Q1 2021 Tyler Technologies Inc Earnings Call
Hello, and welcome to today's Tyler Technologies first quarter 2021 conference call.
Your host for today's call is Lynn Moore, President and CEO of Tyler technologies.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this conference call is being recorded today April 29 2021.
I'd like to turn the call over now to Mr. Moore. Please go ahead.
Thank you Keith and welcome to our call.
With me today is Brian Miller, our Chief Financial Officer.
First I'd like for Brian to give the safe Harbor statement.
Next I'll have some preliminary comments on our quarter results and then Brian will review the details.
I'll end with some additional comments and then we'll take questions Brian Thanks Lynn.
During the course of this conference call management May make statements that provide information other than historical information and may include projections concerning the company's future prospects revenues expenses and profits such.
Such statements are considered forward looking statements under the safe Harbor provision of the private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections. We would refer you to our form 10-K, and other SEC filings for more information on those risks.
Note that all growth comparisons we make on the call today will relate to the corresponding period of last year, unless we specify otherwise Lynn.
Thanks, Brian.
Our first quarter results exceeded our expectations, providing an exceptional start to 2021.
Recurring revenues, which comprise 75% of our first quarter revenues were strong led by a 25% growth in subscription revenues.
However, software licenses and services revenues continue to be pressured by longer sales cycles and delays in projects as clients deal with the ongoing effects of the pandemic.
A favorable revenue mix with strong subscription growth coupled with cost efficiencies drove a 270 basis point expansion of our non-GAAP operating margin to 26, 8%.
Cash flow continue to be very robust as cash from operations grew 26% and free cash flow grew almost 34%.
We're pleased to see signs of growing activity in our public sector markets and expect that federal stimulus on the American Rescue Plan Act will have a positive impact on government technology spending going forward.
Bookings in the first quarter were solid at approximately $247 million, but were down 22, 8% against a very challenging comparison with the first quarter of 2020.
Our largest deal of the quarter was a SaaS arrangement for our munis ERP solution with the city of Fresno, California valued at approximately $10 million.
Other significant SaaS contracts included ERP deals with Hall County, Georgia enforcement Fort Smith, Arkansas.
And in Odyssey courts deal with Val Verde County, Texas.
Our largest on premises contracts include an executive time contract with the U S Virgin Islands.
Public safety and Brazos citations contracts with like Camry County, New York, and Cicero, Illinois, and an intergroup contract with the Commonwealth for the Bahamas.
So far this year, we've been busy on the M&A front on March 31, we completed two tuck in acquisitions data spec and ready.
For a total purchase price of $12 million in cash.
Data spec is a market leading provider of software for the electronic management of Veterans' claims.
Data specs web based software as a service system called retrospect allows for secure electronic claim submission to the federal Department of Veterans Affairs and reporting capabilities. In addition to scheduling calendaring and payments.
Latest spec offers county state and National versions of retrospect with state solutions, making up the majority of its implementations.
The solution allows state departments to execute and analyze reports on the entire state individual offices regions and districts and individual users.
Really serve as a cloud based platform that delivers comprehensive absence and substitute teacher management solutions, serving approximately 1000 school districts across the United States.
With only approximately 20 of which overlapping with Tyler 2000 School district clients.
The solution helps districts with a labor intensive and demanding task for.
Filling both planned and unplanned staff absences with the most highly qualified substitute resources.
With continuous pressure due to substitute teacher shortages exacerbated by the COVID-19 pandemic districts can more easily retain a pool of qualified substitutes and automate the searching and filing of needed substitutes spots.
Additionally, Reddy said can integrate districts payroll processes, eliminating duplicate work and streamlining related payroll tasks.
Most importantly last week, we completed the $2 $3 billion cash acquisition of NFC.
A leading digital government solutions and payments company that serves more than 7100 federal state and local government agencies across the nation.
And I see deliveries user friendly digital services that make it easier and more efficient for citizens and businesses to interact with government.
Providing valuable conveniences like applying for unemployment insurance.
Submitting business filings renewing licenses.
Assessing information and making secure payments without visiting a government office.
In addition.
And I see has extensive experience and expertise.
And scale in the government payments area processing more than 24 billion in payments on behalf of citizens governments last year.
Which will accelerate Tyler strategic payments initiative.
With the addition of Nic's highly complementary industry, leading digital government solutions and payment services to Tyler's broad client base and multiple sales channels. The combined company will be well equipped to address the tremendous demand at the federal state and local levels for innovative platform services.
Together, Tyler and I see well connect data and processes across disparate systems and deliver essential products and services to all public sector stakeholders.
And I see had revenues of $465 million and net income of $68 $6 million in 2020.
Well and I see will cease to be an SEC reporting company and therefore will not issue a first quarter earnings release. They also had a very strong first quarter results that exceeded their plan.
Nic's core first quarter revenues, excluding the tour health and COVID-19 initiatives that are expected to wind down after the second quarter.
Grew more than 10% over last year.
In addition, Nic's operating income again, excluding the tour health and COVID-19 it initiatives as well as acquisition costs rose more than 20%.
We are thrilled to welcome the more than 1000 talented employees and I see data spec and ready for that.
Tyler family and look forward to realizing the tremendous benefit for these transactions can bring to our collective team members and clients and to Tyler shareholders.
Now I'd like for Brian to provide more detail on the results for the quarter.
Thanks Lynn yes.
Yesterday, Tyler technologies reported its results for the first quarter ended March 31 2021.
In our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release.
We've also posted on the Investor Relations section of our website under the financial reports tab schedules with supplemental information provided on this call, including information about quarterly bookings backlog and recurring revenues.
Both GAAP and non-GAAP revenues for the quarter were $294 $8 million up six 6% on a GAAP basis, and six 5% on a non-GAAP basis.
As you May recall, we were off to a very strong start in the first two months of 2020 before the COVID-19 pandemic began to significantly affect our business in March. So we're generally pleased with our growth this quarter against that comparison.
Software license revenues declined 23%, reflecting both extended sales cycles and a high mix of subscription deals at 66% of new software contract value.
Software services revenue declined eight 6% as a result of the continued impact of the COVID-19, pandemic and our shift to remote delivery of most services resulted in a decline in billable travel revenue.
On the positive side subscription revenues rose 25, 4%.
We added 84, new subscription based arrangements and converted 39 existing on premises clients, representing approximately $52 million in total contract value.
In Q1 of last year, we added 131 day subscription based arrangements and had 19 on premises conversions, representing approximately $98 million in total contract value.
Subscription contract value comprised approximately 66% of total new software contract value signed this quarter compared to 73% in Q1 of last year.
The value weighted average term of new SaaS contracts. This quarter was 4.0 years compared to $5 nine years last year.
Revenues from E filing and online payments, which are included in subscriptions were $26 $9 million up 22, 4%.
That amount includes E filing revenue of $15 6 million up four 8% and E payments revenue of $11 3 million up 59, 3%.
For the first quarter, our annualized non-GAAP total recurring revenue or a R. R was approximately $886 million up 12, 9% non.
Non-GAAP <unk> for SaaS arrangements for Q1 was approximately $302 million up 26, 3%.
Transaction based E. R. R was approximately $108 million up 22, 4%.
And non-GAAP maintenance they are was approximately $476 million up for 1%.
Our backlog at the end of the quarter was $1 $55 billion up 3%.
As Lynn noted our bookings in the quarter were solid at $247 million. However, this was down 22 eight per cent compared to a difficult comparison to Q1 of last year.
Last year's first quarter bookings included several large contracts, including two significant follow on SaaS deals with the North Carolina courts, with a combined contract value of approximately $38 million.
For the trailing 12 months bookings were approximately $1 2 billion down 13, 3%. Although they do not include the majority of the $98 million extension of our Texas E filing contract signed in Q4 of 2020 because of certain termination provisions in that contract.
If the Texas E filing renewal was fully included trailing 12 month bookings would have been down only six 4%.
The prior trailing 12 month bookings also included.
For significant SaaS deals with the North Carolina courts, with a combined contract value of approximately $123 million.
The bookings growth rate in Q1 was also affected by shorter average term for new subscription contracts.
Our subscription software subscription bookings in the first quarter added $10 $2 million in new annual recurring revenue.
Cash flow was once again very strong in the first quarter as cash from operations increased 26, 4% to $71 $7 million and free cash flow grew 33, 9% to $61 $7 million, representing an all time high for first quarter free cash flow.
We financed the NAC acquisition with a mixture of debt at very attractive rates that gives us a flexible capital structure.
In March we completed a $600 million offering of 0.25% convertible senior notes due 2026.
The notes are convertible into Tyler common stock at a conversion price of $493 44.
Which represents a 30% premium over our closing price on March 4th.
On April 21st concurrent with the closing of the Nics acquisition.
We entered into a new $1 $4 billion senior unsecured credit facility with a group of eight banks.
For the facility includes a $300 million term note due in 2024 and a $600 million term note due in 2026, both of which can be prepaid without penalty.
The facility also includes a new five year $500 million revolving credit agreement that replaces our prior $400 million revolver.
The combination of the convertible debt term notes and revolver provide us with a great deal of flexibility our balance sheet remains very strong as pro forma net leverage at the Nic's closing was approximately three two times trailing 12 months adjusted EBITDA and we expect to end the year with net leverage under two points.
Five times.
The current blended interest rate on the $1 $75 billion of debt. We have outstanding today is one 1%.
We remain on track to achieve or exceed the annual revenue and EPS guidance that we communicated in February for Tyler, excluding the impact of the NAC acquisition.
As Len mentioned and I see also had a very strong first quarter results that exceeded their plan.
We expect the NAC acquisition will be accretive to our non-GAAP earnings and EBITDA as well as to our recurring revenue mix and free cash flow per share in 2021.
Because of antitrust restrictions, we took a conservative approach to our integration and strategic planning for NAC prior to closing the transaction last week.
We are currently working closely with Nic's leadership to evaluate strategic growth opportunities that take advantage of the combined strength of the two businesses and determine the impact on our 2021 plans.
We expect to complete the fine tuning of our joint operating and financial plans for the remainder of the year and issued 2021 guidance for the combined company during the second quarter.
Now I'd like to turn the call back to Lynn.
Yeah.
Thanks, Brian.
Our team of professionals, including our new Nic's team members executed at a high level on the first quarter driving results that surpassed expectations from both Tyler and Nick and provided a great start to 2021.
Exiting 2020, our financial position was stronger than ever.
Boeing has to continue to pursue strategic acquisitions, including <unk> the largest acquisition in our history with a purchase price of $2 3 billion in cash.
We've also been able to continue to invest in and in some cases accelerate all of our long term strategic initiatives in particular, our shift to a cloud first approach.
As a result, our competitive position has also continued to strengthen.
We believe we will continue to see an acceleration of the public sector's moved to the cloud and we are in great position to support that move.
I'm happy to say that we are on track with the strategic investments and optimizing our products for the cloud that we discussed on our fourth quarter call.
This quarter, we saw early indicators that our market is beginning to recover.
Some delayed procurement processes are moving forward and RFP activity is growing from the levels of the second half of 2020.
We also expect that for $350 billion of aid to state and local governments under the American Rescue Plan Act will provide a significant measure for leaf to budget pressures faced by many of our clients and prospects and have a positive impact on recovery of our markets.
One topic I have not discussed on these calls before pertains to our efforts regarding environmental and social initiatives.
Tyler is culture guides, our commitment to being responsible partner in the communities, where we live work and serve our clients.
This year marks the 15th anniversary of the Tyler Foundation.
Which since its creation has provided millions of dollars to charities and causes that positively impact our communities.
Our culture is also the foundation for our belief in the importance of providing an inclusive and diverse workplace.
We are proud to have been included in the Forbes America's best employers for diversity list for the past two consecutive years.
The pause in normal office occupancy and business travel due to the pandemic provided an opportunity for us to evaluate our environmental impact across our major office locations and identify opportunities to make our practices more consistent and effective.
Last year, we formed an environmental task force to strengthen our sustainability efforts across our office locations and the communities we impact.
We achieved a significant milestone last year by responding to Tyler's first invitation to the Dow Jones Sustainability Index survey.
More than 3500 of the world's largest publicly listed companies provide detailed data and background to this global survey for evaluation by its independent sustainability ranking body.
Completing the survey was an important opportunity for Tyler to uncover opportunities to strengthen our core responsibility strategy.
We recently published our second annual corporate responsibility report, which is available on our website.
This report represents a significant expansion of our reporting on our ESG efforts.
And we look forward to continuing our journey and sharing our progress in this area.
Finally, this week, we are virtually hosting more than 5000 clients at connect 2021, our annual user conference with a theme called virtually possible.
Team members from across Tyler are providing nearly 700 hours of valuable content for our clients using our advanced virtual event platform.
We are excited to be able to connect with so many clients at our virtual event and we look forward to connecting with them in person at connect 2022.
With that we'd like to open up the line for Q&A.
Yes. Thank you.
Ill begin the question and answer session.
The question is the question to you Press Star then one on your Touchtone phone.
If you're using a speaker phone please pick up your handset and pressed Starkey and number one just try on request. Please press Star then the number two.
Please limit your questions on one and one follow up and then place yourself back in the queue for additional questions, we will pause momentarily to assemble the roster.
And the first question comes from Matt Vanvliet from BT I G.
Hey, good morning, everyone. Thanks for taking the questions really appreciate it.
As you look at some of the commentary you talked about about slower sales cycles, but really starting to pick up maybe at the end of the quarter.
I'm curious what the federal aid bill kind of per.
Points to are there any specific areas in your business that you think will have.
Have particular earmarks of spending are there any limitations that you have seen in the bills. So far I'm, just kind of help us out with where you think the biggest upside will be across the portfolio.
Yeah. Thanks, Matt that's a good question I think right now.
Theres still our clients generally know the monies there theres still a little bit of uncertainty about how to access it.
Theres certainly money that's been earmarked.
For it modernization efforts.
And so I think what it's done is it's giving our clients a little bit more confidence.
I don't know that I would say.
Didn't necessarily benefits one more than the other.
Although one thing that we were noticing last year was in our state business and debt.
Our state business was off quite a bit last year, and and there was a little bit of uncertainty around there as it turns out a lot of the state budgets were.
We're not as impacted as they first thought a year ago and so I think the combination of that along with this American rescue plan funding.
<unk> is providing.
<unk> in that state area, and we're starting to see that with some of the Rfps and things that that we knew that were intended to come out on that got delayed and we're starting to see some of that but I'd say across our entire product lines.
I think there's there's reason for I'd call it cautious optimism and what's going on in the markets.
A big part of that is the American rescue plan.
I would just add to that on the on the rescue plan that the.
The cares act the first stimulus couldnt be used by governments to replace lost revenue and it was roughly $150 million for states and just 150 for the largest cities and counties.
This $350 billion goes much deeper across states and local governments and there are very few restrictions on what it can be used for.
On the funding is just now becoming available to governments half of it available roughly now within 60 days of when it was passed and then the other half.
As available 12 months from now.
So we wouldnt have expected to see much impact on customers.
Purchasing activities and.
Buying decisions, yet, but it certainly points to to an opportunity as we move through the year to provide significant relief.
That's very helpful. And then I guess just following up on on sort of the stages of integration for N I C.
From a product standpoint, and the ability to sort of upsell cross sell both across your customer base and then into theirs.
What should we expect in terms of timing is there any real heavy lifting to get the products to be fully integrated.
Is there anything that needs to be done from a technical standpoint to push their payments platform into your local governments.
Maybe just how you're thinking about kind of that process from a more technical and product standpoint.
Yeah sure, Matt I'd say, a couple of things as we mentioned in our comments.
We're really just now beginning to sort of dig deep into into our integration efforts and our strategic initiatives and.
And in fact this week, we had the senior executives of both companies meeting face to face for the first time, which was exciting and really start brainstorming on the high level, we already know sort of on some of the major initiatives that we want to take on and the good news is there's a lot of initiatives.
One thing that we need to do on be careful about is make sure that we prioritize them.
Look at some of the low hanging fruit and look at some of the things that will have the most impact you mentioned payments that certainly is one of our largest initiatives from a technical standpoint, there's still a little bit of work to do there but.
Is the is the unquestioned leader in payments in the public sector at the state level and it's a growing it's a growing thing for us what we see there is is the ability to to leverage our client base and.
And get payments more at the local level and leveraged their technical experience to help boost our payments.
You talk about other sort of integrations and things.
We talked before about their state enterprise contracts.
Which provides sort of hunting licenses in and in fact.
It's those state contracts, which they they classify as state enterprise revenues.
They go in and then they sort of day.
Plant a seed and then they're able to go build additional additional revenues from there on their own in this first quarter. There. They are those revenues were up 20%, which is pretty exciting and then we should start talking about it is what kind of products do we have at Tyler that we can really just go on and push there and I don't think there's a lot of technical integration there that's going to need to be done, but that's another one of our major.
Initiatives that we're looking at right now.
Okay, great. Thank you.
Thank you and the next question comes from Scott Berg with Needham and company.
Hey, Lynn and Brian Thanks for taking my questions I guess I've got two here first of all in.
Obviously COVID-19 is still impacting your businesses. It is several in our in my coverage universe, but as I look at deal flow in the quarter. It looks like your new subscription contracts were.
At 84 was substantially weaker than what we've seen at least over the last two or three quarters. I guess as you look at that business any product area in particular kind of driving maybe some of the softness in the quarter versus license sales, which was pretty much in line with last couple of quarters.
Yes, Scott.
We talked about it last year.
The expectation really was debt.
I guess I'd sort of call. It the COVID-19 hanger hangover would would bleed into this year and then a lot of it has to do with the fact that our clients' budget cycles or June July one June 30.
And it's a good question.
But at the same time. These are the deals that we signed and what we're starting to see is in Q1 for example.
Starting to see more rfps, we're starting to see more demos and we're actually some of the awards that we've gotten in Q1 that are not signed are actually starting to skew even heavily more heavily towards SaaS as you know we don't.
We talked about unsigned awards.
We talked last year about how.
On COVID-19 was impacting different parts of our business differently and we saw a little bit greater impact say more on the high end financials were munis is where a lot of our license sales are and what we've seen so far in Q1 actually is that.
The awards that we're getting and the deals that are coming in are skewing. It 80 plus percent.
Into SaaS right now so I think that overall trend that we've talked about is still going on and it's just a little bit of lumpiness in a little bit of.
Hangover still from from COVID-19.
Got it you actually Oh targeted a little bit of my second question was on those unsigned awards, Brian we've talked about that obviously over the last six or seven years. There is certainly some variance from quarter to quarter.
As you look at those unsigned awards.
Was that number I guess coming out of Q1 materially higher than what you've seen the last couple of quarters or was it kind of in line with that similar similar amount.
I'd say, it's a little bit higher.
As Lynn said.
We saw these pauses in and procurement processes.
In the.
The second quarter of last years third quarter of last year, even into the fourth quarter of last year, where RFP volumes were down.
Our clients were adapting to to remote work.
We weren't able to do in person demos.
Some clients wanted to see took a little while longer to adapt to doing a lot of those things remotely. So there were these pauses and delays in sales processes, particularly early stage sales process as last year and given our normal sales cycles that are.
Nine months to a year in typical deals.
We expect that would show up in bookings.
Now as we move into the fourth quarter, the first quarter of this year.
Those delays and so so really our pipeline is still very robust.
The RFP activity is picking up.
As we've said all along it's really a matter of timing, we haven't seen deals go away.
We we've just seem that timing pushed out and it's not surprising that it's showing up in given that more.
More of the deals are skewing towards subscription.
It's more evident in the the lower subscription bookings than in the license deals.
Got it Thats all I have thanks for taking my questions.
Thank you and the next question comes from Rob Oliver with Baird.
Great. Thank you guys for taking my question.
Lynn one for you too I just wanted to go back to the.
The I think Matt's initial question on the American rescue plan, but obviously sizable amounts of money flowing into local municipal you know I think Brian you had mentioned that there weren't as many.
Restrictions on the money.
Some of our conversations are still I guess, there's still some uncertainty about how exactly that's going to be spent one area in particular, where we're here and it's it's a green lighted in schools and that's I think a.
Noisier market than it's been in the past, but I know you mentioned you guys have 2000 customers there ready sub tuck in it seems like it's really perfectly timed just as a debt debt with a nightmare to manage.
Through COVID-19.
But just curious if you guys can just kind of frame.
On the school's opportunity or maybe any other early indications of that quote unquote growing activity, you're seeing as those AARP funds are hitting and people starting to.
To do projects.
Yeah Robert.
Hmm.
That's a good point that you make and you're right we talked about it last year how again.
The impact of COVID-19 did impact different parts of our business differently.
While we had certain areas of our business I just mentioned in the higher end ERP schools was an area that was definitely impacted a lot.
And our business in schools was was off last year.
At the same time I also mentioned last quarter that last year was a record sales year on our core business. So it's it's a little bit of it.
Just different across our business.
Right. The American rescue plan I do expect there there are some money thats, specifically targeted for K through 12, and higher education, I think there's about 160 $170 million targeted for that and I think what we're starting to see generally is just the more receptiveness from our clients in.
In the schools area in terms of getting Rfps out in terms of talking about deals.
I'd say there was an area last year, where it was.
I wouldn't say silence, but it was certainly a muted a little bit and that's certainly coming back.
And on <unk>.
Yes, it's hard point and to your point about ready.
You're right, that's a really exciting opportunity for us it's kind of a small deal and it's a deal. That's not just you ought to substitute teacher application that can go in it's also becoming more that that type of application is becoming more and more of a requirement in our ERP space for schools and as I mentioned in my.
My opening remarks, we have over 2000 school clients and right now that application is only in about 20 of them and it's sort of the same playbook. We had several years ago when did the exit exactly time acquisition.
We expect that we're going to be able to grow that that product pretty well and it'll be great for our inside sales channels as well as new business.
That's helpful. Thanks for thanks, I appreciate it and then Brian just a quick follow up for you.
Versions were up you know.
Really nicely year over year is that a function of you don't think having frozen maybe in March.
Comping easier.
Or or cost.
With more willing to convert to subscription or kind of a mixture of the bolt on or you guys are obviously leaning in more on subscription a subscription first but just wanted to get a better handle on that dynamic there. Thank you. Yes. It is really more on the ladder.
The last two quarters have been really strong in terms of.
Conversion is picking back up again.
And.
I think thats consistent with what we see on the new business market with more and more customers wanting to move to.
The.
Subscription on the SaaS model.
And as we've said the.
Complications of trying to to remotely access some of these systems.
It has certainly risen to the forefront during COVID-19 and increased customers' desires.
To move on premises systems into the cloud.
And our relationship with AWS or our capacity.
That we have available through AWS and.
Is giving us some additional ability to to.
Push.
Conversions.
More aggressively into our customer base.
Great. Thanks again guys.
Yes.
Thank you and the next question comes from Keith <unk> with Northcoast research.
Good morning, guys, if I could on <unk>.
<unk> backlog number just a little bit more it looks like the RFID.
The bookings number it looks like for services is actually the services bookings actually went down by about 25 million per quarter or was there a cancellation in the quarter.
No cancellations, but youre talking about compared to last year.
Yes, I think the 247 million that you have in new bookings for the quarter. It looks like software and service bookings were actually down by $25 million.
Yeah, I think part of that is.
Billable travel that runs through revenue in there through therefore through bookings.
Last year, we were still traveling through most of the quarter.
So youre going to see part of that that's probably about $5 million of it.
On a I'd say that in general the as.
As we move more to cloud.
<unk>.
Business.
You typically see a little bit lower level of services with new cloud.
Cloud contracts.
But I'd say most of that just goes along with the delays in some of the bookings so.
Along with both on the license and subscription side, but no we have not seen any cancellations that occurred in.
On that that's really held true throughout.
The whole last year, we've not seen any meaningful cancellations either have contracts that are in progress or have of.
Projects in the pipeline really just delays.
Okay Gotcha.
<unk> and I see numbers, just a little bit more it sounds like that was better than expected if I heard you say right.
Revenue was up excluding the one off the tour health.
Virginia pandemic assistance program more on kind of per stat.
Yet.
Enterprise revenue was up 20% how was the transaction revenue for NFC last year last quarter.
Keith there.
There interacted governance services, which as you know there's a transaction base that was up 16% year over year. So.
<unk>.
On the areas, where we're really strategic and growing they really had a really good solid first quarter.
Great glad to see that and then you don't have to have a day HR numbers as well.
The HR was out for history Records.
Yes.
D H O.
I'm going off memory here I believe THR was up about 4% in the quarter.
Give or take which was which was nice to see given that I think it was the first time, they've they've actually increased in the quarter and maybe four quarters.
But as you know that's you know that.
Net revenue is.
Probably more stable and again when you look at interactive government services or same state enterprise revenues, that's really the growth drivers and those were up nicely in Q1.
Yes, absolutely great appreciate it thanks for the color guys. Good luck.
Thank you and the next question comes from Peter Levine with Evercore.
Great. Thanks for taking my questions.
Towards cloud.
On the corporate side until at least for the cloud.
Yes.
Given the flexibility to work remote hybrid obviously cloud helps enable that im curious.
If you are seeing or hearing similar trends on on the public sector side I'm sure. There's a certain segment of public employees that could permanently be remote but.
So could this be a catalyst to accelerate cloud adoption.
Okay.
I'm sorry.
You weren't coming through very clearly could you repeat the last part of the question.
Yes, sorry, yes.
Just curious to know.
Public employees right.
On the trends on the corporate side were cloud acceleration with the idea that some employees will be keeping the flexibility right. So obviously cloud helps that but curious to know based on your conversations are you hearing or seeing similar trends from the public sector side.
The idea is that you know could this potentially be a catalyst to accelerate cloud.
Yes, I think that the.
It's definitely true typically you will see.
The public sector.
Change and evolve more slowly than the private sector. So often those things that are.
Those trends that start in the private sector to take a little bit longer to take hold in the in the public sector.
But just like the private sector, our clients have had to move to doing things remotely and.
That is.
A significant factor in there there.
Ongoing preference.
In new systems for the cloud and then the in the <unk>.
Conversions from on premise customers accelerating.
Of course is a great example, where court houses were physically closed and many of them still remain close.
The courts are in our central function and so many.
Many courts that didn't have the ability.
To operate their systems remote were just shut down and.
We have products for example, our our virtual courts product that we accelerated.
Bringing to market early last year that enable courts to continue to operate remotely.
Licensing and permitting of functions, where clients have old legacy or not our clients, but but public sector agencies have old legacy systems that don't allow for remote access so you.
You don't have people on the office processing.
Adding permits and and those sorts of things.
Net or slowing down activity.
Our systems provide for that remote access and there's there's certainly an.
Accelerated interest in this so so I think yeah governments will like the private sector over time.
Look to work more remotely and also Thats, a factor with and I see the ability to.
Interact with government.
And make payments.
Remotely or on line, rather than coming to a government office.
And as we've talked about their first quarter results were certainly seeing that.
Increase in volumes.
As a result of that trend.
Oh, great from color and then Luke.
Piggyback on for your prior comments on delivery.
On a budget.
And bill any more detailed commentary you can share on whether state and local government budgets or opening up I would say more uniformly warranted for the.
Steve situation.
I don't know that I could attribute necessarily anything geographic.
I'll, just say generally as a whole we're seeing a lot of positive signs we talked about onsite awards.
<unk> talked about rfps, particularly in certain areas of our business.
Take for example in the higher on financials Rfps are up significantly over Q3, and Q4, even while theyre still down from where they would have been pre pandemic and so that's an encouraging sign there were a lot of big deals that we saw maybe in our appraisal space.
Our state space.
That we knew these deals we plan on these deals coming out and in 2020 and those and those just those got shut down and we're actually starting to see those getting released so just generally speaking it's there's a lot of encouragement.
I wouldn't say, we're quite over the hump yet.
Let's get another quarter of seeing this activity, but I.
I think there is general optimism and I think it mirrors, what's going on in the country.
There shouldn't be reason for optimism as people continue to get vaccinated.
Business is continuing to open up his money continue start flowing people start interacting.
Are going to see that flow through our business as well.
If I can squeeze one more in I'm, sorry, Brian if I missed it I hopped on late but how should we be thinking about the combined financials and what impact I guess if any.
Specifically the breakdown of Nic's deferred revenue growth.
Yes.
'twenty one.
We're still working through all that process. It's one of the reasons we are.
Arent, providing the combined guidance at this time I would say in general and I see it doesn't have a large deferred revenue balance on their balance sheet their businesses more.
Transaction based rather than <unk>.
Software based.
But.
Certainly one of the factors that were.
Looking at closely as we redevelop that combined guidance, but.
But they.
They do tend to have less deferred revenue than.
Say, a pure software company.
Great. Thanks for taking my questions.
Thank you and the next question comes from Jonathan Ho with William Blair <unk> Company.
Hi, Good morning, just wanted to.
I guess on make sure I fully understand it. So would you expect this quarter to potentially be the low watermark in terms of maybe year over year bookings growth and do you potentially anticipate that there'll be a catch up period once apart from the pipeline starts to normalize even even more so than it is today.
Well, it's hard to tell exactly if it's a low watermark, but we did start to see declining booking last year in Q2, So I think our comparisons.
We will now be against a.
Start to compare against pandemic affected quarters.
So really right now we're comparing against what was not only the last sort of pre pandemic or pre effected quarter unaffected quarter, but also what was just a very strong quarter with some large deals in it.
We do think there'll be a catch up.
It's not likely to be sort of a.
A dramatic one quarter kind of a catch up but the combination of them.
One the fact that these are a central systems and that the.
The pipeline they remain in the pipeline the timing, it's just been pushed out.
So again, we're starting to see that increase in activity.
Those rfps starting to pick up again and some of those deals moving forward. So we do believe there's a catch up that is just a matter of timing.
We as we've said before we also believe that further down the road.
That the.
There will be some.
Procurements that will be accelerated that might've been a you know.
Clients Might've thought they had years left in existing legacy systems and the need for remote access.
Security concerns around some of those legacy systems will be factors that will cause them to rethink that and accelerate the replacement of those systems.
Still need to go through buying processes, they'll still need to budget those but we do believe.
But there'll be a longer term acceleration, but the.
Sort of.
Pent up.
Demand in the current pipeline.
There will be an acceleration is that.
Works its way out and that that would be consistent with what we saw in.
For example on the recession a decade ago.
Jonathan I'd I'd, just add there to that.
I like to look at the trends and look at the markets and again. There is there is reason to believe the market is starting to come back we talked about the great recession, but also what's our competitiveness position like in that market and even while in the last six to nine months.
The markets have been off a little bit our actual win rates have actually been climbing and so our competitive position continues to grow and as we look at bookings.
<unk> talked about this a lot over the years as well.
We have a pretty steady stream, but it's all it's always there can always be some large skus in various quarters, because we do have parts of our business that gets some really large deals.
Last year, we put a little concerned about Q2 of last year, because Q2 of <unk> 19, we had I think one of our largest deals in Tyler history.
And so that's kind of what we're competing against in those large lumpy as those large deals will always.
Throw off a little bookings number, but when I look back at sort of the underlying thing what's the market doing what's our competitive position, what's our win rates.
All trending in the direction that we'd like to see.
Thank you that's helpful.
One question on data that can register on how do you think about cross selling those products and leveraging them across your existing clients and maybe how big of an opportunity could this be.
These acquisitions for you. Thank you.
Yeah, So I'd say, they're a little there.
There are a little bit different the two acquisitions that they're both they're both fairly small ready sub like I've mentioned earlier.
That's probably more like the playbook out of exactly time and that's a you know this is a.
This is a cloud native platform, it's built on AWS, it's actually the founders a former AWS engineers.
There's a clear need in that space.
This is something that to.
To your point, we can go out and we can leverage and sell across our base pretty well I don't know that I've got some.
Some good sort of markets for that but it's an opportunity and again, it's not just the opportunity of rolling out through our inside sales, but it will also help our competitiveness on new deals in the schools market is it's becoming more and more of a requirement.
Data spec.
Classify it was a little bit more of a consolidation play.
They were probably the leader in the veterans benefits application space. They had 32 state customers that gives us a lot of credibility. So that we can go out.
As we will eventually probably migrate those customers over to our <unk> platform and that just makes us a leader in that space and gives us more credibility as we as we look to expand in.
In the federal markets as well as the state markets.
Thank you.
Thank you and the next question comes on Charlie Strausser of CJS Securities.
Hi, Good morning, just a quick one quick question for you I know you're still working through guidance on net and I see but hoping to get a little bit more color. There and also maybe a timing as to when do you think this quarter you should be releasing the updated guidance Paul thanks.
Well.
We've said, we expect to release it during the quarter.
Would you expect that to be.
Roughly.
The end of May beginning of June so.
Sometime in the next month or so we would expect to be in a position to do that.
And I see.
We're working through not only.
Understanding.
What their current plans are for the year, but really how for.
The integration with Tyler the ability to start to address some of our strategic initiatives and cross selling opportunities on what we think the timing and the size of those is and how much of that will go into this year.
But they are off to a strong start as we said you know overall, 10%.
On a little above 10% growth in their core revenues.
They actually on.
On the COVID-19 related Rev.
Revenues.
Significantly exceeded.
Their plan on those but we do expect those to wind down and not really be much of a factor.
After the second quarter.
So their their growth rate is a bit ahead of ours and.
We talked about some of the strength in.
And their business.
From taking advantage of the increased desire of individuals and businesses interact with governments digitally rather than in person.
So.
Generally they have a.
Positive outlook on the year end.
Within the next few weeks, we expect to have that.
Bind guidance out and be able to talk more about.
The plans for.
Working together through this year, yes.
Yeah, Charlie if I, if I could just add there too I think.
Yes, I mean this is obviously, it's a top priority right I mean, it's our largest acquisition of all time and.
We talked a little bit about before and I think Brian mentioned in his remarks, we were in this period from signing and close this regulatory approval period, and and you know you can take all sorts of approaches there and we tended to take a more conservative approach and I'd love to be able to share those numbers with you today, but it was because of that conservative approach, we're just not quite there yet.
And the way I view it as.
You know Tyler very well, you've followed us a long time, where we're always interested in the long term and and the thought of even potentially jeopardizing or delaying that deal by.
By getting a few weeks head start on some of this stuff. It just didn't seem worth it but it is a top priority I think will get those numbers out as Brian said in about a month.
But we know there's going to be accretive to earnings when it was going to be accretive to EBITDA and all the things, we mentioned before and and the excitement there and I. Appreciate if there is even a little bit of frustration and part of it's just the timing around that we just closed on our earnings releases now if we had closed a month before earnings release, we probably been ready to do this.
Totally understand on one thank you for that.
Thank you and our next question comes from Peter Heckmann with D. A Davidson.
Hey, good morning, I understand I would be looking for it to the combined guidance here.
You weeks it so I'll hold my questions on that until then but just curious you know on on the balance sheet I mean, Tyler generates really strong cash flow, but would you expect it to direct virtually all the free cash flow to debt reduction.
Till you get to some threshold limit our ore and refrain from the buyback in the interim.
I don't think there's necessarily a predisposition towards that I think.
We're always opportunistic and.
I think at this point in time.
Acquisitions, we've done three.
On acquisitions will probably need to be a little more compelling I'm not suggesting that we're done with acquisitions for the year on I think I mentioned that on on Q1, we talked a lot about it I see and I said, we may not be done for the year and we did data back and ready said those were deals that were already in process and so I would expect that.
That will be a little more.
We may have a little bit higher bar going forward in the short term on that and as it relates to share repurchases again, we're opportunistic.
We're very comfortable with our debt leverage right now.
One of the things I talked about it at the last quarterly or at the last call was we want to make sure we retain flexibility and I think we have that flexibility and our combined cash flow and if we.
If we did solely dedicated to debt would be paid off in fairly short order.
But you know.
I always want to maintain the flexibility to invest in the business when it makes sense to do acquisitions, when they make sense and to do share repurchases when they make sense and we've got that and so youll see us pay down that debt on a fairly aggressive manner, but we're going on we're going to have that flexibility and will and will always have that flexibility.
That's fair and then Brian that this may be jumping the gun too if he got question but.
In terms of when when Nic's renews, our state portal contract or or or any large contract would you expect to see them flow through bookings or would it be like the Texas.
E filing deal, where where there is little bit harder to quantify it given.
And some of the terms.
Yes, it's probably a little early to comment on that we really need to.
Two.
Dig into the terms of those.
You know typically when we've had contracts that are solely transaction base like R. R. E filings that are on a per filing basis.
They don't go into bookings at the inception. They just go in as those revenues flow through R. R.
Income statement, because theres not a fixed amount, it's really just our fixed fee.
E filing that goes into booking other than in the case of the Texas for renewal.
We'll just have to look closely at it.
The terms of those contracts and see how they lineup with with how we report so.
That's that's part of what we'll be doing as we move through the detailed integration over the.
As we prepared to reported for the first time on a combined basis this quarter.
Okay no problem. Thanks.
Thank you on the next question comes from Brian based on with Piper Sandler.
Hi, This is Clarke Jeffries on for Brent Thanks for taking the question.
Firstly I noticed I think for a re acceleration of payments revenue up 59%, our strongest comp last year I'm wondering if we could get an update on the trends in that business. I know there were some impact from E filing side of the house, but.
On the payment trends looking like for steadily improving from here.
They are.
There is there is some rebound in E filing although it's not dramatic I think are you finding revenues were up sort of mid single digits.
But as courts open back up.
We would expect to see volumes pick back up there in that transaction based business that does typically of payments component.
But but we've talked about our own payment initiatives over the last few quarters and how we are.
Starting to.
With a.
Sort of a newly refined go to market strategy we are.
Trying to push our payments platform.
Into more of our customers so increase the adoption and we're certainly seeing increased adoption among their citizens and making payments on line.
We're adding new customers and.
And we're bringing in more payment types.
With those customers that do have our payments platform. So.
We're still on the early stages of within the Tyler business.
<unk>.
Performing against that strategic strategic objective of significantly increasing our payments business and we really look forward to.
Seeing how we can use the <unk>.
Yeah.
Payments platform and their expertise to help.
Accelerate debt, but.
But the business on its own is doing well within Tyler and it had really strong growth over the last couple of years.
But again still off a much smaller base than nics.
That's right that's right Brian.
As we rollout payments, you're going to see throughout the rest of the year as we get more and more of our solutions online and the payments.
Been doing that work, we start on that last year and as Brian mentioned, you know really it's while it's still small it's small business tend to grow fast and if you look at.
A three year run rate, we're probably at three times revenue as we were three years ago in our Q1 actually I'll beat plan and we were we were up year over year in Q1 on our payments.
That's encouraging to see.
And as Brian mentioned, our E filing revenues are actually getting back closer to pre pandemic levels, they're there they're getting closer to the 80 to $85 90 per cent and that levels of pre pandemic. So that's that's all very encouraging.
Great and then.
I would say one thing thats part that I think business that stood out as I think Len you mentioned this briefly on the 20% revenue growth on.
State level contracts net same state Ags growth as average around 15% for the last two years and just wondering if this is an asset that could potentially accelerate post pandemic.
Some of the EHR headwinds abate and then you just have new opportunities with new state building off of revenue expansion with existing states.
Well I think.
Alright.
That's a good question I don't know.
Again, it's probably a little early for me to comment on on their multiyear growth plans there.
We're still doing on integrating and getting arms around 2021, but certainly there.
Their IGF services their same state enterprise revenues those are those are growing areas for them in those areas that we think we can help complement them.
It helped bring bring even further growth so.
That would be my long term expectation I certainly don't have anything.
More specific in terms of guidance around that right now.
Alright, great.
What we saw on quarter.
Thanks.
And the next question comes from Joe Goodwin with JMP.
Yeah.
Great. Thanks, guys for taking the question and good morning.
Can you comment on how also crowded performed and then also you know.
Has there been any changes the competitive environment, you know maybe from some other more horizontal vendors.
With respect to Chicago.
Yeah, no. It's a kratos credit performing very well, we one of the things that we've really put a focus on really the last 18 months or so is more what we call cross divisional bookings, but where we're really pushing for kratos through from Tyler traditional sales channels as opposed to.
So across traditional sales channels, one of the most exciting opportunities I think with NSE as well as the opportunity for <unk>.
So credit had a lot of state and federal customers on their own before they came to Tyler and with Tyler we've been focusing on on driving that more at the local level and there's a lot of interest on.
<unk>.
Mentioned earlier about our our management teams meeting or on this week and one of the big topics of conversation with the crowd on the excitement around what they can do and push data and insights and all the various state agency levels and so I think of the outlook. There is pretty good I don't know that I've seen anything specific about a competitor.
That's anything new or different.
So crowded has done a number of things on the pandemic, which has been helpful. But also there's been times when we talk about delays. It's it has also been some issues. So kratos had felt the same thing for the rest of our business has and has not grown quite as fast on the last year is as we may have anticipated.
But the future <unk> within Tyler and our connected communities vision and what we're what we're trying to do which again I don't know that any other company has the ability to do it. It's a it's an important piece of that and it's something that provides a lot of excitement.
Both within our clients as well as within Tyler So it's.
Yeah.
Doing well really the ability to.
Use that platform to provide advanced data and analytics capabilities within our existing.
Tyler core solutions.
Gives us such an advantage over the.
Horizontal competitors that aren't strictly public sector focused and don't have the deep integration with our core products. So we started with the ERP.
And the analytics for for finance.
We've had great success with public safety, it's really created a.
A competitive advantage for us.
With our new World public safety products by adding this across our data and analytics layers.
And now we're rolling it out with the appraisal and tax and with the assessment connect product that.
Adding value to our tax so as Lynn said really focusing on on.
On.
Driving it.
Into our market both through inside sales.
New sales.
By adding a socratic component to new software sales.
Great. Thank you.
Thank you and that's where we have reached our allotted time for questions I would like to return on the Florida, Mr. Moore for any closing comments.
Before we close I'd like to add one clarification on an earlier question. There was a question about the $25 million.
Decline in software and services bookings in Q1 compared to Q4.
<unk> Q1 of last year, that's not just software not just services, that's a combination of licenses and services and most of that is related to licenses.
And we had some large license deals in Q1 of last year.
We saw a lower number of Q1.
Licenses booked this year in Q1.
So.
The major part of that $25 million decline.
Probably about $20 million of it is in the license side and about $5 million in services, mostly related to billable travel services.
Great. Thanks, Brian for that clarification, and thanks, everybody for joining us today.
We hope you stay safe and healthy and if you have any further questions. Please feel free to contact Brian Miller on myself. Thanks.
Thanks, everybody.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.