It has been about a month since the last earnings report for Tyler Technologies (TYL Quick QuoteTYL - Free Report) . Shares have added about 0.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tyler Technologies due for a pullback? 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 Technologies Q3 Earnings Beat, Revenues Miss

Tyler Technologies reported third-quarter 2023 non-GAAP earnings of $2.14 per share, which beat the Zacks Consensus Estimate of $1.97. The bottom line was higher than the year-ago quarter’s earnings of $2.06 per share.

Non-GAAP revenues increased 4.54% year over year to $494.7 million. However, the top line missed the Zacks Consensus Estimate of $495.5 million.

The robust year-over-year top-line growth was primarily driven by a rise in subscription revenues. During the third quarter, software subscription arrangements comprised approximately 80% of the total new software contract value as the company continued to transform into a software-as-a-service model from its on-premise license-based model.

Quarterly Details

Tyler’s recurring revenues from maintenance and subscriptions increased 11% year over year to $412.7 million and accounted for 83.4% of the total quarterly revenues.

TYL reported annualized recurring revenues on a non-GAAP basis of $1.65 billion, up 11% year over year.

Segment-wise, Maintenance revenues (accounting for 23.7% of total revenues) were $117.5 million, slightly up from $117.3 million in the year-ago quarter. Our model estimates for Maintenance revenues were pegged at $115.4 million.

Subscription revenues (59.6% of total revenues) grew 16.1% year over year to $295.2 million, while our model estimates for the same was $291.9 million. On an organic basis, Subscription revenues soared 14.7% year over year.

Software licenses and royalties (2.1% of total revenues) of $10.5 million decreased 47.9% on a year-over-year basis. Our model predicted Software licenses and royalties sales to decline 40.1% to $12.1 million.

Professional Services revenues (12.3% of total revenues) amounted to $61.1 million, down 17.5% from the year-ago quarter. Our model estimates for the same were pegged at $65.2 million.

Hardware and other revenues (2.1% of total revenues) climbed 9.7% from the year-ago quarter to $10.3 million. Our model estimates for Hardware and other revenues were pegged at $9.7 million.

The backlog at the quarter-end was $1.95 billion, up 2.5% year over year.

Bookings increased 8.6% year over year at $542 million. Moreover, in the trailing 12 months, bookings increased 2.8% year over year to $1.99 billion.

Operating Details

Tyler’s non-GAAP gross profit increased 6.9% year over year to $241 million. Non-GAAP gross margin expanded 110 basis points (bps) to 48.7%.

Adjusted EBITDA increased 4.4% year over year to $132.5 million.

Non-GAAP operating income for the quarter totaled $122.5 million and went up 3.9% year over year. However, the non-GAAP operating margin contracted 10 bps to 24.8%.

Balance Sheet & Other Details

As of Sep 30, 2023, Tyler’s cash and cash equivalents were $131.4 million compared with $118.7 million as of Jun 30, 2023.

The company generated an operating cash flow of $177.5 million in the third quarter and $233 million in the first nine months of 2023. During the third quarter, it generated a free cash flow of $162.7 million. With its robust free cash flow, TYL is focusing on reducing debt. In the third quarter of 2023, Tyler reduced its term debt by $135 million.

Guidance

For 2023, Tyler expects GAAP and non-GAAP revenues in the range of $1.942-$1.962 billion. TYL forecasts adjusted earnings guidance in the range of $7.66-$7.80 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -8.4% due to these changes.

VGM Scores

At this time, Tyler Technologies has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth 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 indicates a downward shift. Notably, Tyler Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Tyler Technologies belongs to the Zacks Business - Software Services industry. Another stock from the same industry, MSCI (MSCI Quick QuoteMSCI - Free Report) , has gained 7% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

MSCI reported revenues of $625.44 million in the last reported quarter, representing a year-over-year change of +11.6%. EPS of $3.45 for the same period compares with $2.85 a year ago.

MSCI is expected to post earnings of $3.29 per share for the current quarter, representing a year-over-year change of +15.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.8%.

MSCI has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.