Q2 2021 Tyler Technologies Inc Earnings Call
[music].
Hello, and welcome to today's Tyler technologies second quarter 2021conference call. Your hosts 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.
And as a reminder, this conference is being recorded today July 29.2021.
I would like to turn the call over to Mr. Moore. Please go ahead.
Thank you Andrew and welcome to our second quarter earnings call.
With me today is Brian Miller.
Session and financial Officer.
First I'd like for Brian to give the safe Harbor statement net.
Next I'll have some preliminary comments on our quarter results and then Brian will review the details.
And with some additional comments and then we'll take questions Brian.
And then 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 statements are considered forward looking statements under the safe Harbor provision of the private Securities Litigation Reform Act of 1095 and are subject to certain risks and uncertainties.
And 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.
Please 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 for.
<unk>.
I want to provide you with an update on the NFC acquisition and our progress and the first 3 months post closing.
And then we'll move on to a review of the quarter's results.
As you know we completed the acquisition of Nic's during the second quarter on April 21.
And the purchase price of approximately $2.3 billion.
This was.
For our largest acquisition to date and our first acquisition of a public company.
And I see is a leading provider of digital government solutions and payment processing that serves more than 7100 federal state and local government agencies across the nation.
We believe that the combination of NFC and Tyler.
Was by provides tremendous opportunities for incremental growth in both business businesses.
The combined company is the public sector market leader for payment solutions, and we plan to use nic's robust payment platform to expand our local government payments business.
We also have an opportunity to leverage nic's.
Strong relationships and state enterprise contracts to deliver Tyler solutions at the state level, including our micro packed and <unk> platform.
We discussed our vision for those opportunities on our investor call in early June.
I'm extremely pleased with the progress we've made towards these objectives and the 3 months that Nics has been a part.
Part of Tyler.
Our teams and prioritize our opportunities and are very engaged working well together and a regular cadence.
Our pre acquisition impressions regarding the high degree of compatibility between the cultures and the 2 organizations have thus far proven to be accurate.
And leaders and both organizations have commented on how natural the car.
And feels.
Our payments teams are working together and have been very encouraged as we learned more about each company's strength and how complementary they are.
As we noted on our June call. The state of Florida is a great example of the kind of opportunities we're pursuing.
And I see us and the process of implementing a statewide payment.
Processing solution for the state government and Florida, and the contract allows for local governments and the state more than 400 of which are Tyler clients to piggyback on that contract and we're actively pursuing those opportunities.
For the last 2 months, we've also been conducting weekly showcases to familiarize.
Combination and Ice's state enterprise managers, with Tyler's broad portfolio of solutions and to surface opportunities and their states.
We have already developed a growing joint pipeline that is generating active engagements with prospects and Nic's states.
And finally, our teams are actively working together to jointly established.
The data and analytics platform for connected communities.
Leveraging our respective strengths, including our <unk> data and insights platform and Nics Gov to go citizen portal.
Together and I see and Tyler can now provide the most expansive set of capabilities for citizens to interact with government at all levels.
Turning to the quarter.
And I see like Tyler had a very strong second quarter as they continued to benefit from the recovery from the pandemic with a growing demand for citizens and businesses to interact digitally with government.
And I see also recorded higher than expected revenues from its tour health and pandemic unemployment initiatives.
Although those lower margin revenues are currently expected to taper off and the second half of the year.
Although nic's results are only included and Tyler's consolidated financials from the date of the acquisition on April 21.
For the full quarter Nic's core revenues, excluding revenues from tour health and pandemic unemployment initiatives.
Grew 23, 5%.
We're also very pleased to report that in late June and IC was selected as 1 of 2 vendors to provide the internal revenue service with a digital payment processing solution.
And which will allow individual and business taxpayers to securely pay their federal taxes.
The current.
And has an initial 6 month term with for 1 year renewal options and revenue under the contract is expected to begin in January of 2022.
The actual revenue will be driven by the number of taxpayers, who choose to pay online and who choose to use the AIC platform and we expect to aggressively market our solution.
Contract.
We currently estimate annual gross revenue under the contract to be between $40 and $60 million with annual net revenue of $5 to $7 million after interchange and merchant fees.
This contract significantly expands nic's payment processing at the federal level and underscores the strength.
Of Nic's platform and leadership and public sector payments.
Moving on to our consolidated results our second quarter was very strong reflecting the inclusion of the results of NSC from April 21, with both core Tyler and Nic's operations exceeding expectations.
Total revenues grew 49, 1% driven by the inclusion of Nics checks as well as the acceleration of Tyler's organic growth to 12, 4%.
Recurring revenues comprised 79% of our second quarter revenues and were led by 133% growth and subscription revenues with the inclusion.
I see.
Excluding <unk> revenues subscription revenue growth was robust at 24%.
Software licenses and services revenues also rebounded from the low point and last year's second quarter growing 17% or 7.6% excluding <unk>.
And as expected our margins were down compared to second quarter last year, and some costs and lower margin revenues like billable travel that declined in 2020 due to the Covid pandemic began to return.
Margins were also impacted by the inclusion of NSC and particularly by the continuation of their lower margin.
Covid related revenues.
As a result, our non-GAAP operating margin declined 100 basis points to 26, 5%.
Bookings and the second quarter grew 50% to approximately $464 million with the inclusion of NFC.
Excluding NSE bookings rose 17.
5%.
Our largest deal and the quarter was a combination license and SaaS arrangement with the Colorado Department of regulatory agencies valued at approximately $9.3 million for our <unk> regulatory <unk> data and insights and seen dock mobile field inspection solutions.
Solutions as well as nics electronic payment solution.
And all of those solutions will be hosted in AWS.
This deal is a great example of our ability to add value by offering multiple Tyler products. Many of which came from recent acquisitions into a single deal and enhancing the competitiveness of <unk>.
Solutions like Intel and track.
We also signed a large public safety license contract with the Lake County Sheriff's Office, and Illinois for our CAD RMS mobile field reporting Brazos E Citation soft coat process service and so credit data insight solutions valued at approximately.
<unk> $4.1 million.
In addition, we signed for other license deals across multiple product suites, each with contract value greater than $1 million.
SaaS contracts represented 65% of our new contracts software value and the second quarter.
Our largest SaaS contract.
Was a 5 year deal with Dubuque, Iowa for our munis, ERP and <unk> Civic services solutions valued at approximately $4.6 million.
We also signed SaaS contracts for our munis ERP solution with Charles County, Maryland valued at approximately $4 million and Desoto, Texas value.
And at approximately $3.5 million.
We also signed a SaaS deal for our Tyler supervision solution with Riverside County, California valued at approximately $3.3 million.
This is the largest deal to date for our supervision product, which came to Tyler through the acquisition of Caseload Pro.
And a little less than 3 years ago and.
And in fact, the value of the single contract is greater than the total annual revenues of that business when we acquired it.
In addition, we signed 9 other SaaS arrangements during the quarter, each with a total contract value of greater than $1 million.
So in addition to the IRS payment processing contract during the second quarter Nic's signed extensions of its state enterprise contracts for digital government and payment processing services with the states of Oregon and Idaho.
And I see also signed a 5 year SaaS agreement for its Rx prescription drug monitoring program.
<unk> solution with the province of New Brunswick, Canada, marking the first international deployment for that solution.
We're pleased to see the increased market activity and trends that reflect our markets are rebounding back towards pre COVID-19 levels.
Now I'd like for Brian to provide more detail and the results for the quarter.
Thanks Lynn yes.
Yesterday, Tyler technologies reported its results for the second quarter ended June 32021 note that the results of data spec and ready sub which were acquired on March 31 are included in our consolidated results for the full quarter and the results of Nics are included in our results from the date of acquisition April 'twenty 1.
And our earnings release, we've included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers and 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 supply.
Couple of mental information provided on this call, including information about quarterly bookings backlog and recurring revenues.
GAAP revenues for the quarter were $404.1 million up 49, 1% non.
Non-GAAP revenues were $405.4 million up 49, 4%.
On an organic basis.
GAAP and non-GAAP revenues grew 12, 4% and 12, 3% respectively.
For license revenues rose 3.4%.
Subscription revenues rose 133% excluding.
Excluding the contribution from Nic's subscription revenues were still very strong growing 24%.
We added 170, new subscription based arrangements and converted 62 existing on premises clients, representing approximately $73 million and total contract value.
In Q2 of last year, we added 125, new subscription based arrangements and had 42 on premises conversions representing approximate.
And the $39 million and total contract value.
Subscription contract value comprised approximately 65% of total new software contract value signed this quarter.
Compared to 43% in Q2 of last year as we continued our shift to a cloud first approach to sales.
The value weighted.
Weighted average term of new SaaS contracts. This quarter was 4.1 years compared to $3.7 last year.
Transaction based revenues, which include Nic's portal revenues.
<unk> processing and E filing are included and subscriptions.
And are included and subscriptions were 119.
And $6 million up 463%.
That amount includes E filing revenues of $16.3 million up.
Up 14, 5%.
Excluding nic's Tyler's transaction based revenues grew 24, 1%.
Second quarter, our annualized non-GAAP total recurring revenue or <unk>.
<unk> was approximately $1.3 billion up 58, 2%.
Non-GAAP.
Our first SaaS software arrangements for Q2 was approximately $325 million up 25, 9%.
<unk> transaction based <unk> was approximately $479 million up 463% and non-GAAP maintenance <unk> was approximately $478 million up 2.4%.
Our backlog at the end of the quarter was $1.63 billion up 5.
For the 6%.
Because the vast majority of Nic's revenues are transaction based their backlog at quarter and was only $21 million.
And.
As Lynn noted our bookings and the quarter were very robust at $464 million up 51%.
And it includes the transaction based revenues of Ni.
<unk>.
And on an organic basis bookings were strong and approximately $364 million up 17, 5%.
For the trailing 12 months bookings were approximately $1.3 billion up 9.6%.
And and are.
On an organic basis for approximately $1.2 billion up 1.
And I say, 3%.
Our software subscription bookings and the second quarter added $15 million in new annual recurring revenue.
Cash from operations and free cash flow were both negative and the second quarter. As Q2 included approximately $19 million of acquisition related costs. In addition.
And cash from operations and free cash flow were negatively impacted by the timing of cash collections by Eni.
On behalf of government agencies prior to the close of the acquisition and remittances to the agency's post acquisition. This is purely a timing difference and will normalize in future quarters.
Our balance sheet remains very.
During the quarter, we paid down $185 million of the debt incurred under our revolver and connection with the acquisition.
We ended the quarter with total outstanding debt of $1.5.65 billion and cash.
And investments of $389 million.
Since the end of the quarter.
We have repaid and an additional $52 million on the revolver and today, we have outstanding $151.3 billion of debt with a blended stated interest rate of 1.01%.
We have raised our revenue and EPS guidance for the full year of 2021, which is as follows we.
We expect 2020.
And 1 GAAP total revenues will be between 153, 2 billion and $1.55.7 billion and non-GAAP total revenues will be between 153.5 billion and $1.560 billion.
We expect total revenues will include approximately $32 million of Covid related revenue.
Revenues from Nic's tour health and pandemic unemployment services that are not expected to recur in future years.
We expect 2021, GAAP diluted EPS will be between $3.68, and $3.81.
And may vary significantly due to the impact of stock incentive awards on the GAAP effective tax.
Tax rate.
We expect 2021, non-GAAP diluted EPS will be between $6.76.80.
Interest expense for the year is expected to be approximately $23 million and.
And includes approximately $11 million of amortization of debt discounts and issuance costs.
For the year.
Pretax noncash share based compensation expense is expected to be approximately $102 million.
We expect R&D expense for the year will be between $94 million and $96 million.
Fully diluted shares for the year are expected to be between $42 million and 42 and a half million shares.
Year GAAP earnings per share assumes an estimated annual effective tax rate of negative 2%. After discrete tax items and includes approximately $46 million of estimated discrete tax benefits related to share based compensation, which may vary significantly based on the timing and volume of stock option exercises.
Our estimated non-GAAP annual effective tax rate for 2021 is 24%.
We expect our total capital expenditures will be between $48 million and $50 million for the year, including approximately $10 million related to real estate and approximately $22 million of capitalized software development costs.
Total depreciation.
<unk> and amortization is expected to be approximately $126 million, including approximately $89 million of amortization of acquired intangibles.
Now I'd like to turn the call back over to Lynn.
Thanks, Brian as you can see our team of professionals, including our new team members and I see.
<unk> day to spec and ready.
Executed at a very high level and the second quarter driving results that surpassed expectations.
As I've said before I'm extremely proud of how our team members have responded to the challenges and the last year and a half with incredible grit and Grace and resilience.
And we're proud that Tyler has recently.
<unk> been named a best place to work by publications, and Washington, DC, Colorado and Mississippi joining.
Joining several other locations, where Tyler has received similar awards.
We can 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 with a focus on optimizing our products for the cloud and transitioning SaaS deployments from Tyler data centers to AWS.
As a result, our competitive position has also continued to strengthen.
We continue to see indications that our market is returning to normal as many delayed procurement process.
And are moving forward and new processes are starting.
Rfps and sales activities, such as demos are trending toward and in some cases exceeding pre COVID-19 levels.
While not a significant factor in Q2, we expect that for $350 billion of aid to state and local governments and 167.
Innovate to schools under the American Rescue Plan Act will provide a significant measure of relief to budget pressures faced by many of our clients and prospects and potentially provide a tailwind over the next 2 to 3 years.
With that we'd like to open up the line for Q&A.
We will now begin the question and answer session.
7 billion and can my question and answer the question queue. Please press Star then 1 on your Touchtone phone.
If youre using a speakerphone, please pick up your handset and.
And then press the star key and the number 1.
2.
Draw your question.
Price and starkey than the number 2.
Please limit your questions to 1.1 and 1 follow up and then place yourself back into the queue for additional questions.
We will pause momentarily to assemble our roster.
The first question comes from Peter Heckmann with.
Davidson.
Please go ahead.
Good morning, everyone, great to see a very strong quarter for both Tyler and E. Gov.
Right out of the box and congratulations on the IRS win.
Just curious if I'm looking at the annual guide at which.
You just gave in June but it didn't go up as much as as you know the relative beat and in the quarter.
Were there some elements and in the quarter that you know.
For more onetime in nature or was it affected just by the timing of the close of Nics versus your original.
Expectations.
Or do you think that there is something that we should be thinking about for the back half in terms of.
Margins.
Well.
I'd say 1 other factors surveys that we've increased the expectation around.
The amount of revenues.
Certainly.
Within this quarter and continuing on into the third quarter around that.
Net.
Covid related services and <unk>.
Ice's providing.
And <unk>.
Gone on and a little bit longer and we expect that they would wrap up really and the second quarter and those.
And are continuing on into.
And to the second half of the year so.
And that's part of the factor around the second quarter outperforming and the revenue side, but not.
Not expecting to see that that same bump and the second half of the year.
Otherwise.
You took up the guidance a bit but typically by the.
The second quarter were not.
Looking to.
Raise numbers quite a bit and until we have better visibility around the second half.
Okay, and then just and again congrats on the IRS contract.
That's a pretty good sized deal and.
But yeah.
Do you believe.
And will you be recording it gross or net.
And that's expected to be <unk>.
Growth accounting for the merchant of record there.
And we will be responsible for the.
Merchant and interchange fees. So that's 1.
And on higher revenue number but.
And we'll margin lower margin and so on a gross basis, maybe margins come through it.
And high single digits or so.
Yeah, I mean, if we're we're looking at are we.
Said sort of between 40 and $60 million and revenues and.
The net revenue number kind of and.
But lower.
$5 million to $7 million range.
Yeah, Pete and there.
Other larger contracts IRS, and Texas are or will be on a gross basis, Florida will be on a net basis. When those revenues kick up starting late this year and really going and going into next year.
Got it thank you.
And.
The next question comes from Matt.
And we.
And with <unk>, Inc.
Please go ahead.
Yes, thanks for taking the question congrats on the quarter.
And then I guess.
And part of your closing you mentioned debt.
Significant amount of stimulus funds.
And the sort of still available to local governments in particular.
But curious in terms of what Youre hearing.
A lot of that recently reported as being unspent and people looking at what kind of time duration that might actually entail.
And I'm curious how much of that is sort of inspiring some of this uptick in.
Runs of Pes and sales activity and then Conversely has any of the delays and the proposed infrastructure Bill put a little bit of a pause and some of these as those governments look to see kind of what else might be coming before they spend some of these funds now.
Yes, Matt.
And I.
I think I, probably read the same journal editorial yesterday about the some of the unspent funds from the American rescue plan.
I don't know that.
I think what it's done is it's provided confidence we've talked before the reality is is that the impact of budgets was a lot less severe.
And then before.
And are those funds are still sitting there.
Some of those those funds do have some timing elements with respect to when they need to be spent.
And some of that is still.
TBD.
And I think when Youre seeing the the.
More releases and Rfps and the things that we're seeing and the market.
More demos.
<unk> the activity picking up I mean, and some parts of our business really to pre COVID-19 levels. Some just almost getting back to pre COVID-19 levels. I think it's a function of that to US is just the general sentiment and mood and out there I think the American rescue plan.
Provides that confidence. We're also as you know most of our clients are now and a new budget year.
And I think.
For those expectations for more funding they saw the real impact for their budgets from last year were not as severe and and I think just I think some of that is coming back and and I think he can just also highlights what we've talked about throughout the last year and a half is that the demand for what we do doesn't go away.
It's going to be pent up.
And so we're starting to see that.
And so at a high level and Thats, what im saying on the delays on the infrastructure Bill I don't know that thats really going to have.
Much of an impact on.
What we see and in terms of bids and Rfps and our day to day business.
And they had the American rescue plan, they've got until the end of 2024 to spend that in fact, they just are.
Getting the first half of this year and the second half a year from now of those funds so theres still.
A lot of.
Allocations and determinations within these governments around how they're going to spend that money. So.
As we said in the prepared remarks, we really haven't seen much of an impact in terms of.
Of the new deals and things that are of significant size that are specifically tied to those funds.
Most of the activity, we're seeing today is more around that.
The recovery.
For the resumption of some of those delayed processes and and things that would have taken place and the last year otherwise.
Yes.
Alright, very helpful. And then following up on a number of deals that you announced with I.
I guess, both legacy Tyler and I see products. So congrats on that but just curious in terms of sort of an update of.
And where you're at in terms of the full integration of the sales teams.
Otherwise other market mechanism.
Are you just starting to get to some of that and we can see more of these deals coming through or do you think theres already been a lot of progress and it's just more of getting through sales cycles from here forward.
Are you talking and specifically and I see integration.
Integration of the go to market.
And the GOR for them.
And I see until legacy Tyler.
Yes so.
The integration is going well.
And we talked about it on our I think it was our June update call.
Yeah.
We've got a lot of excitement we have our priorities, though were really want to make sure that we don't do anything and mess up the business.
We make their plan and retain their staff identify these initiatives get the sales teams aligned and we're doing that.
Obviously, you know Harry Herington their founder he decided to retire 1 of the key things that we first had to do with established new leadership, we've done that.
Elizabeth profits now leading that division she has been with ni for over 20 years.
Ears, and and responsible for selling most of their major state enterprise contracts, including Florida.
And as I mentioned and my comments, we've hit the ground running our Tyler teams are showcasing products.
Really 2 to 3 a week with all of their state Gms are.
And our payments teams have gotten together and working on Tyler.
Technology integration plans.
Talking about how we can leverage and I see relationships.
And I guess I'd say all of that stuff is it's it's it's active it's going on and the excitement continues to be there.
Echo my comments from back in June.
Mounting expectations.
You've been around a long time.
These things take time, but the excitements, there and and we are we are seeing and and identifying joint opportunities and it takes a while for those to come to fruition, but.
Like I said every time our teams meet the excitement are only continues to grow.
Great. Thank you.
The next question comes from.
And with Needham and company.
Please go ahead.
Okay.
Hi.
And congrats and good quarter and thanks for taking my questions I guess, 2 probably simple ones.
The first question is on.
And just a general deal flow from the from the core Tyler.
Scott when you talked about how things seem to be normalizing more towards pre pandemic levels. The volume of deal flow certainly speaks to that and the quarter. I guess my question. There is that more and just pent up demand. That's flowing out are you seeing a true normalization maybe of those sales cycles and the last.
Quarter, 2 and then my second question Brian is.
Other side and your guidance for the year.
Non I guess ongoing revenues from the tour health and the pandemic side for me and I see was increased from $21 million to $32 million for the year does that mean, the overall and I see contribution for the year went up that much or is it just maybe a shift and revenues.
It is within your expected contribution from that business. Thank you.
And thanks, Scott I'll start and I'd.
And it takes a little bit of both.
Q2 last year.
Full year, and and we've talked about and the last couple of earnings calls about how.
The impact was really felt a little bit differently across different parts.
And of our business.
But what we're starting to see now is that the number of Rfps are up significantly from Q2 a year ago.
Over 50% and trade shows and returning them.
Our unsigned selections, which we don't talk about a lot and those are up significantly.
For a new deals as you pointed out that we signed this quarter was I think up over 30% from a year.
When you look at areas like you.
You know where I talked about the last few quarters, where we saw a little bit more.
And slowdown was more and our high end financials, you know, our munis and our integrated solutions and we're certainly seeing the momentum growing there and I think Q4 was probably a low and those areas for.
Rfps and selections and those are up significantly and and remember these those types of deals. They generally take about 3 quarters from RFP to close so they will continue to be a lag as we're seeing these rfps come up.
But that's continuing other places like our are lower and financials are in code I think rfps and now we're actually.
Year ago back to 2019 levels.
So it's that it's there and it's a combination of pent up demand, but also just the market returning.
And on the <unk>.
And I see Covid related revenues, yeah that.
That increase and and our estimate of what those revenues will be for the year and and.
The increase and what was actually recorded and the second quarter.
And is what's added to Nic's revenue, so thats incremental to our estimates that we previously had for their full year revenues.
Unfortunately, with some of the resurgence of Covid and the Delta variant there's a.
More of a need for <unk>.
Testing for a longer period with some of our clients and then we had previously expected.
And in some of those agreements have been extended beyond when we expected that they would would roll off we still expect debt.
They will taper down and the third quarter, and and a pretty minimal revenues from those and the fourth.
Yeah.
Okay.
Excellent thanks for taking my questions and congrats again.
The next question comes from Charlie Strausser with C. J S Securities. Please go ahead.
Hi, good morning.
If you could kind of talk a little bit more.
About the pipeline.
And the length of the sales cycle.
And that's shrinking at all and are you seeing a pick up at all and prospective clients from the rash of cyber attacks that had been and the news lately.
First of all I'm not sure I heard all the first question was about the pipeline.
And our pipeline is.
And quarter I think across all our.
Major core apps the pipeline is as certain returning I don't know that its I think there are parts of our business, where it's back to full pre COVID-19 levels and in some cases exceeding someplace.
Some places it's approaching there.
And so all the signs right now out there all the other leading.
The indicators that we talk about demos and Tradeshows are coming back and Rfps coming being released deals without rfps those are all up significantly.
Sequentially quarter, but and insignificant year over year so.
So that's significant and the second question was about.
I didn't quite catch the second question.
And could you just.
Repeat the second 1.
Just with the rash of cyber attacks and.
And just have you seen any pickup and inquiries from your clients about.
And moving to the cloud more rapidly than they've had before.
And it's a good question I think it's just all part of the of the overall equation I think the increase that we've seen.
And I talked earlier about our financial solutions.
And encode I mean, our new deals there are 80, 590% SaaS.
A couple of years ago it was more.
More like and the 50% range and I.
I think it's just I think that's just a piece of the puzzle I don't know that theres anything specific around some of those cyber security things, but securities.
And part of it.
But I think it's that coupled with COVID-19, coupled with just the general direction of the market had been moving over the last several years and this.
The.
And by a pretty good margin and the largest quarter, we've ever had for for flips or our customers.
Moving our existing customers moving from on.
<unk> of it to the cloud as well and and.
That's 1 other factors I think I'm not the sole factor, but a factor and that desire for customers to move to our cloud solution.
Interest and then Brian and you could just.
Looking at the guidance a little bit if you can give us a little bit more clarity as to how we should think about the cadence.
Premise 60 quarters.
And just kind of help us plot that out a little bit better.
Yeah.
Second half of the year.
Obviously, we'll include we only had a partial quarter of and I see.
So obviously, we grow and the second half from that.
But I'd say.
Generally we.
Would expect and also with the trailing off of the and I see.
Covid related revenues in Q4.
I think we will we will see.
Both of those quarters above obviously, the second quarter level, but.
For the quarter will likely be our highest revenue quarter.
And.
A bit of a drop off from Q3 to Q4.
Is.
Covid business rolls off so.
Q3 is likely to be the highest quarter in terms of both.
And.
Revenues and EPS, so there's a little bit different generally our fourth quarter is the highest but there's oh.
So somewhat of anomaly there.
Well thank you.
The next question comes from Rob Oliver with Baird.
Third please go ahead.
Great. Thank you guys for taking my questions and I'll start with 1 for you you said that the COVID-19 million dollar win which included and pellet track and and I see on AWS and kind of a great signature win there and I'm. Just curious if you can maybe to the extent that you can walk us through a little bit.
And.
With that let's assume that with the Tyler contract and origin was and it.
He added on.
Throughout the quarter and maybe talk about some of our some of the dynamics there. It seems like a nice template for you know pretty nice meaningful subscription win here very early and the combination between the 2 and then I had a follow up.
And question as well.
Yes, that's right Rob. This was a this was a tyler contract from the get go and it was it really emanated from our micro <unk> acquisition, our Tyler Federal business.
<unk>.
Micro pack had relationships with nic's, even prior to our deal and.
So it would not be unusual.
Usual for them to have had been and deals together and so having them part of that as is.
And as you say it is a nice round out and it also I think and highlights we talked about a lot of these large deals and I mentioned, it and the my remarks and it really highlights the value of our of our acquisition strategy over the years I mean, when you talk about you know.
And that's a deal that's it's our largest deal and a quarter well that that's our Intel and track that came from micro packed it includes <unk> and other recent acquisitions seen dock and I see payments.
And it includes our strategic alliance with AWS. It is kind of a showcase deal for the quarter and again I think validates.
Our acquisition strategy and and how it plays.
And the market even as it may take time for us to sort of build up and get these larger contracts that are really put us in and our competitive position that makes it difficult for others to compete with.
Great. That's helpful. Thanks, and then I just had a follow up I mean, you guys have been pretty clear that you know payments is really the area, where you're kind of bleeding and with terms.
I don't Wanna say low hanging fruit, because obviously, it's not easy, but where you're kind of like leading the charge in terms of the integration. You you did make a comment I believe went about the Florida Master limited cut and where the Florida opportunity and I know that you know, but then I see sitting on 28 Master enterprise contracts just curious for any early color.
Fuller or indications around you know receptivity towards Tyler products being being sold and there and I know also in those states or are being recipients of of some funds now. So just so just curious for any color around that thanks guys.
And that's a good point, Robyn and you're right. We talk a lot about payments, primarily because that was a that was a big strategic.
<unk> initiative for Tyler before we even started talking with and I see and and what's interesting. There is just how are you know as our teams get together how complementary our products are and and how the things that was on Tyler development roadmap for things that that really and I see you had already not just done, but perfected and and things that Tyler has had already had with their systems.
For things that debt and I see needed to do.
But you're right beyond payments, we talk about that a lot, but 1 other things that makes us really excited is the ability to sell Tyler products through those state contracts and and really leverage those nic's relationships I mean, they've got they've got very deep relationships at the highest levels of state government areas, where we're.
And we're really Tyler just didn't have access and I'm talking about you know governors and senior decision makers and.
And you get in front of those people and we're able to get in front of those people and and try to talk to them about what are you guys trying to get done what policies are you pursuing and whether its economic development and our HHS or prison reform or whatever it is and and we've got the solutions to do it and that's.
That's really the crux of what we're doing with these weekly showcases with Tyler products and we have to educate all of these states.
The state Gms and and the entire and IC executive team as to what our portfolio is really all about and how we can leverage that and I don't I don't want to minimize that because we talk a lot about payments.
But that is.
We see as a significant upside.
Real helpful guys. Thank you very much.
The next question comes from Jonathan Ho with William Blair and company. Please go ahead.
Good morning.
Congratulations on the strong quarter just wanted to maybe.
Dig into some of the billable travel or some of the lower margin revenue that returned this quarter is there a way for you to maybe quantify for us and maybe how much is returned and maybe what you expect in terms of and I guess the rest of the year in terms of how that will come back.
Yeah, I don't have the number in front of me for billable travel.
Is something that's significant and still are.
Yeah.
Well under what we typically did which was about $5 million a quarter pre COVID-19.
It's probably on the order of 20% of that has come back but it's.
It's come back a little sooner.
And it's affected.
Just as we're starting to.
C employees coming back to the offices are customers are starting to want to see our salespeople and our.
Implementation people and some instances back on site and we still expect that will continue.
And then we use cases to deliver the majority of our implementation services remotely there is a desire.
And an increasing number of customers to see people back on site and so that's picked up.
Even though a little bit sooner than we expected but.
And it's certainly well under half of what it was pre.
And most.
Public safety is probably 1 of those areas because the.
And our clients never went home the for.
First responders and <unk>.
Those agencies continued to work and so they are they are ready to have us back on site as well, so we're seeing a bit of that come back but.
But still well under the pre COVID-19.
Covid and Jonathan we're also we're doing things to try to incentivize more remote delivery of services well in terms of pricing and things like that and.
I think we're still trying to fill it up as Brian said.
And the expectations, we will not go back to pre COVID-19 levels and there are parts of our business that that really sort of still demand onsite as Brian mentioned public.
Level, but on the others, where we're going to we're working with our clients and working and different ways to try to bring that down.
Thank you and then just in terms of.
Trying to understand a little bit better the advantages of some of the statewide acquisition contracts that you've signed and you can.
And maybe help us understand how Tyler.
Can leverage those contracts and maybe what the advantages of having those contracts over a traditional RFP process. What can you do with those that you couldn't do before and you know what does that sort of.
And make it easier and the contracting process. Thank you.
And so you're talking about the Nic's state contracts, yes.
Yes.
Safety, it's a couple of things I mean, those contracts that and I and I.
He has done an amazing job over the years.
And it takes them a little bit longer, but really of establishing contracts that are extremely open ended and as we like to use the term hunting license and so.
It allows it allows those under those contracts to pursue.
So a lot of different opportunities with a lot of different agencies and in some cases, even local jurisdictions.
It allows them to push products, but more importantly to and also what they also bring us as I just mentioned.
Is there they are deep relationships with different agencies and different higher exactly at the state level area.
To allow for Tyler just didn't have any exposure and so leveraging those relationships leveraging Tyler products leveraging those open ended contracts.
It really creates.
A whole new opportunity for Tyler that we've never seen before.
An example would be.
We.
And we're having discussions with a particular state with some court solutions and we're actually able to have conversations and extremely high level and a place for Tyler traditionally just had not been able to do it.
And those relationships are coming from those state contracts and I mentioned, the state of Oregon, and the state of Idaho as.
Areas that was for.
And I see and what's important there is the Oregon contract.
That's an extension, but that's an extension of a 10 year relationship the Idaho contracts for 2 year extension on a 22 year relationship. So these are these are very deep relationships and I say he's done.
Getting these renewals and suddenly you don't take for granted and you've got to continue to deliver value.
Value and I think the flip side of that is what Tyler can bring is as weak as we continue to leverage those relationships and put more products. It will actually bring that more value to those contracts and further deepen those relationships. So that those will continue to sustain and and survive well into the future.
Yeah.
That's helpful. Thank you.
The next question comes from Keith Olsen with.
Northcoast research. Please go ahead.
Good morning, guys and congrats on a good quarter I just 2 questions for you 1 on the on the IRS contract I think I heard you say there is 2 year, 1 or 2 vendors that have been picked.
Perhaps for out of the more color and you guys splitting the revenue and.
And the payment process here or is there an opportunity perhaps.
And that down the road.
Yeah, So you're right. So they they they went with 2 providers no. It's not a partnership who will be chosen as by the actual citizen or business, who chooses to pay its not unlike and there are certain areas with our E filing where they are we may be the.
And there may.
Multiple people, who are providing that service, even though the backend is through Tyler will be marketing and doing what we can and will be trying to provide the best service whats interesting, though is that prior to this contract. They had actually I think they had for vendors none of which were selected here are 3 vendors and.
And both.
The us and the other vendor where new selections by the IRS.
Great Congratulations and then.
See growth, obviously that was a strong quarter for those guys was it more transactional based or are they having success with the platforms that they were developing prior to your purchase of the payment for the.
Recreational licenses.
License and such.
Yeah, So I think there.
And there they had a as you mentioned a really great quarter.
I think the revenue was up around 19% and and really they really outperformed and a couple of areas. There state enterprise transaction revenue, which includes payments.
And also their outdoor licensing their recreation dot Gov as more and more people are.
Getting outdoors.
It's just it's up significantly over a year ago. Obviously, we also mentioned the Covid related services continued to outperform even as we expect those to taper off but yeah. It's that state enterprise transaction revenue really payments outdoor licensing and COVID-19.
Great. Thank you.
Again, if you have a question please.
Please press the Star key then the number 1 on your Touchtone phone.
The next question comes from Kirk.
My team.
Excuse me.
Kirk <unk> of Evercore ISI. Please go ahead.
Ahead, alright, thanks, very much Lynn can.
And just give us an update on how it's going in terms of moving more products over to AWS at this point and time when when do you think he can have that'd be a plurality of products running on AWS and yes from the benefits to the business model from that and I'm, just trying to get a sense on how far along we are.
Well I'd say, we're still in the early innings there.
The expectation for me and as is across our business lines is as we get into the second half of the year, we're going to start putting new clients. There we still been over the last year has still been validating.
Really sort of some of the cost it's a project we call lighthouse, where we've got.
We're taking existing clients across all of our core apps, and we're putting them in and AWS running them and verifying the costs and seeing and obviously, we're doing things already.
To make changes to our products to make them run more efficiently AWS, but this also helps provide a roadmap and I think as you see going into next year.
Youre going to.
And that from C.
Moving up new business and AWS because the goal is to eventually move out of 2 day day, Tyler Datacenters to 1 and so we're going to start bringing that down and we'll start with new business.
And then we will probably start accelerating.
We've already been accelerating our flips, but at some point put together and more robust migration for existing.
Continuous but I'd say overall, we're still we're still in the early innings, and and I think we'd probably be and a more better position to report on that kind of progress really starting next year.
That's great. Thank you for that and then Brian just sort of a point of clarification.
And I think 22 related at this point in time, but.
Should we just be zeroing.
Moving out the Covid related revenue from Abbvie for 'twenty 2 at this point and time is that sort of the what you would advise us as we start and a hub and I'm not sure I know you don't want give anything formal but it seems like that revenue is going to be pretty immaterial next year, yes, that's our expectation now that there won't be anything there next year and.
And to be honest that's my.
I hope because that means that COVID-19.
It is going away.
Niklas, so let's all hope so.
Hey, guys congrats on the quarter.
Thanks for.
And we have a follow up from Matt and.
And meet with BTG. Please go ahead.
Yeah. Thanks, guys, sorry, Brian just 1 quick follow.
And.
The cash flow impact from some of the previously collected but then remitted funds for and I see post close could you just give us a sense for the magnitude there and how much it actually impacted cash flow and the quarter.
Yeah that was about $55 million.
How much the reduction from.
The the liability we had on the books for funds payable to clients and you know how much that went down from the time of acquisition to.
And to the end of the quarter, so pretty pretty significant impact.
And that's just money that's passing through.
So over the course of a longer period of time.
For <unk> zero it comes in and goes out, but just the timing of it relative to what was on the on their balance sheet at the time of the acquisition and paid shortly afterwards.
Ran through our cash flow statement and to the.
And about 55 million and Thats, the gross versus net payment.
Payments primarily for yet.
And that which also impacts margins and cash.
Passing through us.
Okay I appreciate it thank you.
The next question comes from Joe Goodwin with JMP Securities. Please go ahead.
Yes.
Hey, guys. Good morning, congrats on the quarter.
Just a quick question on the master contracts.
Great to see the renewals come through.
But I guess now that and I see as combined with Tyler does that motion is actually securing net new contracts or just new contracts for these states change.
Changed at all and any commentary there would be great.
I don't think there's a fundamental change and in that.
Process and.
And like I said.
What I believe will happen over time, as you know and I see as I said, they've done a great job of building. These relationships. These are all very long term relationships.
And they've got to continue to deliver value and what I think will happen over time is that as Tyler is able to enhance that value.
And I.
I think it will only help to facilitate those renewals and the future.
Thank you.
And was there a follow up Mr. Good 1.
And other wasn't thanks.
Thank you.
At this time there.
To be no more questions Mr. Moore.
So I'll turn the call back over to you for closing remarks, great. Thanks, Andrew and and thanks, everybody for joining us today.
And we certainly hope you stay safe and healthy and if you have any further questions or follow up please feel free to reach out to Brian Miller and myself. Thanks, everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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