Summary
Tyler Technologies crossed the $500 million mark in quarterly revenue for the first time in the second quarter of fiscal 2023. Total revenue was $504.3 million, up 7.6% from the prior-year quarter, and organic revenue growth reached 10.4%. Recurring revenue from maintenance and subscriptions totaled $414.3 million, up 11.2%, and made up 82.2% of total revenue against 79.5% a year earlier. Subscription revenue rose 16.4% to $297.8 million, and SaaS revenue grew 20.0% organically to $131.5 million. Management described it as the tenth straight quarter of SaaS growth of 20% or more. Annualized recurring revenue was $1.66 billion, up 11.2%.
Margins widened on the back of the subscription shift. Gross profit was $223.2 million, up 15.4%, and gross margin climbed to 44.3% from 41.3%. Operating income was $61.9 million, up 9.0%, for an operating margin of 12.3%, up 0.2 percentage points from 12.1%. Net income was $49.1 million, up 23.0%, and diluted earnings per share were $1.15, up $0.21. On a non-GAAP basis, operating income was $115.9 million, up 4.8%, net income was $85.9 million, or $2.01 per diluted share, up 8.1%, and adjusted EBITDA was $125.5 million, up 5.4%. Management said operating margins remain pressured by the cloud transition and still expects operating margin expansion to return in 2024.
Cash flow is the weak point this quarter. Operating cash flow was negative $19.2 million for the quarter, down from $76.7 million in the prior-year quarter, while free cash flow was negative $33.2 million against $60.0 million. For the six months ended June 30, 2023, operating cash flow was $55.5 million, down 57.4% from $130.2 million. The company attributed the swing to roughly $90 million of incremental cash tax payments related to the current status of IRC Section 174 capitalization rules. Capital expenditures were $4.3 million in the quarter, down 46.8%, and $6.4 million for the six months, down 50.1%. Deferred revenue was $567.0 million, up 7.3%, and remaining performance obligations were $1.90 billion, up 2.7%.
The revenue mix kept shifting toward recurring work. Transaction-based revenue, which covers payments and e-filing, grew 13.7% to $166.3 million. Maintenance revenue was flat, professional services revenue fell 8%, and software licenses and royalties dropped 35% as perpetual license deals gave way to subscriptions. Tyler added 170 new SaaS clients in the quarter, and 94 existing on-premises clients converted to the SaaS model. Since June 30, 2022, the company has added 608 new SaaS clients. Days sales outstanding improved to 112 days at June 30, 2023, from 115 days at June 30, 2022. SaaS arrangements accounted for about 82% of total new software contract value, up from about 74%. Headcount rose to 7,247 at June 30, 2023 from 7,143 a year earlier.
The full-year 2023 outlook, issued on July 26, 2023, calls for non-GAAP diluted earnings per share of $7.60 to $7.75. Capital spending is expected to land between $63 million and $65 million, including about $37 million of capitalized software development. Research and development expense is expected in a range of $113 million to $114 million, interest expense of about $25 million, and fully diluted shares of 42.5 million to 43.0 million. The filings list familiar public-sector risks: client budget and regulatory shifts, cyber-attacks and data breaches, client project delays, acquisition integration, competition, inflation and rising interest rates, and retention of key personnel. Cash and cash equivalents were $118.8 million at June 30, 2023, against $173.9 million at December 31, 2022. Debt includes $600.0 million of convertible senior notes due 2026 and $275.0 million outstanding under the 2021 credit agreement.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $504.3M | $471.9M | +6.9% | $468.7M | +7.6% |
| Gross profit | $223.2M | $199.8M | +11.7% | $193.4M | +15.4% |
| Gross margin | 44.3% | 42.4% | +1.9 pp | 41.3% | +3.0 pp |
| Sales & marketing | $37.1M | $37.1M | ±0.0% | $99.7M | -62.8% |
| General & administrative | $77.7M | $72.4M | +7.4% | — | — |
| Operating income (loss) | $61.9M | $45.0M | +37.6% | $56.8M | +9.0% |
| Operating margin | 12.3% | 9.5% | +2.7 pp | 12.1% | +0.2 pp |
| Net income (loss) | $49.1M | $30.9M | +59.1% | $39.9M | +23.0% |
| Net margin | 9.7% | 6.5% | +3.2 pp | 8.5% | +1.2 pp |
| Diluted EPS | $1.15 | $0.73 | +$0.42 | $0.94 | +$0.21 |
Risks
IRC Section 174 requires capitalization and amortization of research and development expenses, temporarily increasing U.S. federal and state cash tax payments and reducing cash flows in fiscal year 2023 and future years. Operating cash flow for the six months ended June 30, 2023 was $55.5 million, down 57.4% from $130.2 million in the prior-year period.
Software licenses and royalties revenue decreased 35% for the quarter and 37% year to date ended June 30, 2023, as new software contracts shift toward subscription-based agreements. The company expects the decline in software license revenues to accelerate as it continues to shift its model away from perpetual licenses to SaaS.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Adjusted EBITDA
Annualized Recurring Revenue (ARR)
New SaaS Clients Added
Recurring Revenues
Non-GAAP Gross Margin
Backlog
SaaS Revenues
Subscription Revenues
Recurring revenues as % of total revenues
Transaction-based Revenues
Summary, forecast, risks and KPIs are extracted from TYLER TECHNOLOGIES INC's SEC filings for Q2 FY2023 (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.