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Information Technology

Software Update

By Elliott H. Gue, on Dec. 10, 2014

Our top-performing SaaS play to date, Tyler Technologies is a mid-capitalization software company that serves the public sector, with an emphasis on local government–a $12 billion market that has returned to normal levels.

With more than 11,000 installations, the firm is one of the biggest players in a highly fragmented market that offers ample opportunity to increase its penetration rate via organic growth and acquisitions.

The company boasts one of the widest ranges of software services for local government, with schools (40 percent of revenue) and the court systems (20 percent) representing two of its most important customer groups. All the firm’s software packages are available under traditional installation licenses or an SaaS subscription model.

In both instances, Tyler Technologies offers a comprehensive range of software options–from human-resources functions, student record tracking and transportation management for schools to jury selection, document management and fine collection for court systems.

The company’s school system revenue grows at an average annual rate of about 10 percent, while its court-related revenue is expected to increase by about 20 percent per year.

Tyler Technologies has emerged as the preeminent vendor for court systems, winning about 85 percent of its bids. E-filing systems represent another growth opportunity, as an increasing number of jurisdictions agreeing to contracts that generate a fee for each transaction.

All told, recurring revenue accounts for about 63 percent of Tyler Technologies annual sales, with maintenance agreements on legacy installations and SaaS subscriptions renewing at a 98 percent rate. These contracts often include annual escalators of 4 percent to 5 percent, providing built-in growth.

The majority of new sales come from local governments replacing legacy systems that are no longer supported or don’t deliver the functionality that the modern world demands. SaaS applications account for about one-third of new sales.

With no debt and $90 million in cash, Tyler Technologies has the wherewithal to consolidate within its existing end-markets and add capabilities to broaden its range of services. The firm also continues to buy back stock and should benefit from pent-up demand after a period of fiscal austerity among its customer base.

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