eastern Time to discuss the Company’s results. To participatein the teleconference, please dial into the call a few minutes beforethe start time: (877) 397-0292 (U.S. dialers) and (719) 325-4844(international dialers). Please refer to confirmation code 9044051. Areplay of the call will be available two hours after the completion ofthe call through August 5, 2010. To access the replay, please dial (888)203-1112 (U.S. dialers) and (719) 457-0820 (international dialers) andreference passcode 9044051. The live webcast and archived replay canalso be accessed on the Company’s Web site at www.tylertech.com .
Based in Dallas, Tyler Technologies is a leading provider of end-to-endinformation 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 moreefficient, more accessible, and more responsive to the needs ofcitizens. Tyler’s client base includes more than 9,000 local governmentoffices throughout all 50 states, Canada, Puerto Rico and the UnitedKingdom. Tyler has been named one of “America’s 200 Best SmallCompanies” for three consecutive years by Forbes Magazine. Moreinformation about Tyler Technologies can be found at www.tylertech.com .
This press release discloses the financial measures of EBITDA and freecash flow. These financial measures are not prepared in accordance withgenerally accepted accounting principles (GAAP) and are thereforeconsidered non-GAAP financial measures. The non-GAAP measures should beconsidered in addition to, and not as a substitute for, or superior to,operating income, cash flows, or other measures of financial performanceprepared in accordance with GAAP. The non-GAAP measures used by TylerTechnologies may be different from non-GAAP measures used by othercompanies. We believe the presentation of these non-GAAP financialmeasures provides useful information to users of our financialstatements and is helpful to fully understand our past financialperformance and prospects for the future. We believe EBITDA and freecash flow are widely used by investors, analysts, and other users of ourfinancial statements to analyze operating performance, providemeaningful comparisons to prior periods and to compare our results tothose of other companies, and they provide a more complete understandingof our underlying operational results and trends, as well as ourmarketplace performance and our ability to generate cash. In addition,we internally monitor and review these non-GAAP financial measures on aconsolidated basis as some of the primary indicators management uses toevaluate Company performance and for planning and forecasting futureperiods. Therefore, management believes that EBITDA and free cash flowprovide meaningful supplemental information to the investor to fullyassess the financial performance, trends and future prospects of Tyler’score operations.
This document contains “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933 and Section 21E ofthe Securities Exchange Act of 1934 that are not historical in natureand typically address future or anticipated events, trends, expectationsor beliefs with respect to our financial condition, results ofoperations or business. Forward-looking statements often containwords such as “believes,” “expects,” “anticipates,” “foresees,”"forecasts,” “estimates,” “plans,” “intends,” “continues,” “may,”"will,” “should,” “projects,” “might,” “could” or other similar words orphrases. Similarly, statements that describe our businessstrategy, outlook, objectives, plans, intentions or goals also areforward-looking statements. We believe there is a reasonablebasis for our forward-looking statements, but they are inherentlysubject to risks and uncertainties and actual results could differmaterially from the expectations and beliefs reflected in theforward-looking statements. We presently consider the followingto be among the important factors that could cause actual results todiffer materially from our expectations and beliefs: (1) economic,political and market conditions, including the recent global economicand financial crisis, and the general tightening of access to debt orequity capital; (2) our ability to achieve our financial forecasts dueto various factors, including project delays by our customers,reductions in transaction size, fewer transactions, delays in deliveryof new products or releases or a decline in our renewal rates forservice agreements; (3) changes in the budgets or regulatoryenvironments of our customers, primarily local and state governments,that could negatively impact information technology spending; (4)technological and market risks associated with the development of newproducts or services or of new versions of existing or acquired productsor services; (5) our ability to successfully complete acquisitions andachieve growth or operational synergies through the integration ofacquired businesses, while avoiding unanticipated costs and disruptionsto existing operations; (6) competition in the industry in which weconduct business and the impact of competition on pricing, customerretention and pressure for new products or services; (7) the ability toattract and retain qualified personnel and dealing with the loss orretirement of key members of management or other key personnel; and (8)costs of compliance and any failure to comply with government and stockexchange regulations. A detailed discussion of these factors andother risks that affect our business are described in our filings withthe Securities and Exchange Commission, including the detailed “RiskFactors” contained in our most recent annual report on Form 10-K. Weexpressly disclaim any obligation to publicly update or revise ourforward-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,——————————- ———————————2010 2009 2010 2009————— ————— —————- —————-Revenues:Software licenses $ 8,735 $ 9,912 $ 17,184 $ 20,668Subscriptions 5,807 4,160 11,060 8,136Software services 18,506 21,330 35,562 40,562Maintenance 33,212 30,224 66,628 59,362Appraisal services 4,925 5,054 9,200 9,946Hardware and other 1,415 1,492 2,786 3,063—— —— ——- ——-Total revenues 72,600 72,172 142,420 141,737Cost of revenues:Software licenses 852 1,433 1,559 2,709Acquired software 398 358 796 673Software services, maintenance and subscriptions 34,595 34,174 69,476 67,261Appraisal services 3,131 2,997 6,008 6,360Hardware and other 1,149 1,213 2,087 2,445—— —— ——- ——-Total cost of revenues 40,125 40,175 79,926 79,448Gross profit 32,475 31,997 62,494 62,289Selling, general and administrative expenses 17,439 17,084 35,000 34,494Research and development expense 3,744 2,839 7,260 5,074Amortization of customer and trade name intangibles 807 677 1,613 1,349—— —— ——- ——-Operating income 10,485 11,397 18,621 21,372Other expense, net (102 ) (63 ) (144 ) (77 )—— — —— — ——- — ——- —Income before income taxes 10,383 11,334 18,477 21,295Income tax provision 4,134 4,461 7,356 8,416—— —— ——- ——-Net income $ 6,249 $ 6,873 $ 11,121 $ 12,879=== ====== === ====== === ======= === =======Earnings per common share:Basic $ 0.18 $ 0.19 $ 0.32 $ 0.36=== ====== === ====== === ======= === =======Diluted $ 0.17 $ 0.19 $ 0.31 $ 0.35=== ====== === ====== === ======= === =======EBITDA (1) $ 13,141 $ 13,784 $ 23,926 $ 26,091=== ====== === === ====== === === ======= === === ======= ===Weighted average common shares outstanding:Basic 34,862 35,343 34,815 35,393Diluted 36,203 36,723 36,262 36,708(1) Reconciliation of EBITDA Three Months Ended June 30, Six Months Ended June 30,——————————- ———————————2010 2009 2010 2009————— ————— —————- —————-Net income $ 6,249 $ 6,873 $ 11,121 $ 12,879Amortization of customer and trade name intangibles 807 677 1,613 1,349Depreciation and other amortization included in cost of revenuesand selling, general and administrative expenses 1,862 1,725 3,705 3,385Interest expense included in other expense, net 89 48 131 62Income tax provision 4,134 4,461 7,356 8,416—— —— ——- ——-EBITDA $ 13,141 $ 13,784 $ 23,926 $ 26,091=== ====== === ====== === ======= === =======
TYLER TECHNOLOGIES, INC.CONDENSED BALANCE SHEETS(Amounts in thousands)June 30, December 31,2010 2009(Unaudited)————–ASSETSCurrent assets:Cash and cash equivalents $ 1,192 $ 9,696Restricted cash equivalents 5,000 6,000Short-term investments available-for-sale 25 50Accounts receivable, net 89,503 81,245Other current assets 11,356 9,358Deferred income taxes 3,288 3,338——- ——-Total current assets 110,364 109,687Accounts receivable, long-term portion 774 1,018Property and equipment, net 35,695 35,750Non-current investments available-for-sale 2,094 1,976Other assets:Goodwill and other intangibles, net 127,863 122,029Other 209 210——- ——-Total assets $ 276,999 $ 270,670===== ======= ====== =======LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:Accounts payable and accrued liabilities $ 19,895 $ 30,137Short-term revolving line of credit 14,650 -Deferred revenue 97,838 99,116——- ——-Total current liabilities 132,383 129,253Deferred income taxes 7,137 7,059Shareholders’ equity 137,479 134,358——- ——-Total liabilities and shareholders’ equity $ 276,999 $ 270,670===== ======= ====== =======
TYLER TECHNOLOGIES, INC.CONDENSED STATEMENTS OF CASH FLOWS(In thousands)(unaudited)Six months ended June 30,———————————2010 2009—————- —————-Cash flows from operating activities:Net income $ 11,121 $ 12,879Adjustments to reconcile net income to net cash (used)provided by operations:Depreciation and amortization 5,318 4,734Share-based compensation expense 3,073 2,365Excess tax benefit from exercise of share-based arrangements (1,161 ) (357 )Changes in operating assets and liabilities, exclusive ofeffects of acquired companies (18,725 ) (11,288 )——- — ——- —Net cash (used) provided by operating activities (374 ) 8,333——- — ——-Cash flows from investing activities:Proceeds from sales of investments 50 1,675Cost of acquisitions, net of cash acquired (9,661 ) (2,234 )Additions to property and equipment (3,493 ) (4,538 )Decrease (increase) in restricted investments 1,000 (918 )Decrease in other 3 8——- ——-Net cash used by investing activities (12,101 ) (6,007 )——- — ——- —Cash flows from financing activities:Purchase of treasury shares (14,398 ) (10,210 )Increase in net borrowings on revolving line of credit 14,650 7,425Contributions from employee stock purchase plan 951 713Proceeds from exercise of stock options 1,607 1,051Excess tax benefit from exercise of share-based arrangements 1,161 357——- ——-Net cash provided (used) by financing activities 3,971 (664 )——- ——- —Net (decrease) increase in cash and cash equivalents (8,504 ) 1,662Cash and cash equivalents at beginning of period 9,696 1,762——- ——-Cash and cash equivalents at end of period $ 1,192 $ 3,424=== ======= === =======
Tyler Technologies, Inc.Brian K. Miller, 972-713-3720Executive Vice President — CFObrian.miller@tylertech.com
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