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Tyler Technologies (TYL) Down 11.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Tyler Technologies (TYL - Free Report) . Shares have lost about 11.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tyler Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Tyler Q4 Earnings & Revenues Lag Estimates

Tyler Technologies reported fourth-quarter 2020 non-GAAP earnings of $1.39 per share, which missed the Zacks Consensus Estimate by 1.42%. Moreover, the bottom line decreased 2.8% from the year-ago quarter’s reported figure.

Revenues on a non-GAAP basis increased 1.4% year on year to $283.41 million, missing the consensus mark by 2.56%. Tyler also recorded a 2.1% year-over-year decline in organic revenues.

However, recurring revenues increased 9.5% year over year to $212.4 million and accounted for 75% of total revenues.

Notably, Tyler also simultaneously announced its plan to acquire payments company, NIC Inc., for approximately $2.3 billion. Tyler expects to tap this area, taking advantage of the coronavirus-led shift to online services and electronic payments by governments.

Tyler plans to use $700 million of cash and new debt to fund the transaction, which is likely to close in the second quarter of 2021. The deal is expected to be accretive to the company’s non-GAAP earnings in 2021.

Q4 Results in Detail

Segment-wise, Maintenance revenues (41.8% of total revenues) came in at $118.4 million, up 4.2% year over year.

Subscription revenues (33.2% of total revenues) climbed 17% year over year to $94 million.

Software licenses and royalties (6.2% of total revenues) of $17.5 million slid 46% on a year-over-year basis.

Software Services revenues (15% of total revenues) of $42.7 million dropped 18.3% from the year-ago quarter.

Appraisal services revenues (1.9% of total revenues) declined 12.5% to $5.3 million.

Hardware and other revenues (1.9% of total revenues) rose 28% to $5.5 million.

Backlog at the end of the quarter was $1.59 billion, up 9.4% year over year. Of this, software-related backlog (excluding appraisal services) increased 8.7% to $1.55 billion.

Bookings remained flat year on year at $333 million. Some deals were pushed out of the quarter due to the indecisiveness of clients stemming from the pandemic. Subscription bookings added $11 million in annual recurring revenues.

Operating Details

Tyler’s non-GAAP gross profit decreased to $151.7 million from the year-earlier quarter’s $152.7 million. However, non-GAAP gross margin expanded 40 basis points (bps) to 53.5%.

Adjusted EBITDA was $83.2 million, up 1.2% year over year.

The company’s non-GAAP operating income increased 3.4% year over year to $76.4 million. Its operating margin advanced 120 bps to 26.9%.

Balance Sheet and Cash Flow

As of Dec 31, 2020, cash and cash equivalents were $603.6 million compared with $518.7 million as of Sep 30, 2020.

The company generated an operating cash flow of $88.8 million during the fourth quarter and $355.1 million in 2020.

Free cash flow was $83.7 million during the fourth quarter.

Full-Year Highlights

Organic non-GAAP revenues were up 0.9% year on year. Non-GAAP total revenues of $1.117 billion increased 2.4% year over year. On an organic basis, non-GAAP revenues grew 0.9%.

Non-GAAP earnings of $5.52 per share were up from $5.30 in 2019.

Full-Year Outlook

Tyler provided its full-year revenue guidance of $1.119-$1.22 billion. Moreover, non-GAAP earnings outlook stands at $5.65-$5.77 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Tyler Technologies has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. It's no surprise Tyler Technologies has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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