Summary
Tyler Technologies closed fiscal 2022 with fourth quarter revenue of $452.2 million, up 4.3% from $433.5 million a year earlier. Organic revenue growth, which excludes COVID-related revenues, reached 6.0%. Software subscription arrangements represented about 86% of total new software contract value in the quarter, compared with about 77% a year earlier. Subscription bookings in the quarter added $21.4 million in annual recurring revenue. During the quarter, Tyler acquired Rapid Financial Solutions for approximately $68 million in cash, net of cash acquired, and Tyler stock. The company added 609 new SaaS clients in 2022, and 336 existing clients converted to the SaaS model. Implementation and support staff grew by 225 employees since December 31, 2021. Employee count in cost of revenues increased to 5,021 from 4,746.
The bottom line moved in the opposite direction. Operating income fell 15.3% to $40.7 million. Net income dropped 43.3% to $31.1 million. Gross margin slipped to 42.8% from 43.2%, and operating margin contracted to 9.0% from 11.1%. Management tied the pressure to the accelerated cloud transition and to research and development costs that were expensed instead of capitalized. Non-GAAP operating income was $97.9 million, down 4.5%. Non-GAAP net income was $70.4 million, or $1.66 per diluted share, down 5.3%. Cash flows from operations were $121.9 million for the quarter, up 6.0%. Free cash flow was $114.7 million, up 20.6% from $95.1 million.
For the full year, revenue rose 16.2% to $1.85 billion. Organic revenue growth was 8.2%. Operating income increased 18.5% to $214.2 million. Net income was $164.2 million, up 1.7%. Diluted earnings per share for the year were $3.87, up $0.05 from $3.82. Operating cash flow was $381.5 million, up 2.6%. Capital expenditures were $22.5 million, down 33.6%. Deferred revenue ended the year at $570.6 million, up 11.8%. Remaining performance obligations were $1.89 billion, up 5.0%. Free cash flow was $331.3 million, up 4.8%. Adjusted EBITDA was $475.0 million, up 9.0%. Annualized non-GAAP recurring revenues were $1.50 billion, up 7.5%. Subscription bookings added $93.4 million in annual recurring revenue for the year. Total backlog was a new high of $1.889 billion, up 5.2% from $1.796 billion at December 31, 2021. The mix of new software contracts in 2022 was approximately 77% subscription-based arrangements and approximately 23% perpetual software license arrangements, compared with approximately 67% and approximately 33% in 2021.
Guidance for the full year 2023 calls for non-GAAP diluted earnings per share of $7.50 to $7.65. Management expects 2023 to be an inflection year for the cloud transition, with a significant decline in license revenue and operating margins troughing before expanding again in 2024. Tyler also faces comparison headwinds because COVID-related revenues ended in the fourth quarter of 2022. Customer turnover was approximately 2% during 2022.
The risk list is familiar for a public sector software vendor. It includes shifts in local and state government budgets, cyber-attacks, integration of acquisitions, project delays by clients, competition, inflation, higher interest rates, and difficulty retaining key personnel. A large portion of total goodwill sits in reporting units from recent acquisitions that carry no significant excess fair value over carrying value. A tax change under IRC Section 174 will require capitalizing and amortizing research and development expenses, which raises cash tax payments in 2023 and later years. Days sales outstanding rose to 115 days from 108 days. The company reported net leverage of 1.64 times proforma EBITDA at year-end.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2022 | Q3 FY2022 | QoQ | Q4 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $452.2M | $473.2M | -4.4% | $433.5M | +4.3% |
| Gross profit | $193.3M | $204.7M | -5.5% | $187.2M | +3.3% |
| Gross margin | 42.8% | 43.3% | -0.5 pp | 43.2% | -0.4 pp |
| Sales & marketing | -$165.5M | $103.6M | -259.7% | $101.0M | -263.8% |
| General & administrative | $267.3M | — | — | — | — |
| Operating income (loss) | $40.7M | $60.9M | -33.2% | $48.1M | -15.3% |
| Operating margin | 9.0% | 12.9% | -3.9 pp | 11.1% | -2.1 pp |
| Net income (loss) | $31.1M | $53.2M | -41.6% | $54.8M | -43.3% |
| Net margin | 6.9% | 11.3% | -4.4 pp | 12.6% | -5.8 pp |
| Diluted EPS | $0.73 | $1.26 | -$0.53 | $1.30 | -$0.57 |
Risks
A prolonged economic slowdown or recession could reduce demand for public sector software and services, and government budget shortfalls could negatively impact IT spending and Tyler's growth rate and profitability.
Substantially all revenues come from state, county, city, and other public entities, exposing Tyler to long sales cycles, open bidding uncertainty, milestone-based payments, and political or legislative changes outside its control.
MD&A states cloud transition expenses are expected to pressure operating margins in 2023 and 2024. Overall gross margin was 42.4% in FY2022 year to date versus 44.6% in FY2021 year to date, down 2.2 pp, partly from higher hosting costs tied to the accelerated shift to the cloud.
Approximately $1.7 billion, or 70%, of total goodwill as of December 31, 2022 relates to recently acquired reporting units that do not have significant excess fair value over carrying value, so future underperformance or market changes could require an impairment charge.
As of December 31, 2022, Tyler had $600 million of Convertible Senior Notes and $395 million outstanding under its 2021 Credit Agreement. Variable-rate borrowings expose it to interest-rate risk, with each quarter point change in rates resulting in a $1.0 million change in annual interest expense, and FY2022 interest expense increased 22%.
For tax years beginning on or after January 1, 2022, IRC Section 174 requires capitalization and amortization of research and development expenses. If not repealed or modified, this will increase U.S. federal and state cash tax payments and reduce cash flows in fiscal year 2023 and future years.
FY2022 included COVID-related subscriptions revenue of $10.8 million and professional services revenue of $40.2 million that have ended, and management does not expect to generate these revenues in future periods. COVID-19 may still negatively impact business and financial results in fiscal year 2023.
A material portion of historical growth has come from acquisitions, including NIC, US eDirect, and Rapid. Integration difficulties, failure to achieve expected returns, difficulty retaining acquired employees, or unforeseen liabilities could adversely affect results.
Tyler faces challenges recruiting qualified software development, sales, and support personnel, and competitive job markets may raise compensation costs. Implementation and support staff grew by 225 employees since December 31, 2021 to deliver backlog and anticipated new business.
Days sales outstanding increased to 115 days at December 31, 2022 from 108 days at December 31, 2021, attributed to slower payments from certain large clients and timing of receipts from government partners.
The September 2020 ransomware incident disrupted access to some internal IT and telephone systems, and there can be no assurance as to its ongoing impact. Cyber-attacks and security vulnerabilities could disrupt operations and harm Tyler's competitive position.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Adjusted EBITDA
Recurring Revenues
SaaS Revenue
Total backlog
Recurring revenues as % of total revenues
Annualized Recurring Revenue
Subscription bookings added ARR
Summary, forecast, risks and KPIs are extracted from TYLER TECHNOLOGIES INC's SEC filings for Q4 FY2022 (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.