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Tyler Technologies: Engineering Shareholder Value

Apr. 06, 2021 6:48 PM ETTyler Technologies, Inc. (TYL) Stock9 Comments


  • Tyler Technologies has seen huge growth and value creation over the past few decades.
  • The company has been well positioned and is a savvy capital allocator in terms of dealmaking and well-timed share buybacks.
  • I like the long-term value and track record, yet too much good news has been priced in recent years, despite a recent sound and large deal.
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Tyler Technologies (NYSE:TYL) is one of these steady growth names which has operated under the radar, presumably of many investors. The company has created great value for long-term investors, driven by real operational achievements, savvy deals, and good capital allocation skills, yet the valuation has gotten a bit out of hands in recent years in my belief.

One-Of-A-Kind Company

The paragraph header is how the company describes itself in the 2020 investor presentation. The company is the largest provider of software solutions to local and state governments and over the past nearly two decades has grown earnings per share at a compounded annual growth rate of 20%.

The company operates in a global growth market with an estimated size of $21 billion, and while this market in itself is quite compelling with high single-digit revenue growth, the company is gaining market share in this market as well thanks to focus on organic growth, innovative solutions, and bolt-on dealmaking.

The company has 26,000 installations among its customers which include a huge focus on ERP/Financial, as well as other clients like courts, justice, public safety, appraisal and tax, platform technologies, civic and other services. The essence is that much of the revenue base is recurring and growing as the growth trajectory has been huge. After all, revenues of just over a hundred million in 2002 have grown more than a billion in 2019. Much of this is driven by organic growth as well as 30-plus deals having been pursued since 2006. Another key achievement is the allocation skill outside of acquisitions as the company has cut its share count by more than 40%, while the balance sheet strength has been preserved, including a very strong net cash position.

A focus on the public sector and national solutions which are scalable, all while placed

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Comments (9)

Looks like a great stock to buy....10 years ago! I can't wrap my head around 62X forward earnings. I always start my analysis with "What does the company have to do to earn 10% of today's purchase price?" At the moment that is 10X the last 4 quarters EPS. This could be a poor performer for quite a while as it grows into its valuation. I could be wrong. I said the same thing about AMZN 3 years ago!
@Wall-Invest Not sure it is same a AMZN BUT the NIC merger is transformational. Look for several years of 20%+ and longer term nice margin increases. Their SAAS model, use of AWS, more international opportunities, and huge productivity benefits to customers assures big long term growth ahead. At its marker cap it is the least followed software company by the top 7 software analyst because they have found it boring and this superb management team did not need or use investment bankers as we long term shareholders have benefited from TYL march from $5 when the sold off the oil pipe business to focus on municipal software. Look for new research coverage before year end from a major analyst causing more institutional interest. IMHO
Great analysis. Thank you.
Invested in Tyler for 20 years. It has been very talented in getting value from bolt-on acquisitions, as well as focusing on organic growth.
I also worked for Tyler for 18 years. They (we) consistently prioritized client retention, long-term business decisions, and growing existing relationships. Strong management team focused on growing the business.
Have been an investor in both TYL and NIC for past 15 years. The acquisition will I believe accelerate penetration in the Federal Government market. TYL upped its R&D budget from $45 million to $90 million the past two years. Expect we will see some new services, more bundled services and more SAAS offerings as we enter 2022. Maybe we see margins begin to expand next year. The least followed public software company in its market cap range. About time next year for software analysts at Merrill, Credit Suisse, Morgan Stanley and others to pay attention?
Government has to automate. When I bought them 20 years ago, I could see government needing to play catch-up with automation and internet. Government is 10 years behind the private sector. Covid helped government realize they needed to accelerate automation. Now many applications are online and it beats waiting in line at the county office!
@greg2222 Fully agree. The NIC acquisition will accelerate this opportunity in my opinion. AND none of the t0p 3-5 wall street software analysts follow TYL---yet
With all the other big tech companies like CRM, IBM, Amazon, and Apple the analysts had their hands full. They had a tough enough time figuring out what CRM was and does. TYL was just some small, slow government tech vendor selling into local government. My, how things have changed! Covid and working from home has their head spinning.
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