Tyler Technologies(TYL) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents Tyler Technologies' unaudited condensed consolidated financial statements, including income, balance sheets, and cash flows, with detailed notes on accounting policies and acquisitions Condensed Consolidated Financial Statements Tyler Technologies reported significant revenue and net income growth for the six months ended June 30, 2022, with increased assets and positive operating cash flow Condensed Consolidated Statements of Income (Six Months Ended June 30) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $924,792 | $698,877 | +32.3% | | Gross Profit | $385,866 | $326,268 | +18.3% | | Operating Income | $112,625 | $76,499 | +47.2% | | Net Income | $79,930 | $62,506 | +27.9% | | Diluted EPS | $1.88 | $1.48 | +27.0% | Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $253,062 | $309,171 | | Goodwill | $2,449,638 | $2,359,674 | | Total Assets | $4,787,046 | $4,732,161 | | Total Liabilities | $2,328,719 | $2,408,129 | | Total Shareholders' Equity | $2,458,327 | $2,324,032 | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $130,220 | $51,356 | | Net cash used by investing activities | ($110,378) | ($1,998,692) | | Net cash (used) provided by financing activities | ($75,951) | $1,560,486 | | Net decrease in cash and cash equivalents | ($56,109) | ($386,850) | Notes to Condensed Consolidated Financial Statements These notes detail the US eDirect acquisition, debt structure, segment reorganization, and significant recurring revenue and backlog figures - Acquired US eDirect Inc., a provider of campground and outdoor recreation management solutions, on February 8, 2022, for a net purchase price of approximately $116.7 million. The acquisition resulted in goodwill of approximately $91.7 million[41][43][44] - Effective January 1, 2022, the company realigned its reportable segments into two: Enterprise Software (ES) and Platform Technologies (PT). The former Appraisal & Tax (A&T) segment was moved into ES, and NIC solutions were moved to PT. Prior year figures were adjusted to reflect this change[99][114] Total Outstanding Debt (June 30, 2022) | Debt Instrument | Amount (in thousands) | | :--- | :--- | | Term Loan A-1 | $570,000 | | Term Loan A-2 | $105,000 | | Convertible Senior Notes due 2026 | $600,000 | | Total Borrowings | $1,275,000 | | Less: unamortized costs | ($11,912) | | Total borrowings, net | $1,263,088 | - Total backlog, representing contracted revenue not yet recognized, was $1.85 billion as of June 30, 2022. Approximately 47% of this is expected to be recognized as revenue over the next 12 months[107] - Recurring revenues (subscriptions and maintenance) for the six months ended June 30, 2022, totaled $735.1 million, accounting for 79.5% of total revenues[104][105] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, highlighting revenue growth driven by acquisitions and SaaS, gross margin impacts, and the company's strong liquidity position - Total revenues for the six months ended June 30, 2022, increased 32.3% year-over-year. Excluding the impact of acquisitions from 2021 and 2022, organic revenue growth was 6.5%[117] - Subscription revenues grew 66.0% for the first six months of 2022, driven by the NIC acquisition and the ongoing strategic shift to SaaS arrangements. Organic subscription revenue growth was 12.3%[118][131] - The company's backlog increased by 13.9% year-over-year to $1.85 billion as of June 30, 2022[119] Results of Operations Subscription revenue surged due to acquisitions and SaaS adoption, while overall gross margin declined due to lower-margin business and cloud transition costs Revenue by Type (Six Months Ended June 30) | Revenue Type | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscriptions | $501,259 | $302,037 | +66% | | Maintenance | $233,844 | $238,733 | -2% | | Software services | $124,622 | $100,977 | +23% | | Software licenses and royalties | $31,515 | $32,537 | -3% | - The shift to SaaS continues, with subscription-based arrangements making up approximately 78% of the new client mix in H1 2022, compared to 64% in H1 2021. This trend reduces upfront license revenue but is expected to generate higher overall revenue over the contract term[127][128] - Overall gross margin for H1 2022 decreased by 5.0 percentage points to 41.7%, primarily due to the inclusion of NIC's revenues which have historically lower margins, and increased costs related to the transition to AWS cloud services[135][138] - The effective tax rate for H1 2022 was 21.8%, up significantly from 2.9% in H1 2021. The increase was driven by a substantial decrease in excess tax benefits from stock incentive awards, which were $4.7 million in H1 2022 versus $15.2 million in H1 2021[83][145] Financial Condition and Liquidity The company maintains a strong liquidity position with substantial cash and credit availability, supported by operating cash flow and strategic debt repayments Summary of Cash Flows (Six Months Ended June 30, 2022) | Activity | Cash Flow (in thousands) | | :--- | :--- | | Operating Activities | $130,220 | | Investing Activities | ($110,378) | | Financing Activities | ($75,951) | - Days Sales Outstanding (DSO) improved to 115 days at June 30, 2022, compared to 131 days at June 30, 2021, attributed to better collection efforts[149] - The company repaid $80.0 million of its unsecured term loans during the first six months of 2022 and an additional $100 million in July 2022[151][109] - Anticipated capital spending for the full year 2022 is projected to be between $58 million and $62 million, including about $34 million for capitalized software development[158] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk involves exposure to interest rate fluctuations on its variable-rate debt under the 2021 Credit Agreement - The company is exposed to interest rate risk on its $675.0 million of outstanding variable-rate borrowings under the 2021 Credit Agreement[160] - A hypothetical 0.25% change in interest rates would impact annual interest expense by approximately $1.7 million[162] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[163] - No material changes to internal control over financial reporting occurred during the second quarter of 2022[164] Part II. OTHER INFORMATION Legal Proceedings No material legal proceedings are pending against the company, beyond routine litigation incidental to its business - There are no material legal proceedings pending against the company[166] Risk Factors No material changes were reported in the company's risk factors compared to the prior annual report - No material changes were reported in the company's risk factors during the three months ended June 30, 2022[167] Other Items (2, 3, 4, 5, 6) This section confirms no unregistered equity sales, defaults, or shareholder votes, and lists exhibits filed with the 10-Q report - Items 2, 3, 4, and 5, covering unregistered sales of equity, defaults, and shareholder votes, are all reported as "None"[168]