Tyler Technologies Reports Exceptionally Strong Second Quarter Results

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Tyler reported exceptionally strong second-quarter results, with revenue of $124.4 million (up 20.6% year-over-year) well above our and consensus estimates (of $116.4 million and $117.6 million, respectively) and non-GAAP earnings per share of $0.52 well above the same benchmarks (of $0.43 and $0.44, respectively). The highlight of the quarter was the company’s record bookings growth fueled by 13 California courts-andjustice- system wins, which were up 62% year-over-year, far exceeding our expectation for 20% bookings growth. Total backlog ended the quarter 51.9% higher, at $654.7 million. We believe the company’s win rate was even higher than it anticipated.

We expect the stock to open materially higher on Friday, July 25, and would continue to be buyers of the stock. We believe the full value of the California contracts has not yet been awarded (many partial systems) and electronic filing largely not represented in the backlog number. The company also added $18 million in SaaS contracts, with a record 65 new SaaS clients. License and royalty revenue of $12.1 million grew 19.8% year-over-year; subscription revenue of $20.9 million was up 51.0%; and we calculate that bookings tallied to be $238.8 million, growing 62.0% over the same period. The company reported that bookings and win rates were very strong across all major product suites. The company also signed 65 new SaaS clients, which was a company record.

The company raised its guidance for the full year because of the outperformance in the second quarter as well as what it characterized as an increasingly positive outlook for the remainder of the year. For 2014, the company is now calling for revenue of $482 million to $489 million (up 16.5%) and non-GAAP earnings per share of $1.95-$2.02 (up 31.2%).We have long viewed Tyler as an attractive company, based on its strong market position, accelerating growth, and attractive growth opportunities in a market niche.

Management commentary has been increasingly positive regarding its win rates and end-markets, and we believe the company continues its very strong execution. At the market close, the stock was trading at 41 times our revised 2015 non-GAAP earnings per share estimate of $2.37 and 34.5 times our revised 2015 free cash flow projection of $99.0 million. We are encouraged by the strong results in the quarter (particularly bookings growth of 62.0% year-over-year) and the significant increase in bottom-line guidance. We continue to view Tyler as an attractive investment, given that the company’s market positioning likely has improved during the economic downturn as smaller competitors struggle to survive. We reiterate our Outperform rating.

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