Hello. And welcome to today’s Tyler Technologies Third Quarter 2021 Conference Call. Your host for today’s call is Lynn Moore, President and CEO of Tyler Technologies. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time.

And as a reminder, this conference is being recorded today, October 28, 2021. Lynn Moore, please go ahead..

Thank you, Jason, and welcome to our call. With me today is Brian Miller, our Chief Financial Officer. First, I’d like for Brian to give the Safe Harbor statement. Next, I’ll have some comments on our quarter and then Brian will review the details of our results. I’ll end with some additional comments and then we’ll take questions.

Brian?.

Thanks, Lynn. During the course of this conference call, management may make statements that provide information other than historical information and may include projections concerning the company’s future prospects, revenues, expenses and profits.

Such statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections.

We would refer you to our Form 10-K and other SEC filings for more information on those risks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise.

Lynn?.

Thanks, Brian. Our third quarter results were exceptionally strong, building on the momentum we established in the first half of the year. This was our first full quarter including NICs results and it was our best quarter ever by most financial measures.

We achieved new quarterly highs and revenues, non-GAAP EPS, free cash flow, adjusted EBITDA, bookings and backlog. Total revenues grew 60.9%, with organic growth of 7.6%. As a result of the surge in the Delta variant, NIC’s COVID-19 related revenues from TourHealth and Pandemic Unemployment initiatives were significantly above plan at $43.3 million.

We had expected those revenues which have relatively low margins to wind down in the second half of the year. But we now expect they will continue into the first half of 2022. NIC’s core revenues grew 5% in the quarter.

Recurring revenues comprised over 80% of our quarterly revenues for the first time and were led by 183% growth in subscription revenues. Excluding NIC revenues, subscription revenue growth was robust at 23.9%, reflecting our accelerating shift to the cloud.

We have now achieved greater than 20% subscription revenue growth in 55 quarters of the last 63 quarters. Software licenses and services revenues grew 13.9% or 2% excluding NIC. As expected, our margins compressed compared to last year third quarter.

Some expenses like tradeshows and employee health claims, as well as lower margin revenues like billable travel that declined in 2020 due to COVID pandemic have begun to return this year. Margins were also impacted by the inclusion of NIC and particularly by the continuation of their lower margin COVID initiative revenues.

As a result, our non-GAAP operating margin declined 330 basis points to 25.3%. Excluding NICs COVID initiative revenues and related costs, our non-GAAP operating margin was 26.8%. Bookings reached a record high in third quarter at approximately $601 million, more than double last year third quarter.

Excluding NIC, bookings grew 51.9%, with the biggest contributor being the $63 million renewal of our fixed fee e-filing arrangement with the State of Illinois. We’re very pleased to report early success this quarter with joint sales efforts between NIC and Tyler Solutions teams.

We signed agreements with the Virginia Department of Housing and Community Development valued at approximately $24 million to provide a digital and call center solution for tenant, landlord and third-party filing of Rent Relief Program claims.

We will also provide Administrative Dashboards from our Socrata Data & Insight solutions, as well as payment processing capabilities. Our largest software deal the quarter also came from NIC with $6.1 million SaaS contract with the West Virginia Division of Motor Vehicles for digital titling.

This new digital vehicle titling and registration management system will go beyond modernization and revolutionize how the DMV manages vehicles and interacts with businesses and citizens.

In addition to the streamlining of nearly every vehicle related process in place today, many legacy paper processes will be fully replaced with secure digital solutions.

The solution utilizes technology to govern and secure the vehicle ownership process, adding security, reducing fraud and providing the flexibility that other state DMVs operations are lacking. The arrangement, which leverages our State Master Agreement has an initial term of five years.

In addition to the SaaS fees, the agreement will generate estimated transaction revenue of more than $3 million per year. I’d like to also highlight a few more significant deals sign this quarter. We signed Appraisal Services contracts with the Delaware counties of Newcastle and Kent.

In addition, Newcastle County selected our iasWorld Appraisal Solution under a SaaS arrangement. The deals have a combined value of approximately $19 million. Coupled with the Appraisal Services contract signed last quarter with Sussex County. Tyler will now be performing a property reassessment for the entire state.

Also for our iasWorld Property Tax and Appraisal Solution, we signed SaaS arrangements with the Regional Municipality of Wood Buffalo in Alberta, Canada, valued at approximately $3.1 million.

Franklin County, Ohio valued at approximately $3.5 million and Summit County, Ohio, which also includes our Data & Insights Solution, valued at approximately $2.9 million.

Other major SaaS deals included a $4.5 million contract with Arlington Heights, Illinois for our ERP Civic Services and Payment Solutions, and a $3.4 million contract with Bayer County, Texas for our Odyssey, SoftCode and Supervision Justice Solutions.

Our largest perpetual license contract of the quarter was a $5.4 million contract to provide our MicroPact Entellitrak Solution to manage COVID vaccination adaptations for the U.S. Department of Justice.

We also signed a $2.5 million on-premises license contract with the Commonwealth of the Northern Mariana Islands for our Munis ERP and Enterprise Asset Management, ExecuTime and Socrata Solutions.

We also signed several significant contract renewals with existing clients, including extensions of NIC’s State Enterprise Agreements with the States of Utah and Oklahoma, and a five-year renewal of our e-filing arrangement with the State of Illinois, which was expanded to include applications from our Socrata Data & Insights platform.

On last quarter’s call, we reported that NIC had been selected as one of two vendors to provide the Internal Revenue Service with a Digital Payment Processing Solution that would allow taxpayers to securely pay their federal taxes and that revenue under that contract was expected to begin in January of 2022.

Following the award, three entities filed protests with the GAO. Prior to any ruling on the protest by the GAO, the IRS notified the GAO that it was canceling the two awards, including the award to NIC. While the IRS has not formally terminated NIC’s contract, it has issued a stop work order under the contract.

The IRS indicated that it will either amend the current solicitation, allowing all bidders to modify their previous submissions and then reevaluate the proposals or terminate the existing solicitation and start the process over with a new procurement in the coming months.

The IRS has not yet stated which of these options it will select and we have no information regarding the potential timing of either option. Given these recent developments, we do not expect to recognize any revenue under the IRS award in 2022.

While the specific concerns raised in the protests have not been made public and are not known by Tyler, the decision to cancel the award to NIC was not related to NIC’s performance under the contract, its ability to successfully perform under the contract or any allegations of misconduct or improper behavior by NIC.

On the M&A front, we completed the acquisitions of VendEngine and Arx during the third quarter. VendEngine is one of the fastest growing technology companies in North America, operating in more than 230 counties and 32 states.

Its leading cloud-based platform provides a comprehensive suite of applications focused on the corrections market, including deposit technologies for commissary, ordering and warehouse management, and various informational electronic communications, security, accounting and financial trust management components.

Arx is a cloud-based software platform which creates accessible technology to enable a modern day police force that is fully transparent, accountable and a trusted resource to the community it serves.

The acquisition of Arx allows Tyler to offer a full suite of Public Safety Solutions, including Arx Alert and Arx Community, designed to maximize efficiency and safety for law enforcement officers, while increasing transparency and trust building with communities.

VendEngine and Arx have combined ARR of approximately $17.5 million and their additions further strengthened Tyler’s justice and Public Safety suites. Now, I’d like for Brian to provide more details on results of the quarter..

Thanks, Lynn. Yesterday, Tyler Technologies reported its results for the third quarter ended September 30, 2021. In our earnings release, we’ve included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry.

A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We’ve also posted on the Investor Relations section of our website under the Financial Reports tab schedules with supplemental information provides on this call, including information about quarterly bookings, backlog and recurring revenues.

GAAP revenues for the quarter were $459.9 million, up 60.9%. Non-GAAP revenues were $460.6 million, up 61.1%. On an organic basis GAAP and non-GAAP revenues grew 7.6% and 7.5%, respectively. Software license revenues rose 13.7%. Subscription revenues rose 183.3%.

Excluding the contribution from NIC subscription revenues were still very strong, growing 23.9%. We added 144 new subscription-based arrangements and converted 67 existing on-premises clients, representing approximately $84 million in total contract value.

In Q3 of last year, we added 114 new subscription-based arrangements and had 46 on-premises conversions, representing approximately $56 million in total contract value.

Subscription contract value comprised approximately 74% of total new software contract value signed this quarter, compared to 47% in Q3 of last year, reflecting our ongoing shift to a cloud first approach to sales. The value weighted average term of new SaaS contracts this quarter was 3.4 years, compared to 4.3 years last year.

Transaction based revenues which include NIC portal, payment processing and e-filing revenues and are included in subscriptions were $171.2 million, up more than six-fold from last year. E-filing revenues reached a new high of $17.4 million, up to 15%. Excluding NIC, Tyler’s transaction-based revenues grew 24.3%.

For the third quarter, our annualized non-GAAP total recurring revenue or ARR was approximately $1.5 billion, up 79.2%, non-GAAP ARR for SaaS software arrangements for Q3 was approximately $330 million, up to 24.7%, transaction-based ARR was approximately $685 million, up 639% and non-GAAP maintenance ARR was flat at approximately $471 million.

Our backlog at the end of the quarter was $1.77 billion, up to 14.3%. Because the vast majority of NIC’s revenues are transaction based, their backlog at quarter end was only $27 million. Excluding the addition of NIC, Tyler’s backlog grew 12.6%.

As Lynn noted, our bookings in the quarter were very robust at $601 million, up 105.7% and includes the transaction-based revenues of NIC.

On an organic basis, bookings were strong at approximately $40 -- $444 million, up 51.9%, fueled by the renewal of the State of Illinois fixed fee e-filing arrangement of approximately $63 million and the addition of the two Delaware appraisal deals totaling $19 million.

For the trailing 12 months bookings were approximately $1.6 billion, up 31.3% and on an organic basis were approximately $1.4 billion, up 10.8%. Our software subscription bookings in the third quarter added $19 million in new annual recurring revenue.

Cash from operations and free cash flow were both record highs for the third quarter at $205.4 million and $192.8 million, respectively. Our balance sheet remains very strong. During the quarter we repaid the outstanding balance of $65 million on our revolver and paid down $57.5 million on our term loans for a total debt reduction of $122.5 million.

We ended the quarter with total outstanding debt of $1.428 billion in cash and investments of $348.4 million and net leverage of approximately 2.3 times trailing pro forma EBITDA. We expect the net leverage to be approximately 2 times by year end.

We have raised our revenue and EPS guidance for the full year 2021 to reflect our strong year-to-date performance and our expectations for the fourth quarter. We expect 2021 total GAAP revenues will be between $1.577 billion and $1.597 billion and non-GAAP total revenues will be between $1.580 billion and $1.6 billion.

We expect total revenues will include approximately $72 million of COVID-related revenues from NIC’s TourHealth and Pandemic Unemployment Services that are expected to wind down in the first half of 2022.

We expect 2021 GAAP diluted EPS will be between $3.55 and $3.63, and may vary significantly due to the impact of stock incentive awards on the GAAP effective tax rate. We expect 2021 non-GAAP diluted EPS will be between $6.94 and $7.02. Other details of our guidance are included in our earnings release.

Now, I’d like to turn the call back over to Lynn..

Thanks, Brian. I’m extremely pleased with our third quarter results, both from Tyler’s core operations and from NIC and its first full quarter as part of Tyler. When we spoke to investors in June, we discussed four priorities around the NIC acquisition for 2021. First, don’t mess up the business. Second, achieve our 2021 plans for both businesses.

Third, retain NIC staff and establish the long-term leadership team. And fourth, identify and launch joint strategic initiatives and get our sales teams aligned. I’m happy to say we are executing on all of those objectives. Both businesses are executing at a high level and are exceeding our 2021 plans.

The NIC team under the leadership of Elizabeth Proudfit is enthusiastic about the combination and the opportunities ahead with Tyler. And we’ve hit the ground running, with teams actively working on integration and go-to-market strategies.

We’re showcasing Tyler products to NIC’s entire state general manager team and NIC’s general managers are providing detailed reviews of the NIC state enterprise contracts and relationships for Tyler’s team. We’ve also established a payments technology integration plan and are in the process of finalizing the joint Tyler/NIC payments organization.

We’ve already had some early success and join opportunities, such as our contract with the Colorado Department of Regulatory Agencies that includes NIC Payment Processing, Tyler’s Entellitrak Regulatory Solutions and our Socrata Data & Insights platform, as well as the recent NIC contract with Virginia for solution for the Rent Relief Program, which also includes Tyler’s Socrata applications.

We have a current pipeline of more than 40 qualified sell-through opportunities with NIC’s state enterprise market across multiple Tyler solutions and have identified Tyler sales opportunities leveraging NIC state enterprise contracts to speed up the time from award to contract.

We’re also beginning to build our combined payments pipeline, with early sales in Florida and Louisiana. We continue to see positive trends in public sector market activity. Indicators such as proposals, sales demonstrations and pipelines are all up significantly from 2020 and are generally at or in some cases above pre-COVID levels.

Our competitive -- our competitiveness remains strong as reflected by high win rates across our major applications. Well, not yet a significant factor. We’re starting to see purchasing activity that has identified is being funded through the federal stimulus under the CARES Act and the American Rescue Plan.

We expect that the $350 billion of aid to state and local governments, and $167 billion of aid to schools under the American Rescue Plan Act will provide a significant measure of relief to budget pressures faced by many of our clients and prospects, and potentially provide a tailwind over the next two years to three years.

A survey by the National Association of CIOs indicated that most state CIOs expect that remote work will continue and the need for digital services will increase. CIOs also said they plan to modernize legacy systems in the next two years, with human services and public welfare, labor and employment and health services notice priorities.

Tyler is well-positioned to help public sector leaders address those needs. We also remain on track with our R&D projects around our cloud initiative and with our progress toward hosting new SaaS implementations and on-premises conversions in AWS.

Our cloud operation team is engaged in 2022 planning, with a focus on continued product optimization, data center migration and operations maturity. Finally, I want to welcome the newest member of Tyler’s executive leadership team, Kevin Iwersen, who joined Tyler earlier this month as Chief Information Officer.

Kevin is a seasoned IT leader with experience managing technology infrastructures for corporations, statewide judicial courts, statewide executive government agencies and U.S. military organizations, most recently serving as CIO for the Idaho Judicial Branch.

Kevin will work closely with our former CIO, Matt Bieri, until Matt’s retirement early next year. I’d also like to express our deep appreciation to Matt for his tremendous leadership of our IT and hosting organization over the last 11 years and wish him the best in his retirement. With that, we’d like to open up the line for Q&A..

[Operator Instructions] Our first question comes from Matt VanVliet from BTIG. Please go ahead..

Hey. Good morning, guys. Thanks for taking the question and nice job on the quarter. I guess pertaining to the commentary that was in both the press release and you’ve talked about this morning in terms of some of the stimulus funding finally sort of making its way into the market.

Wondering if you could give us some additional color in terms of where you’re seeing some of that coming through now, where are some of the newer sales activities pertaining to jurisdictions that feel like they have more budget to spend and maybe you are looking at nice to have types of projects and anything additionally around types of products that they’re most interested in terms of using that funding? Thanks..

Yeah. Sure. Matt, It’s a good question. It’s something that we’re starting to track a little bit more. I’d say, you’re seeing it really across a lot of our solutions. But I think we’ve seen a lot really on the enterprise side. We’re seeing a little bit in schools and we’ve seen some over on NIC.

I think right now, if you look at Q3 and Q4, there are a few dozen deals out there that that are certainly being spurred right now through some of that federal stimulus spending and I’d expect some of that to continue..

Great. Thanks. And then following up, I guess, on the exact sort of contribution of what the NIC business is looking like in the guidance for kind of the full year what the contribution looks like, understanding that some of that was one-time.

But Brian, if you could help us just kind of what the underlying core business is contributing there and kind of what the growth continues to look like on a forward basis? Thanks..

Yeah.

So exploiting NIC, the current guidance would have Tyler’s forecasts, I guess, the midpoint of our guidance would be around a $1.224 billion revenues and that would be the midpoint around 9.5% growth for the full year and that would imply, again, at the midpoint of our guidance around 11% growth for the core Tyler operations in the fourth quarter.

And NIC, as we had discussed, the COVID-related initiative revenues have continued beyond when we thought even at the end of last quarter, they would wind down.

We had at the end of last quarter our guidance had about $17 million for the second half of the year and we did $43 million under those initiatives in Q3 and now expect the full year to be about $72 million, so about another $13 million or so in the fourth quarter and some of that then continuing on into next year.

But NIC’s core growth excluding this core -- the COVID initiatives was around 5% in the fourth quarter, I’m sorry, in the third quarter. And there’s some seasonality in their fourth quarter core operations, particularly around the holidays and some of the transaction volumes tend to fall in the fourth quarter.

So their fourth quarter probably is what our guidance reflects that in the fourth quarter numbers..

Great. Thanks for all the color. I appreciate taking the question..

The next question comes from Scott Berg from Needham & Company. Please go ahead..

Hi, Lynn and Brian. Congrats on a really good quarter here. I guess I get several questions is, bookings were quite strong in the quarter especially excluding NIC.

Lynn, if we dissect those a little bit, how much of the bookings in the quarter are maybe catch up deals that were pushed from the earlier stages of the pandemic just into the current period or you kind of seen more of a return to a normalized deal cadence here, which you’ve been enjoying for the last decade or so?.

Yeah. I think it’s a combination of a couple things, Scott. We did have a couple of very large deals that we signed in the quarter, which obviously were absent in Q3. Q3 was difficult last year.

But I think, as I mentioned in my comments, when you look at the market activity and what I’ve talked about over the last several quarters is, over the last 18 months or so the pandemic is sort of affected different parts of our business a little bit differently.

Some were hit a little bit harder and I think I’ve mentioned before that if you look at, for example, our mid-to-higher end financials are Munis product.

That was an area that was hit a little bit harder and what you’re seeing there, for example, is you’re seeing awards and deals that are actually exceeding pre-COVID levels and I think that’s the example of what you just mentioned, which is, it’s really the example that both pent-up activity, as well as I think, sort of validate some of the investments and some of the strategy that we’ve been doing over the last couple years..

Excellent. Thanks. And then from a follow up perspective, Brian, on the guidance for the year, if I back out the added revenues expected from NIC, it looks like your core Tyler guidance is roughly flat for the year.

How are you thinking about kind of deal mix around subscription versus license deals, because the bookings were certainly strong, I guess, I would have maybe expected a little bit more increase in kind of the core Tyler revenues, but that’s probably related to maybe stronger subscription bookings mix than maybe what you’re previously expecting?.

Yeah. I’d say that’s accurate. We’re generally expecting the mix to continue to trend toward an increasing percentage of SaaS. Now, the fourth quarter, as you know, typically is a strong quarter for Public Safety, which still is primarily on-premises and so that tempers that a bit, but that also was the case last year.

But, in general, we expect an ongoing continuation of the trends we’ve seen where a higher percentage of the mix is SaaS..

Yeah. I think I’d add there, Scott, that it’s -- the amount of SaaS is actually, even exceeded our going into year expectations and while we expected the market to be moving this way, we talked before the pandemic has certainly accelerated that.

And you look at areas, I’ll mention, Munis again, I mean, we’re north of 85% of our deals are SaaS now, you look at our lower end financials and in code north of 80%, while last year they were 50%. So there is some of that headwind. I think as the model continues to play out, we’ll get on the other side of that..

Excellent. Thanks for the color. Great quarter guys..

The next question comes from Ethan Bruck from Wolfe Research. Please go ahead..

Hey, guys. It’s -- I think this is -- it’s Alex here from Wolfe. So a couple questions for me. First, if we think about the, I wanted to ask about the maintenance revenue in the quarter, the maintenance revenue was, I think, a down a bit sequentially.

Are you starting to see -- is that conversion activity starting to pick up a little bit and how should we think about it in Q4 and beyond?.

Yeah. I think that’s accurate. So each of the last couple of quarters have been new all-time highs for us in terms of the number of conversions, and certainly, when you look back at the last four quarters, which all kind of filter into the maintenance growth.

The last four quarters have well exceeded the flips or conversions that we saw in the prior year and just as the new business is shifting towards more SaaS, there’s an increasing interest in on-prem customers flipping.

So that does have a negative effect on maintenance, but generally they’re -- the revenues that are going into the subscription side as they flip is about 2x what the maintenance was. So that’s a component on the other side of the high growth in subscriptions.

And then you look at the mix of new business over the last year, as it continues to shift towards more SaaS and less license that has an effect on the growth as well.

And then the last thing is some attrition around our legacy product at -- in the federal business, where the federal government has mandated some states to move off of our product and onto a federal provided product that’s had a bit of an impact there as well.

So but the flips, I’d say, are the biggest impact those ongoing conversions and that’ll continue to be the case and at some point, over the next couple of years have likely be a significant acceleration in those as we have the ability to accelerate that through moving those customers in AWS..

Yeah. I think, Alex, to -- I guess to summarize, if you look out over the next couple years, you’ll see that subscription revenue line continuing to grow at an increasing pace.

Conversely, you’ll see licenses contract proportionately and maintenance will probably continue to flatten out, as Brian mentioned is, as those annual increases started getting offset by flips, which our flips are up significantly year-over-year from last quarter..

Perfect. And I guess, maybe on the NIC side, so as you talked a little bit about the increasing -- increase in synergy opportunities that that you’re starting to see in the base.

When should we think about, like, when we think about the -- that 5% growth that for that core NIC business that you talked about? Is that something, like, how should we think about that trending or it is an acceleration that that is going to be you guys think is sustainable from that level from here kind of ex the one-time revenues from COVID? And on the COVID impact, is there any reason why we do think that they end in the first half next year or are there any of those that actually have the potential to be more durable, given the variability of mandates?.

Yeah. I’ll start with the last one. I guess, I would say, on a personal note, I think, I’ve said before, I would -- I wouldn’t be -- I’d be happy if it ended. That means that COVID is getting further in our rearview mirror. It’s our expectation.

The revenues right now are primarily out of three areas, it’s out of the State of South Carolina, where they’re the primary -- doing the primary testing, also the State of Nevada and then we’ve mentioned the Virginia Unemployment Relief stuff.

If the expectation is, I mean, it is a little bit of a guess, but it’s an educated guess and we’re assuming that that will wind down.

What’s interesting about the South Carolina revenues as that will move from a contractor role to a subcontractor role, so while those revenues will still continue and eventually taper off, I think, our margins on those will increase.

I think what’s important about the COVID initiative, though, is it really shows the ability of NIC’s team to innovate, it shows their agility and it also shows the relationships that they have with their state enterprise contracts that they could spin these things up quickly and create new solutions and I think that’s what’s exciting.

When you talk about, I think, your first question was about growth rates going forward. We’re excited. I can’t tell you how excited the sales teams are, as they meet, they get together.

I think as we move forward, we talk about selling all our different products through the NIC’s sales channels, and conversely, what we can bring to NIC, but you think about with Tyler Payments and we’re already seeing a lot of our Socrata Data & Insights and Entellitrak platform, Public Safety and Civic and Munis, all those deals are in the pipeline and I don’t know that going forward, we’ll always be able to sort of segregate, oh, these were NIC deals, because these are Tyler products going through them.

We probably at some point won’t continue to isolate the NIC revenue growth, but what we see overall with Tyler is as part of this acquisition and part of the underlying rationale is that we believe that will help drive Tyler’s overall revenue growth at a higher level than it would have on its own..

That’s super helpful. And then the last question I wanted to ask about the IRS contract.

Is there a way to dimensionalize at least what the expectation may have been for that revenue stream in 2022 before the cancellation of the agreement and any thought for us in terms of how we should think about modeling that for next year?.

I’ll start but I don’t see if you have the number, but the revenues in 2022 -- the expected revenues in 2022, we have a number, Brian will get it.

But a little bit was uncertain, because how fast we could get up and running and with the payment starting early in the year, the real revenue, I think, expansion was going to happen in the later years of the contract. There were some significant revenues expected.

And to be honest, it’s my expectation that this procurement will come back out in the sometime this year. We’ll bid it again and for the reasons we won the first time, we should be extremely competitive going forward. Brian, you have….

Yeah. We have talked about that last quarter, when we had gotten the award and I believe that number was, there were multiple providers and I believe the number was $40 million to $60 million in gross revenues and something more, I think, in the $5 million to $6 million range on a net basis after all the interchange fees.

But we currently expect that, while we’re virtually certain that there won’t be any revenues in 2022, that while the IRS works through this procurement process that the existing vendors will be held in for another year. So now those weren’t in a -- none of those revenues have started already. So there was nothing in our current base that goes away.

But it’s pretty clear that won’t be a 2022 impact at this point and we’ll see how fast the new procurement takes place..

Got it. Thank you, guys. Congrats..

The next question comes from Charlie Strauzer from CJS Securities. Please go ahead..

Hi. Good morning.

A quick question for you, I know you don’t like to give out formal 2022 guidance until the next call, but maybe some early thoughts on, so what you’re thinking about for next year?.

Well, you’re right, Charlie, we don’t like to get out ahead of ourselves. We -- right now we are well into our 2022 planning. There’s a lot of variations, lot of factors that go into that. We’re still in the early stages. I’d say, we’re kind of on track with our normal planning process. I’d really expect to have better information later this year.

I think it’s just a little too early right now to go ahead and forecast 2022..

That’s fair. No problem. And then just looking at the labor side, a lot of companies having labor issues, trying to find new qualified people, I’m sure you’re not immune to that as well. Maybe you can talk a little bit about the labor side, any difficulties you have in there, the cause in wage inflation, et cetera? Thanks..

Yeah. Charlie, I think, that’s a good point. It’s -- we’re all reading in the news, what’s going on across multiple industries. The labor market is certainly evolving right now. There’s staffing pressures. There’s wage pressures. And I’d say, Tyler hasn’t been immune to that.

I think there’s still a little to figure out about how permanent this is versus how transitory it is. You’re seeing people leaving careers for lifestyle changes. We call it sort of COVID casualties.

You’re seeing competition for wages and more people are now being more accepted to flexible work and work work-from-home that you’re seeing people come in and go into markets that they may not have traditionally tried to hire people from and we’re dealing with that as well.

I think if you look across a lot of our business units, we’re staffed a little bit under plan. Our HR team and our recruiters are doing a really good job responding to this. Working really hard, but it is something that’s it’s top of mind. It’s something that we discussed at the executive level, and you’re right, Tyler has not been immune to it..

And just speak up on a little bit more when you look at your current employment base, are you still asking people to kind of move back on site and into the offices this fall?.

Yeah. So we’re on track to sort of -- we’ve taken a phase-based approach and we’ve taken a locally-based phase-based approach is, as the jurist -- each jurisdiction is a little bit different the way they’ve handled it.

And so essentially we’re on track right now to sort of come back to what we would call full back in the office at the first of the year. What that means is probably not exactly what it meant before COVID. There will be a little bit more flexibility. That’s part of the market today and so I’d expect some of that going before..

Great. Thank you very much..

The next question comes from Rob Oliver from Baird. Please go ahead..

Great. Thank you, guys. Good morning. My question, first question is, Lynn, on Public Safety, just wanted to dive into that a little bit, it sounds like you guys are excited about Arx deal in terms of the full suite of products that it gives you guys for police.

So I wanted to ask about that and whether we would expect that to be available in the bag of solutions for your Public Safety sales folks that are closing deals in the all important Q4 here? And then just a broader question about what you guys are seeing and hearing from customers and Public Safety.

I mean, it’s really been a secured its type of a year where we went from defined and now it seems like more in fund environment? And just curious what that means for you guys relative to the pipeline in your confidence levels on public safety into Q4? And then I had a quick follow-up..

Yeah. Thanks, Rob. That’s a good question. Arx is a -- yeah, we are excited about Arx, it is relatively small acquisition.

Even Arx really it’s a database solution that that really helps the Chief of Police, helps the command staff, helps supervisors, really had more insight in the activity of the law enforcement that are on the job, helps with compliance issues, helps promote officer wellness by doing things like identifying stress, risk mitigation.

And you’re right, there has been sort of talk around Public Safety area and a lot of different areas, and a lot of focus lately and has been on law enforcement reform and this was something that was missing in our product suite. Arx is a company that’s based in Detroit, which is close to our Public Safety office in Detroit.

They had been a partner of Public Safety in a number of deals. This solution had been sought out more and more, and you’re right, it really rounds out our portfolio of Public Safety Solutions.

I’d expect it to be something like we do a lot of acquisitions that it’s something we’re going to sell in our Insight channels and it’s also going to become a differentiator in new deals. You’re seeing more and more Public Safety entities looking for these types of solutions for the reasons you just talked about.

When you talk about the funding for Public Safety, I mentioned earlier that are, different parts of our business were impacted differently and Public Safety is not suggesting it wasn’t impacted, but it’s still going pretty good. The number of license deals that has got this year, they’re expected licenses are up over 35% year-over-year.

We’ve talked a lot before about the investments we’ve made there and then the number of deals that will be $1 million plus in license will be more than we’ve ever had before.

I think the funding is there, the initiatives are there and I -- we’ve been making a lot of investments and we’ve done some acquisitions to have round mobility and things like that, that make us even more competitive. So I’m pretty still -- I’m still very excited about where we stand with Public Safety and where the future is for that..

Great. I appreciate that’s great color. Thanks, Lynn. And then just one follow-up, I know, Matt, asked that first question about, the stimulus funds and you touched on that.

But I just did want to follow up, just briefly, because you guys said in both the press release and in your comments here that, you’re starting to see some deals that are specifically related to that funding and you mentioned, I think, the pipeline of I think it doesn’t spurred by fed -- federal stim. Just curious, what you’re hearing from customers.

You mentioned a pretty wide swath of Tyler products and is -- can we assume that the bulk of Tyler’s products would qualify and our available under that and then, if not, you -- I think you mentioned kind of potential tailwind over many years. So are there two ways to think about this, is it one way to think about it.

Yes, federal stimulus dollars are going to be flowing to Tyler clear positive. Another would be that budgets being shored up also creates opportunities for more confidence in spending or is that kind of the right way to think about a couple of different buckets? Appreciate it..

Yeah. I’d say and to clarify my comments earlier, if you look at the deals in Q3 and Q4. I’d say, there is probably a few dozen deals where they’re being impacted. I’m not suggesting that they’re being fully funded, but they are -- there may be partial funding or part of the equation.

I think your comment is around confidence is something that I’ve touched on before and I believe that the confidence of having that blanket behind them along with generally what’s been going on in the market is helpful for all the deals.

We are seeing federal stimulus, when I talk about these few dozen deals, they are across different products of Tyler. I don’t know that I would necessarily single out more than others. Although, there are some stimulus dollars that are specifically tied to schools. So, I think, generally it’s a positive.

It’s something that’s still a lot of our clients and prospective clients are -- there is still a lot of them still trying to figure out, how do we access them, which dollars are actually there and it’s something that our marketing team in conjunction with our sales teams are putting together materials to help educate our clients and help navigate them where we can.

But, yeah, it’s a tailwind. Generally speaking, it’s hard to quantify at this point. But, overall, I think, it’s part of our -- it’s part of the reason for optimism we have at Tyler..

And the American Rescue Plan, there is not much restrictions on what they can use it for us. So, I’d say, generally almost anything Tyler has in our portfolio is would be available to be purchased or acquired through the ARP funds and they have until the end of 2024 to spend those funds.

And the indications we have is that it’s a very small percentage of those funds that have so far been spent or even allocated, there is still a lot of work going on in governments around determining how they’re going to spend those. But there it’s -- there’s a lot of flexibility around what they can spend those on..

Yeah. I think they’re trying to route one or two school buses for our whole district. So I ask those guys to give you guys a call. So, hopefully, you’ve got that from here in Connecticut. Thanks guys. Appreciate it..

The next question comes from Kirk Materne from Evercore ISI. Please go ahead..

Yeah. Thanks very much and congrats on a good quarter. Lynn, I was wondering if you could talk or Brian if you could talk about just sort of the bookings level for NIC on an organic basis and I know obviously the core Tyler bookings were up a lot. But NIC’s growth of that 5% or is the book ahead of that rate right now.

I realize there some rev rec things that make it a little tricky, but are you pleased with sort of the bookings trends in NIC right now?.

Because they’re mostly transaction base their bookings and revenue….

Aligned..

…are pretty aligned, yes. They have some software business and I had a couple nice deals this quarter, we mentioned our biggest software dealer across Tyler came through NIC. But, generally, the vast majority of their revenues are coming through transactions, they are pretty much aligned. They’re pretty reliable.

I guess that there is a little bit of seasonality. So we saw higher growth last quarter, a little bit lower growth this quarter. One of the areas that had been impacted in their business more by COVID is the driver history records, which is a significant part of their business and the growth there is a little slow right now.

But expect those to rebound as things get back to normal, but offsetting that is that transaction volumes are generally up given the people are doing more business digitally with state governments. So, but generally, those bookings and revenues would be pretty similar..

Okay. That’s helpful. Thanks, Brian. And then, Lynn, as you look ahead 2022, you obviously have a much broader product portfolio at this point in time? What sort of your temperature on in terms of sort of focusing on what you have already harmonizing technology, go-to-market versus doing any other deals.

I know you did a couple of smaller tuck-ins this quarter, but you have a huge product portfolio. I assume the focus is going to be on more just sort of again harmonizing the technology of what you have and go-to-market.

Is that sort of the way we should be thinking about the strategy in the next year?.

So I think you’re right, we do have a lot of initiatives going on. We do have a lot of with larger portfolio than we did even three year, four years, five years ago. We are focused on. We did just spend over $2 billion on NIC. We’re clearly focused on that.

We’re also clearly focused on our cloud initiatives and things that we need to do to continue to optimize our products and do some things with our internal operations as we move there. I’ve talked before about how we approach M&A generally and we’ve done a little bit this year.

And I think earlier when we’re talking about NIC, I said, we may go back to a couple of years ago, where we have a little bit of deliberate pause, we did a couple of other deals this year VendEngine, DataSpec. These were deals that were sort of in the works. I think though as we go into next year, we’re going to remain opportunistic.

We’re going to continue to look at deals. I continue to look at deals today. I have been looking at deals over the last couple of months. Even though while we still have all this activity going on and when the right deal is out there.

If it fits a need, whether it’s small, medium or large, we will definitely still in the position to execute on that and then I would expect that we would..

Okay. That’s helpful. All right. I’ll leave it there. Thanks guys..

The next question comes from Keith Housum from Northcoast Research. Please go ahead..

Good morning, guys. And I’ll echo the quarter was great for you guys. Congratulations. Recall that the NIC business and just revisiting the prior question, it seems like the driver history record for NIC is not been up to par since really COVID began.

Is there anything structurally that perhaps has changed at the driver history records perhaps might not go back to the previous gross -- growth trajectory they had?.

I didn’t quite hear the question..

Oh! I don’t -- we’re not aware of anything structurally, fundamentally that’s changed around that. We expect that those will rebound back to normal levels.

Certainly, there is no change in the way insurance companies are getting their information, but -- and there hasn’t been a change in our pricing, at least no negative change and I know in some of our renewals we’ve been able to get increases in pricing. So don’t think there’s any fundamental change around the DHR side..

Got you. Okay. Appreciate it. And the length of your contracts, obviously, I was 3.4 years and average this quarter was very good. I remember back to previous conversations, the idea was short of time spend opportunity have raised -- to raise prices on the contract renewals.

Can you talk about the success you guys are having in terms of pricing changes as contracts are coming up for renewal?.

Yeah. I think in the last -- there hasn’t really been a change through COVID. We’ve been generally in maintenance agreements. We’ve targeted kind of in the 4% to 5% annual increases in on subscription renewals, targets are generally in that same range.

And as you said the shortening the initial terms because those revenues are straight lined over the term of the agreement, gives us the opportunity to realize the benefit of those increases sooner. And generally we’re leading with shorter terms and this quarter had success with that.

Occasionally, particularly on some of the large contracts like I think back to the North Carolina courts injustice we have a 10-year agreement. So that can bounce around a bit. But we do prefer to have shorter agreements and the pricing has been in line with what we’ve historically tried to achieve..

Great. Thanks..

The next question comes from Jonathan Ho from William Blair & Company. Please go ahead..

Hi. Good morning. Congrats on the strong results. I just wanted to maybe start out with some additional color on the VendEngine and Arx acquisitions that you guys recently made and just potentially understanding what the opportunity is to up-sell these types of opportunities there..

Yeah. Sure, Jonathan. VendEngine, we’re pretty excited about that acquisition. It was a little bit larger. We’re excited about both. But I didn’t mean to imply. We’re excited about Arx. I think I just talked about Arx a little bit.

But for VendEngine corrections -- and the corrections market for us with something that we’ve really seen as a significant growth opportunity. We’ve been investing in some in our core corrections product for some time.

It’s a key part of our Tyler alliance, which our Connected Communities Vision and it’s really sort of -- the corrections area is sort of the crossover points between courts and Public Safety and is probably the largest market and this is white space that we didn’t really have a leading product.

And inmate services is becoming increasingly important to that opportunity. There is more and more requirements in RFPs around there. We partnered with VendEngine over years in a number of deals and they’re really just a leader there.

I expect that the revenue this year will be somewhere in the $20 million all IRR and it’s been growing at 30% plus for the last few years. I do think we have enough opportunity to sell that into our existing client base, but also it will help us lead with our corrections and standalone deals. So we’re pretty excited about that deal.

Similarly with Arx, I talked a little bit about -- before about the focus on law enforcement reform and that was a bit of a hole in our portfolio, again almost similar playbook, we had worked with them some, really like them, really like the product, good cultural fit and we really think it will round out our portfolio, and as you mentioned, selling back into our base.

I mean our existing customer base is something I say all the time, it’s our greatest asset and the more solutions we have, the more that we can push through there and drive growth..

Got it. And on that multiproduct sale point, can you -- maybe give us a sense of how to better understand how some of these incremental products have been uplifting your deals. I think the examples that you cited, you did mentioned a number of multiproduct opportunities.

What should we think about in terms of maybe net expansion rates or the ability to cross-sell more into the base over time, as well as multiproduct on new sales? Thank you..

Yeah. You are -- we’re seeing it across all of our solutions and we talk about some of these smaller core tuck-in deals. Those are deals that actually are really are being sold quite a bit now across our product lines. You look at Public Safety for example. We’ve talked about deals where we sell either our core cat or core records.

But it also includes things like Socrata and you probably heard us mentioned Data -- Data & Insight is becoming a differentiator for us across many product lines. But we also talk about Mobility and Brazos, SoftCode and Mobilized. These are all products that were done through acquisitions in the last three years, four years, five years or so.

You see it on the enterprise side, things like ExecuTime, time and attendance management.

We’ve seen it in the court space and it is part of our overall strategy and it makes us that much more competitive as we have a wider range of solutions and sort of an enterprise suite as we compete against people who don’t have such a diverse set of solutions to fit the client needs..

Great. Thank you..

The next question comes from Peter Heckmann from D.A. Davidson. Please go ahead..

Hey. Thanks for taking my call. I appreciate it. I’m trying to figure out on just appraisal and also a big part of the business, but it seems like there have been some notable wins there.

Do we expect a real step function change in the size of that appraisal business or other older contracts rolling off and you’re appraisal should kind of continue to be a pretty consistent contributor?.

I’d say broadly it’s pretty consistent. We have deals. These projects often our multiyear projects sometimes two years or three years, sometimes longer. Some of them are driven by legislated cycles in certain state like Indiana and Ohio that have regular cycles, where we have the almost like recurring appraisal projects. Others are more one-off.

These three counties in Delaware that comprise all of Delaware that we’re getting ready to start. It was a court-ordered reappraisal, so sometimes the courts get involved when it’s determined that appraisals are out of date and maybe contributing to unfair distribution of taxes. So that’s the case with these.

And we are pretty uniquely positioned to be able to have a strong competitive position in those large deals and there’s one-off kinds of deals, they can be a little bit lumpy, and but I’d say, we’re generally in a -- at a range we’re probably on a more active period right now, particularly coming out of COVID where some of these projects may have been delayed, but I wouldn’t say it would be a step function, where there is a big step up.

But we’re doing really well in that business right now..

Okay. That’s fair. And then just and thinking about the NIC business and you gave out some renewals of state contracts that appear to be far ahead of their actual expiration date and so as you go through and start talking to these states, are you trying to get them to renew early and opt up for additional years.

And just as regard that, we certainly with the change in Texas and Deloitte kind of getting back into the market.

How are you thinking about some of their more mid-sized state renewals here over the next 18 months? Do you expect any change in the competitive dynamics or is kind of your base case that a renewal with the ability to up-sell some additional Tyler applications?.

Yeah. I think is -- I would say, my outlook is pretty optimistic. I will talk about Texas first, our payments business or their -- NIC payments business in Texas is one of our strong outperformance this quarter. When you talk about -- we mentioned Utah and we mentioned Oklahoma, these were early renewals.

And part of that actually the reason for the early renewal was some of the excitement that’s been generated through NIC with the customer about what the combined entity of Tyler and NIC can bring. We’ve talked about our Connected Communities Vision.

We’ve talk about the different products and offerings that we can bring and I think both of these states were areas where they’re seeing that future and they wanted to get -- they wanted to go ahead and jump in early, which gives me optimism for what I think we’ll see going forward in the market..

Okay. That’s good to hear. That’s all I have for now. Thanks..

This concludes our question-and-answer session. I would like to turn the conference back over to Lynn Moore for any closing remarks..

Great. Thanks, Jason, and thanks everybody for joining us today. We hope you stay safe and healthy and if you have any further questions, please feel free to contact Brian Miller or myself. Have a good day everybody..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..