Summary
Tyler Technologies closed its $2.3 billion cash acquisition of NIC on April 21, 2021, and the deal drove the second quarter's headline numbers. Total revenue reached $404.1 million, up 49.1% from the prior-year quarter. Organic revenue, which excludes acquisitions, rose 12.4%. Non-GAAP total revenue was $405.4 million, up 49.4%, with organic non-GAAP revenue up 12.3%. Recurring revenue from maintenance and subscriptions was $319.2 million, up 57.7% from $202.4 million a year earlier, and made up 79.0% of total revenue, up from 74.7%. Software subscription arrangements were about 65% of total new software contract value, compared with about 43% a year earlier. Subscription bookings added $15.0 million of annual recurring revenue.
Profitability told a more mixed story. Gross profit rose 38.8% to $182.1 million, but gross margin fell 3.3 percentage points to 45.1%. Operating income declined 7.4% to $38.3 million. Operating margin was 9.5%, down 5.8 percentage points. Non-GAAP operating income rose 43.9% to $107.4 million, and non-GAAP operating margin was 26.5%, down 100 basis points. The company said the margin decline reflected the return of costs and lower-margin revenue that had fallen in 2020 because of the pandemic, plus the continuation of NIC's lower-margin COVID-related revenue. Net income fell 52.6% to $25.5 million, and diluted EPS dropped 53.1% to $0.61. Non-GAAP net income was $77.2 million, or $1.83 per diluted share, up 35.3%. Adjusted EBITDA rose 42.1% to $114.7 million.
Cash generation was the weak spot. Operating cash flow was negative $20.3 million, down 151.1% from the prior-year quarter. Free cash flow was negative $33.5 million. Management tied the swing to acquisition-related costs and the timing of NIC cash collections on behalf of government agencies before the close and remittances after the close. Capital expenditures were $7.66 million, up 10.7% from the prior-year quarter. Deferred revenue was $484.55 million, up 14.5% year over year. Remaining performance obligations were $1.63 billion, up 5.8%, and total backlog was $1.63 billion, up 5.6%. The company ended the quarter with $347.1 million in cash and investments, $965 million of principal borrowings under its 2021 credit agreement, and $435 million of available borrowing capacity. Days sales outstanding was 128 days, compared with 121 days at December 31, 2020, and 135 days at June 30, 2020.
Guidance for the full year 2021 puts non-GAAP total revenue at $1.535 billion to $1.560 billion and non-GAAP diluted EPS at $6.70 to $6.80. That full-year revenue outlook includes about $32 million of COVID-related revenue from NIC's TourHealth and pandemic unemployment services that is not expected to recur. Management expects capital expenditures of $48 million to $50 million, research and development expense of $94 million to $96 million, and interest expense of about $23 million. Pretax non-cash share-based compensation expense is expected to be about $102 million, and the non-GAAP annual effective tax rate is expected to be 24%.
The company flagged risks tied to the pandemic, including delays in government procurement and implementation work. Other named risks include changes in client budgets, cyber-attacks and security vulnerabilities, integration of acquired businesses, Internet infrastructure, competition, and the ability to attract and retain personnel. The NIC integration, along with ReadySub and DataSpec, is underway. Tyler repurchased 32,600 shares in the quarter at an average price of $398.02.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $404.1M | $294.8M | +37.1% | $271.1M | +49.1% |
| Gross profit | $182.1M | $144.2M | +26.2% | $131.2M | +38.8% |
| Gross margin | 45.1% | 48.9% | -3.9 pp | 48.4% | -3.3 pp |
| Sales & marketing | $108.9M | $78.8M | +38.3% | $62.5M | +74.2% |
| Operating income (loss) | $38.3M | $38.2M | +0.2% | $41.3M | -7.4% |
| Operating margin | 9.5% | 13.0% | -3.5 pp | 15.3% | -5.8 pp |
| Net income (loss) | $25.5M | $37.0M | -31.0% | $53.9M | -52.6% |
| Net margin | 6.3% | 12.5% | -6.2 pp | 19.9% | -13.6 pp |
| Diluted EPS | $0.61 | $0.88 | -$0.27 | $1.30 | -$0.69 |
Risks
The company incurred significant new debt to fund the NIC acquisition, with $600 million of Convertible Senior Notes and $965 million outstanding under the 2021 Credit Agreement as of June 30, 2021. Servicing this debt requires substantial cash and may strain liquidity if cash flow is insufficient.
The 2021 Credit Agreement and Indenture contain covenants that restrict the company's ability to incur additional debt, grant liens, make investments, and require maintaining certain financial ratios. A breach could lead to default and acceleration of debt obligations.
Borrowings under the 2021 Credit Agreement are at variable interest rates. Each quarter point change in interest rates would change annual interest expense by $2.9 million, increasing debt service obligations if rates rise.
The conditional conversion feature of the Convertible Senior Notes, if triggered, could require cash settlement or reclassify the notes as current liabilities, adversely affecting liquidity and net working capital.
Conversion of the Convertible Senior Notes could result in significant dilution to existing shareholders if settled in shares of common stock.
The NIC acquisition has historically lower margins than Tyler, contributing to a decline in overall gross margin to 45.1% for the quarter ended June 30, 2021, down from 48.4% in the prior-year quarter.
The COVID-19 pandemic continues to cause delays in government procurement processes and contract signings, slowing sales cycles and negatively impacting revenue.
A growing number of clients are choosing SaaS-based options over perpetual licenses, which is expected to slow the longer-term software license growth rate.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Adjusted EBITDA
New SaaS Clients Added
Non-GAAP Gross Margin
Existing On-Premises Clients Converted to SaaS
Total backlog
Bookings
Annualized non-GAAP recurring revenues
Software subscription arrangements % of total new software contract value
Summary, forecast, risks and KPIs are extracted from TYLER TECHNOLOGIES INC's SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.