Tyler’s client base now includes more than 10,000 local government offices in all 50 US states, as well as Canada, the Caribbean and the United Kingdom.
Still, we think Tyler is still very much in its growth phase. Consider that state and local governments comprise one of the most decentralized IT markets in the US. Each state and locality has a different system, and even with the same agencies different IT platforms are in play. The result is lack of access to basic information and bureaucratic delays, as well as relatively high operating costs.
Even in the tough economic environment of the past three years, Tyler’s growth has continued unabated, because its products and services are both money savers and crowd pleasers. In fact, Forbes has named Tyler one of “America’s Best Small Companies” in five of the past six years.
It helps that Tyler’s government clients are seeing good results right from the start. The Burlington School District of Vermont, for example, realized value and efficiencies the first two months after implementing Tyler’s “Munis” resource planning system. The school district chose Munis to replace an in-house system developed decades ago; the latter had required significant customization and didn’t integrate with other vital data management systems.
As with many of Tyler’s other clients, the Burlington School District opted to use several Munis applications, including those for HR, financial and payroll processing. The district also plans to conduct its budgeting with Munis to improve the overall accuracy of the process.
Tyler’s business model is similar to that of the major systems-software providers, in that it has two types of revenue streams: (1) a software licensing fee; and (2) add-on services that provide recurring revenue from the installed customer base.
To boost recurring revenue, which is significantly more profitable, Tyler is continually enhancing its offerings, with feature Web-based solutions for real-time public access to information and e-commerce platforms for traffic tickets, utility bills and taxes.
A huge advantage for Tyler is that it has little competition as of now. All of its direct competitors are relatively small, local and regional tech firms with limited resources and offerings.
As expected, Tyler’s third-quarter 2012 results were impressive. Total revenue was up almost 22 percent, to $94 million; net income came in at $11 million, or $0.33 per diluted share, an increase of close to 50 percent from the year-ago-quarter.
Recurring revenue from maintenance and subscriptions rose 24 percent, to $56 million, and comprised 59 percent of the quarter’s total revenue.
Total backlog was up 20 percent from a year ago, to $358 million. Software-related backlog (excluding appraisal services) reached a new high of $328 million, an increase of 18 percent from the previous year.
All this good news has not remained unnoticed. Tyler now has a market cap of $1.45 billion, with the stock price up close to 70 in the past year, resulting in a rather steep price-to-earnings ratio of 47. But if Tyler delivers on analysts’ earnings-growth estimates—30 percent in 2013 and 60 percent in 2014—the stock has further to climb.
First Call analysts consider Tyler a BUY, with a stock rating of 2.0. Our 12-month price target for Tyler Technology is 60.
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Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.
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