Summary
Tyler Technologies reported third quarter fiscal 2023 revenue of $494.7 million, up 4.5% from the prior-year quarter. Gross profit rose 10.0% to $225.2 million, and gross margin improved to 45.5%. Operating income increased 5.0% to $63.9 million, while operating margin was 12.9%, flat with the prior-year quarter. Net income fell 11.7% to $47.0 million, and diluted earnings per share fell 12.7% to $1.10. The quarter included higher general and administrative, sales and marketing, and research and development expenses, along with a higher tax provision.
For the first nine months of fiscal 2023, revenue was $1.47 billion, up 5.2%. Gross profit rose 9.8% to $648.2 million. Operating income was $170.8 million, down 1.6%. Net income was $127.0 million, down 4.6%, and diluted earnings per share was $2.97, down 5.4%. The year-to-date picture shows the same tension: gross profit is growing, but operating and net income are lower than the prior-year period.
Recurring revenue remains the core of the story. Recurring revenues from maintenance and subscriptions were $412.7 million, up 11.0%, and made up 83.4% of total revenues, compared with 78.5% in the prior-year quarter. SaaS revenues grew organically 26.0% to $138.5 million. Management noted that this was the 11th consecutive quarter of SaaS revenue growth of 20% or more. Transaction-based revenues rose 8.5% to $156.7 million. Annualized recurring revenue was $1.65 billion, up 11.0%. Deferred revenue was $601.2 million, up 13.1% from the prior-year quarter, and remaining performance obligations were $1.95 billion, up 3.7%. SaaS arrangements were approximately 80% of total new software contract value, compared with approximately 91% in the third quarter of 2022.
The shift away from legacy licenses continued. Tyler added 161 new SaaS clients in the quarter, and 79 existing on-premises clients converted to its SaaS model. The company also completed the acquisition of Computing System Innovations, or CSI, for a cash purchase price of approximately $36 million net of cash acquired. CSI brings artificial intelligence automation, redaction, and indexing technology for courts and recorders. On October 31, 2023, Tyler completed two additional acquisitions for total consideration of approximately $38 million.
Cash generation was strong in the quarter. Operating cash flow was $177.5 million, up 37.2% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $162.7 million, up 40.7%. Capital expenditures were $6.1 million, up 31.0%. The company reduced term debt by $135 million during the quarter and reported net leverage of 1.24 times proforma EBITDA. Year-to-date operating cash flow was $233.0 million, down 10.2%. During the quarter, cash tax payments included approximately $22 million related to IRS Section 174 capitalization rules.
Guidance for the full fiscal year 2023 puts non-GAAP diluted earnings per share at $7.66 to $7.80. The company also guided to a non-GAAP annual effective tax rate of 22.0%. Management said it remains on track to return to operating margin expansion in 2024. The company noted that its year-to-date performance reflects its growth algorithm, balance sheet, and cloud-based offerings for the public sector.
Risks are tied to Tyler's public sector end markets and its cloud transition. The company lists changes in client budgets or regulatory environments, cybersecurity attacks and security vulnerabilities, data center disruptions, acquisition integration, internet infrastructure reliability, project delays, general economic and political conditions including inflation and rising interest rates, competition, and the ability to attract and retain personnel. The IRS Section 174 rules are also a cash tax headwind. Tyler expects cash tax payments to remain higher until the amortization deduction normalizes.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $494.7M | $504.3M | -1.9% | $473.2M | +4.5% |
| Gross profit | $225.2M | $223.2M | +0.9% | $204.7M | +10.0% |
| Gross margin | 45.5% | 44.3% | +1.3 pp | 43.3% | +2.3 pp |
| Sales & marketing | $35.9M | $37.1M | -3.2% | $103.6M | -65.4% |
| General & administrative | $78.5M | $77.7M | +1.1% | — | — |
| Operating income (loss) | $63.9M | $61.9M | +3.3% | $60.9M | +5.0% |
| Operating margin | 12.9% | 12.3% | +0.7 pp | 12.9% | +0.1 pp |
| Net income (loss) | $47.0M | $49.1M | -4.3% | $53.2M | -11.7% |
| Net margin | 9.5% | 9.7% | -0.2 pp | 11.3% | -1.8 pp |
| Diluted EPS | $1.10 | $1.15 | -$0.05 | $1.26 | -$0.16 |
Risks
IRC Section 174 requires capitalization and amortization of R&D expenses, temporarily increasing U.S. federal and state cash tax payments and reducing cash flows in fiscal year 2023 and future years. The company paid $118.0 million in income taxes, net of refunds, in the nine months ended September 30, 2023, compared to $35.3 million in the prior-year period.
The shift from perpetual licenses to SaaS arrangements is accelerating the decline in software licenses and royalties revenue, which decreased 48% and 41% for the three and nine months ended September 30, 2023, respectively, compared to the prior period. The company expects the decline to accelerate as the model shift continues.
The SEC's Cybersecurity Final Rule requires disclosure of material cybersecurity incidents within four business days and periodic disclosures on cybersecurity risk management and governance, effective December 18, 2023. Compliance may increase costs and require additional oversight.
NYSE clawback listing standards require adoption of a compliant Clawback Policy by December 1, 2023. Failure to comply could result in suspension from trading and commencement of delisting procedures. The board is currently evaluating the requirements.
COVID pandemic related transaction-based revenues declined $10.8 million and rent relief services revenue declined $36.7 million for the nine months ended September 30, 2023, compared to the prior period, contributing to a 15% and 12% decrease in professional services revenue for the three and nine months, respectively.
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 Operating Income
Backlog
SaaS Revenues
Subscription Revenues
Summary, forecast, risks and KPIs are extracted from TYLER TECHNOLOGIES INC's SEC filings for Q3 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.