Tyler Technologies, Inc.: This Tech Stock Is a Government Favorite

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The outbreak of COVID-19 has led to the struggling of numerous businesses. Some may end up shutting their doors permanently. But there is one type of organization that will survive the downturn no matter what: governments.

And if you can have governments as your customers, you’ll likely be able to weather the storm too.

That’s why today I’m taking a look at Tyler Technologies, Inc. (NYSE:TYL). Headquartered in Plano, Texas, this company is a provider of software and technology services to the public sector.

Tyler offers an expansive portfolio of end-to-end solutions designed to automate a wide range of mission-critical public sector operations, including:

• enterprise resource planning financial management
• fund accounting
• payroll and human capital management
• utility billing
• courts and judicial case management
• law enforcement
• tax billing and collections
• K-12 school financial and human resource management
• document and content management for land and vital records

(Source: “Tyler Financial Fact Sheet,” Tyler Technologies, Inc., last accessed June 24, 2020.)

In fact, Tyler Technologies is currently the No. 1 provider of software solutions to local and state governments. The company has clients in all 50 states in the U.S., Canada, the Caribbean, Australia, and other international locations.

One of the main reasons why investors like tech stocks is their growth. And on that front, TYL stock does not disappoint.

From 2010 to 2019, the company’s non-generally accepted accounting principles (GAAP) total revenue increased at a compound annual growth rate (CAGR) of 16%. (Source: “Investor Presentation May 2020,” Tyler Technologies, Inc., last accessed June 24, 2020.)

The bottom-line performance was even better, as Tyler Technologies’ non-GAAP earnings per share grew at a CAGR of 21% during the same period.

Of course, with the coronavirus pandemic, 2020 has been a very different year than previous ones. But the company’s results so far this year have not been disappointing at all.

In the first quarter of 2020, Tyler Technologies generated $276.8 million in non-GAAP total revenue, representing an 11.3% increase year-over-year. Its non-GAAP net income came in at $51.5 million for the quarter, up 6.7% year-over-year. (Source: “Tyler Technologies Reports Earnings for First Quarter 2020,” Tyler Technologies, Inc., April 29, 2020.)

Notably, Tyler Technologies’ recurring revenue, which comes from maintenance and subscriptions, rose 17.1% year-over-year to $196.1 million in the reporting quarter. With that increase, recurring revenue accounted for more than 70% of the company’s total quarterly revenue.

Tyler Technologies also increased its order backlog by 19.2% from a year earlier to $1.5 billion as of March 31. A substantial backlog of signed contracts should provide the company with high revenue visibility going forward.

The company began seeing the impact of the COVID-19 pandemic on its business in the second half of March, and it anticipates a greater impact from the pandemic in the second and third quarters. As a result, management decided to suspend its guidance until they have more clarity around the situation.

Still, they remain confident in Tyler Technologies, Inc.’s long-term outlook. In the company’s latest earnings conference call, Tyler’s Chief Executive Officer Lynn Moore said,

Our clients will not go out of business, and the solutions we provide are essential, whether managing revenue to keep communities operating, ensuring public safety to help the most vulnerable, or providing transparency and access to government for the residents of the jurisdictions they serve.

(Source: “Tyler Technologies, Inc. (TYL) CEO Lynn Moore on Q1 2020 Results – Earnings Call Transcript,” Seeking Alpha, April 30, 2020.)

Also, despite the fact that Tyler Technologies is the leading player in its industry, it still faces a large market opportunity.

The company’s addressable market today stands at $9.0 billion, and it has the potential to reach $21.0 billion. Tyler has captured around $1.2 billion of its current addressable market, so there’s plenty of growth potential ahead. (Source: “Investor Presentation May 2020,” Tyler Technologies, Inc., op. cit.)

Investors like what the company has been doing and are willing to reward it with a higher share price. Over the past 12 months, Tyler Technologies stock surged 57.1%.

Tyler Technologies, Inc. (NYSE:TYL) Stock Chart

Chart courtesy of StockCharts.com

As the company’s stock price increased, its market capitalization also grew. On June 22, Tyler Technologies stock was added to the S&P 500 index. Previously, it was a member of the S&P MidCap 400 Index. (Source: “Tyler Technologies to Join S&P 500 Index,” Tyler Technologies, Inc., June 19, 2020.)

Analyst Take

Companies rise and fall, but governments don’t go out of business. By serving the public sector, Tyler Technologies, Inc. should provide peace of mind to TYL stock holders in this uncertain environment.

For investors searching for reliable tech stocks that also have strong long-term growth potential, Tyler Technologies stock deserves a serious look.