Tyler Technologies Inc. 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Tyler Technologies Inc., an accelerated filer, for the period ended September 30, 2008. The company provides integrated information management solutions and services for local governments, including software licenses, subscriptions, professional services, and property appraisal outsourcing.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $68.6 million | $195.6 million |
| Gross Profit | $30.0 million (43.6% margin) | $80.8 million (41.3% margin) |
| Operating Income | $11.9 million | $18.4 million |
| Net Income | $6.4 million | $9.7 million |
| Diluted EPS | $0.16 | $0.25 |
| Cash & Equivalents | $23.8 million | (Balance Sheet: $23.8M) |
| Operating Cash Flow (9mo) | N/A | $45.4 million |
| Debt | $0 | $0 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 25% for the quarter and 23% year-to-date compared to 2007. Growth was driven by software licenses (up 40% QoQ), subscriptions (up 38% QoQ), and software services (up 17% QoQ).
- Profitability: Net income for the nine months ended September 30, 2008, decreased to $9.7 million from $11.3 million in the prior year period. This decline is primarily due to a $9.0 million non-cash legal settlement charge related to warrants recorded in the second quarter of 2008.
- Tax Rate: The effective income tax rate increased to 49.9% for the nine-month period (vs. 38.7% in 2007) due to the non-deductible nature of the $9.0 million legal settlement charge.
- Acquisitions: The company completed three acquisitions in 2008 (School Information Systems, VersaTrans Solutions, and Schoolmaster assets) totaling approximately $23.9 million in cash and stock, expanding its presence in the education market.
Guidance, Outlook, and Risks
- Legal Settlement: Litigation regarding stock purchase warrants with Bank of America was settled in June 2008. The company recorded a $9.0 million charge, paid $2.0 million, and issued 801,883 restricted shares.
- Liquidity & Investments: The company holds approximately $5.7 million in Auction Rate Securities (ARS) that have experienced failed auctions. While management believes these are temporary liquidity issues and intends to hold them to maturity, they are classified as Level 3 assets with an unrealized loss of $167,000 recorded in other comprehensive income.
- Capital Allocation: The company repurchased 2.2 million shares of common stock for $31.3 million during the nine-month period. In October 2008, the board authorized an additional 2.0 million share repurchase.
- Real Estate: Significant capital expenditures were made for office developments in Lubbock, Texas, and Yarmouth, Maine. A $10.0 million purchase of a building in Falmouth, Maine, is expected to close in Q4 2008.
- Credit Facility: On October 20, 2008, the company entered into a new $25.0 million revolving credit facility. As of the filing date, there were no outstanding borrowings.
Investor Verification Checklist
- Non-Recurring Charges: Verify the impact of the $9.0 million non-cash warrant settlement on adjusted earnings and future tax liabilities.
- ARS Liquidity: Monitor the status of the $5.7 million in Auction Rate Securities and potential future impairment charges if the market does not stabilize.
- Acquisition Integration: Assess the revenue contribution and integration costs of the three education-sector acquisitions completed in 2008.
- Share Repurchases: Track the execution of the newly authorized 2.0 million share repurchase program and its impact on diluted EPS.
- Appraisal Services: Note the 14% year-to-date decline in appraisal services revenue due to the completion of large Ohio revaluation projects, though a new $12.0 million Louisiana project has begun.