Tyler Technologies(US:TYL)2022-10-27 18:09Financial Data and Key Metrics Changes - Total revenues for Q3 2022 were $473.2 million, up 2.9% year-over-year, with organic revenue growth of 9% excluding COVID-related revenues [22][6] - Recurring revenues comprised 78.5% of total revenues, with subscription revenue growing 14.5% organically [7][6] - Non-GAAP ARR was approximately $1.49 billion, flat year-over-year but up 11.2% excluding COVID-related revenues [29] - Cash flows from operations were $129.4 million, down 37%, and free cash flow was $115.6 million, down 40% [34] Business Line Data and Key Metrics Changes - Subscription contract value reached a new high of approximately 91% of total new software contract value signed in Q3, compared to 74% in Q3 last year [27] - License revenue declined 10.6% due to the rapid shift to SaaS contracts [24] - Professional services revenues rose 15.7%, but are expected to face pressure as the implementation team ramps up [24] Market Data and Key Metrics Changes - NIC's COVID-related revenues for the quarter were $11.7 million, down from $43.3 million in the same quarter last year [23] - Transaction-based revenues were $148.9 million, down 13%, but grew 11.1% excluding COVID-related revenues [28] Company Strategy and Development Direction - The company is advancing its cloud-first strategy, with a significant shift towards SaaS contracts [6][42] - The acquisition of Rapid Financial Solutions is expected to enhance payment capabilities and expand market presence [16][18] - The company anticipates a continued decline in license revenue, projecting a decline in the 40% range for 2023 [48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the public sector market's stability and ongoing demand for upgrading mission-critical systems [42] - The company expects to see further margin contraction in 2023 before rebounding in 2024 due to the accelerated shift to SaaS [46] - Despite macroeconomic uncertainties, the company remains focused on long-term growth strategies and capitalizing on recurring revenue models [49] Other Important Information - The backlog at the end of the quarter reached a new high of $1.88 billion, up 6.3% [30] - The company repaid $190 million of term debt during the quarter, with total outstanding debt at $1.085 billion [35] Q&A Session Summary Question: Characterization of ARPA project pipeline - Management noted that ARPA funds are being tracked, and while they see opportunities, there is no immediate urgency for clients to spend those funds [57][60] Question: Shift to software and license fee decline - Management indicated that the shift to SaaS is happening faster than anticipated, with licenses expected to decline more than previously expected [68][66] Question: Cross-sell opportunities with NIC - Management highlighted that analytics and payment solutions are performing well in cross-sell opportunities with NIC [75] Question: Impact of COVID-related revenues on margins - Management stated that the decline in high-margin license revenues will pressure margins, but the impact from COVID-related revenues is expected to be minimal [78][80] Question: Staffing and wage inflation - Management acknowledged ongoing labor challenges and wage pressures but noted some moderation in turnover rates [128][129] Question: Competitive landscape in public safety - Management expressed confidence in their competitive position, citing investments and market share gains against competitors [109]