By John Manning
Tyler Technologies (NYSE:TYL) announced their third quarter earnings statement for the year 2013 on October 23rd. Tyler is a major information management solutions provider, their focus is on end-to-end IT services for local governments around the world. Forbes labeled Tyler as one of the America’s best small companies who has provider information management solutions to over eleven thousand local government offices in all 50 states. Tyler has a global footprint consisting of local governments in Canada, several of the Caribbean islands and the United Kingdom.
Since January 2013, Tyler’s stock price has increased by a whopping 106.44 per cent (Figure 1) on a year-to-date basis, as it mounted from $48 per share to $103 as of today (October 25). Tyler stock is currently trading with a P/E ratio of 89.84, making it a very high growth company in the eyes of investors.
As a growing company, Tyler has managed to increase its earnings per share (EPS) to $0.34 (common share) in third quarter from $0.29, in the second quarter of 2013, which represents an increase of 13.79 per cent earnings per share. On the other hand, total revenue is up 14 per cent, from $93.8 million to $107 million.
For 2013, expected total revenue (total year) range is set to be between $412 million to $416 million. Revenue is estimated to increase another 12 per cent over the course of 2014 (projected), revenue by end of December 2014 is set to be at $469 million.
One of the biggest worries for Tyler was that their non-GAAP gross margin declined 1.5 per cent as gross from 48.7 per cent in the third quarter of 2012 to 47.2 per cent in the third quarter of 2013. The margin decline is mainly due to the expenses associated with implementing the TexFile contract. Tyler management is expecting the same expenses will also pressure margins in the last quarter of 2013. Regardless, of the lowered margins, Tyler’s EBITDA increased from $23.5 million in third quarter of 2012 to $24.2 million in third quarter of 2013, representing a growth of 2.9 per cent.
Taking the double digit growth in all the software related revenue streams in third quarter into consideration, president and chief executive officer (CEO) of Tyler Technologies, Mr. John S. Marr Jr. called the growth prospects “a solid one”. According to Mr Marr, company subscription revenues are the fastest growing segment as revenue growth was 34 per cent in third quarter from this stream. Tyler’s success in the subscription segment came by adding clients for their Software as a Service (SaaS) and e-filing offerings.
The market seems to have already priced in the latest double digit growth in Q3’13 as prices of Tyler’s stock is already up 9.57 per cent, just for October 24. However, delivering another growth year in 2014, to increase yearly revenue up to $ 469 million, will be difficult if the Federal Reserve stops the stimulus packages and curtail its open market bond buying operations by mid-2014. For value investors it is advisable to take caution regarding investing in a highly overbought company such as Tyler Technologies, at current price levels. As P/E ratio is nearing 90, this stock is currently marked for shorting by savvy investors.