Summary
Tyler Technologies reported third quarter fiscal 2021 total revenues of $459.9 million, up 60.9% from $285.7 million in the prior-year quarter. The NIC acquisition, which closed in April 2021, supplied a full quarter of results and drove most of the increase. Organic revenue growth was 7.6%. Recurring revenues from maintenance and subscriptions grew 78.9% and accounted for 80.6% of quarterly revenue, compared with 72.5% a year earlier. On an organic basis, recurring revenues rose 9.2%. Subscription bookings added $19.0 million in annual recurring revenue, and annualized non-GAAP recurring revenues were $1.486 billion, up 79.2%.
GAAP operating income was $56.2 million, up 13.1% from $49.7 million. Net income was $44.2 million, or $1.04 per diluted share, up from $39.3 million, or $0.94 per diluted share. Non-GAAP operating income was $116.8 million, up 42.8%, and non-GAAP net income was $85.0 million, or $2.01 per diluted share, up 36.3%. Adjusted EBITDA was $125.0 million, up 40.6%.
Margins compressed sharply. Gross margin was 42.7%, down from 50.2% a year earlier. Operating margin was 12.2%, down from 17.4%. The decline came largely from the inclusion of NIC, whose revenues historically carry lower margins than Tyler's core business. NIC's TourHealth and pandemic unemployment services contributed $43.3 million of subscription and software services revenue in the quarter. Those COVID-related revenues are expected to decrease significantly in the fourth quarter of 2021 and wind down in the first half of 2022. Excluding the COVID-related revenues, NIC's core revenues grew 5%.
Cash flows from operations were $205.4 million, up 21.0% from $169.8 million. Free cash flow was $192.8 million, up 16.6% from $165.4 million. Capital expenditures were $6.5 million, up from $2.8 million. Total RPO, reported as backlog, was $1.77 billion, up 14.2% from $1.55 billion. Bookings were approximately $601 million, more than double the prior-year quarter. Excluding NIC, bookings rose nearly 52%. Deferred revenue was $495.3 million, up 13.4% from $436.6 million. The company paid down $122.5 million of bank debt and used $89.5 million in cash to fund the acquisitions of VendEngine and Arx.
For the full year 2021, Tyler guides non-GAAP total revenues to $1.580 billion to $1.600 billion and non-GAAP diluted earnings per share to $6.94 to $7.02. The revenue outlook includes approximately $72 million of COVID-related revenues from NIC's TourHealth and pandemic unemployment services that are expected to wind down in the first half of 2022. The non-GAAP annual effective tax rate is expected to be 24%. The guidance is dated October 27, 2021 and covers the full fiscal year, not the next quarter alone.
The company faces risks from the ongoing COVID-19 pandemic, which continues to delay some government procurement processes and could affect implementations, revenue timing and client payments. Other named risks include changes in government budgets that could reduce information technology spending, cyber-attacks and security vulnerabilities, the ability to integrate acquired businesses such as NIC, VendEngine and Arx, competition, and the ability to attract and retain key personnel. As travel restrictions ease, software services and appraisal services revenues are increasing, and management says proposals, sales demonstrations and pipelines are generally at or above pre-COVID levels.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $459.9M | $404.1M | +13.8% | $285.7M | +60.9% |
| Gross profit | $196.2M | $182.1M | +7.8% | $143.5M | +36.7% |
| Gross margin | 42.7% | 45.1% | -2.4 pp | 50.2% | -7.5 pp |
| Sales & marketing | $101.8M | $108.9M | -6.5% | $66.8M | +52.4% |
| Operating income (loss) | $56.2M | $38.3M | +46.7% | $49.7M | +13.1% |
| Operating margin | 12.2% | 9.5% | +2.7 pp | 17.4% | -5.2 pp |
| Net income (loss) | $44.2M | $25.5M | +73.0% | $39.3M | +12.4% |
| Net margin | 9.6% | 6.3% | +3.3 pp | 13.8% | -4.2 pp |
| Diluted EPS | $1.04 | $0.61 | +$0.43 | $0.94 | +$0.10 |
Risks
As of September 30, 2021, Tyler had $600 million of Convertible Senior Notes and $842.5 million outstanding under the 2021 Credit Agreement, debt incurred partly to fund the NIC acquisition. The filing states servicing this debt requires significant cash and that insufficient cash flow could impair its ability to settle note conversions or repurchases and repay the credit agreement, potentially causing default and cross-default.
The pandemic continues to delay some government procurement processes and is expected to impact Tyler's ability to complete certain implementations, negatively impacting revenue; for the nine months ended September 30, 2021, excluding 2021 acquisitions, software licenses and software services revenues were lower due in part to slower sales cycles. NIC's TourHealth and pandemic unemployment services contributed $43.3 million and $58.4 million to revenues for the three and nine months ended September 30, 2021, and are expected to decrease significantly in Q4 2021 and wind down in first half 2022.
The 2021 Credit Agreement contains negative covenants limiting additional indebtedness, liens, investments, acquisitions, dispositions, fundamental changes, and restricted payments, and requires maintenance of total leverage and interest coverage ratios. A breach could let lenders terminate commitments and accelerate amounts due, which could in turn trigger a default under the Indenture.
Borrowings under the 2021 Credit Agreement are at variable rates. The filing states that based on the $842.5 million outstanding balance as of September 30, 2021, each quarter point change in interest rates would result in a $2.1 million change in annual interest expense and could decrease net income.
The conditional conversion feature of the Convertible Senior Notes, if triggered, could require Tyler to settle conversions in cash, adversely affect liquidity, or force reclassification of principal to current liabilities and materially reduce net working capital. Conversion could also deliver a significant number of shares and dilute existing shareholders.
Revenues from 2021 acquisitions contributed 53.4% and 30.7% for the three and nine months ended September 30, 2021, respectively, while excluding 2021 acquisitions revenue increased only 7.6% and 8.4%. Integration challenges or lower-margin acquired revenue could pressure results, with overall gross margin down 7.6 percentage points for the quarter and 3.4 percentage points year to date.
Slower sales cycles as government procurement processes were delayed and contract signings were pushed to future periods negatively affected software licenses and royalties revenue, which decreased 1% for the nine months ended September 30, 2021 compared to the prior year period. Clients are also shifting from perpetual licenses to SaaS arrangements, which generally do not result in initial-year license revenue and may slow near-term software license growth.
Overall gross margin decreased 7.6 percentage points for the quarter and 3.4 percentage points year to date, and operating margin decreased 5.2 percentage points and 3.5 percentage points, respectively, compared to the prior year periods. The declines were primarily due to the inclusion of NIC revenues, which historically have lower margins than Tyler, and increased amortization expense related to acquired software.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
New SaaS Clients Added
Recurring Revenues
Existing On-Premises Clients Converted to SaaS
Total backlog
Bookings
Annualized non-GAAP recurring revenues
Subscription bookings added ARR
Recurring Revenues as % of Total Revenue
Summary, forecast, risks and KPIs are extracted from TYLER TECHNOLOGIES INC's SEC filings for Q3 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.