Hello and welcome to today’s Tyler Technologies Second Quarter 2012 Conference Call. Your host for today’s call is John Marr, President and CEO of Tyler Technologies. [Operator Instructions] As a reminder, this conference is being recorded today, July 26, 2012. I would like to turn the call over to Mr. Marr. Please go ahead.

Thank you. Welcome to our second quarter 2012 earnings call. With me on the call today is Brian Miller, our Chief Financial Officer. First I’d like for Brian to give the Safe Harbor statement, then I’ll have some preliminary comments, and Brian will review the details of our operating results. Then I’ll have some final comments and we’ll take your questions. Brian?

Thanks, John. During the course of this conference call, management may make statements that provide information other than historical information that 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 refer you to our Form 10-K and other SEC filings for more information on those risks. Please note that all growth comparison we make on this call today will relate to the course binding period of last year unless we specify otherwise. John?

Thank you. Our second quarter financial results builds on a solid performance over the last 5 quarters as this was the sixth consecutive quarter of year-over-year revenue growth. We continue to see exceptionally strong growth in our recurring revenues from subscriptions and maintenance, which together grew over 24% and represent approximately 58% of our total revenues for the quarter. Our return to growth levels more in line with our historical experience is partly attributable to a modestly improved market. We have improvement across the board in our competitive position from continued investments and our products relative downturn is the primary cause. We had another very good quarter for bookings. We signed a contract valued at more than 8 million with the city of Charlotte North Carolina. Charlotte is the 17th largest city in the country by population. It will be the largest city to implement the Tyler ERP system to date. This was dealing with the [ph] highly competitive process including major Tier 1 ERP vendors. We believe it speaks to Tyler’s strong market position. We also signed the contract with the city of Gillette, Wyoming which represents our first news client in that state. Other significant contracts in Munis ERP solutions announced during the quarter include St Lawrence County New York, city of Alexandria, Virginia, Alexandria City of Public Schools, the city of Des Moines, the capital of Iowa, and the city of Miramar, Florida. We have also announced agreements for our Incode Municipal Court case management solution with Oregon's second largest city – Eugene, and Plano, Texas, Texas's ninth largest city, and the nation fourth fastest growing city since 2010. Jackson, Mississippi, the state's capital and largest city also signed the contract for our Municipal Court software during the quarter. We signed contracts with Scarsdale, New York and…

Yesterday, Tyler Technologies reported its results for the second quarter ended June 30, 2012. You’ve seen the press release and the 10-Q has been filed so I am going to provide some additional data on a quarter’s performance then turn the call back to John for his final comments on the current quarter and our outlook for the remainder of 2012. Revenues were $91.4 million a new quarterly high up 19.1%. Organic revenue growth was 11.9% led by increases in our recurring revenues from maintenance and subscriptions as well as growth in our software services revenue. Our acquisitions of Windsor, UniFund and CSA accounted for revenues of $5.5 million or 7.2 percentage points of growth. Subscriptions continue to be our fastest growing revenue line and grew 45%. Organic growth was 41.1% and the impact of acquisitions was 3.9%. We added 24 new subscription based arrangements and converted 17 existing installed client during the quarter compared to a total of 13 new arrangements and 10 conversions in the second quarter of 2011. Approximately 33% of our new software customers opted for one of our cloud based solutions up 67% purchase to deployed solution with an associated perpetual software license. The subscriptions line also includes the growing revenue stream from transaction based revenues such as e-filing for courts and online payments. These revenues total $2.3 million up from $1.5 million for the same period last year. Software services revenues increased 20.8% with 13.3% organic and 7.5% from acquisitions. Organic growth was primarily driven by the ramp-up of work associated with the implementation of contracts signed in recent quarters including the Oregon and Maryland courts contracts. Maintenance revenue growth was 20%, of which 10.4% was organic. Our maintenance revenue growth rate continues to be reduced somewhat by the effect of existing installed clients…

Thanks, Brian. The results for the quarter reflect the continued gradual improvement in the marketplace in the stability and steady growth in our current revenue. After 2 years of limited growth and strong expense management we are making the necessary investments largely additions to professional services areas that do temporarily delay margin expansion. My experience we’ve characterized the market is having somewhat recovered from the weakness that we seen prior to 2009 level. We are pleased with the improved market share we have achieved this is a reflection of improve collaboration between our sales and marketing people working with developers to identify and address on a timely basis the changing needs of our customers and prospects. Our backlog grew year-over-year for the 9 straight quarters. As a rollout of Dynamic Microsoft Dynamics progresses both Tyler and other Microsoft partners are now actively selling Microsoft Dynamics AX and are starting to build the pipeline. We have very low visibility into the pipeline from the Microsoft partner channel. In most of the early opportunity the Tyler is pursuing with dynamic solutions have not yet reached the point on selection. Most of the sales by Microsoft partners in the first 2 quarters have been upgrades from other Microsoft products which do not carry a license royalty but do earn maintenance royalties. Given the length of a typical sale cycle it is not surprising that we have not seen a large sales in the first half of the year. In Q2 we received royalties of about a $129,000 related to the sales of Dynamics by other Microsoft partners in Q1. These include sales in 5 countries and a mixture of new and upgrade customers. As we have consistently said in the past we do not expect Dynamics will generate meaningful revenues before 2013 and we will not likely be profitable before 2014. Our 2012 annual guidance is generally unchanged from the last quarter. 2012 guidance is we currently expect revenues in the range of 360 to 366 million. We expect 2012 diluted earnings per share to be approximately $0.95 to a $1.02. With fully diluted shares for the year are expected to be 32.5 to 33 million. For the year, estimated pre-tax expense related to stock options and employee stock purchase plan is expected to be $7.4 million or approximately $0.18 per diluted share after taxes. We estimate an effective tax rate for 2012 of approximately 39.2%. We expect our total capital expenditures will be approximately $16.5 million to $17.5 million for the year, and total depreciation and amortization will be between $13.2 and $13.7 million. Capital expenditures for the year improved approximately 9 million related to the real estate and office facility under construction. Now we will take your questions.

[Operator Instructions] Your first question comes from Timothy Quillin at Stephens, Inc.

I don’t think anybody really expected to royalty revenue to be meaningful at this point, you’ve said early on the year that’s you would hope that it would be equal to the drop off in R&D reimbursement or offset that. And I just want kind of verify what that mean exactly. So does it mean that the -- I think reimbursement last year was 3.5 million and this year it will be something like 1 million. So does that mean that 2.5 million differences is the revenue that you hope to have or is it, is it little more complex in that.

Now -- generally what we patterned that plan but again as we’ve said we really don’t have much visibility on what comes through the channel. I know its active but as we know in this business it takes a long time actually occur what we’ve recognize in one quarter actually reflects what they did in the previous quarter and what we booked in Q2 with Q1 result. But that is what we put in the plan and what we’ve previously communicated. We will probably going to need more activity in the second half than we would have expected so the first half so the little larger than what we had expected but again it is bit hard to call because there really isn't a lot of -- visibility there. And Tim we are talking about that we were talking about revenue both from the royalty stream and from our direct sales, and so this quarter 129,000 reflected the royalty and -- about another we're less than 400,000 of revenues from our direct sales of dynamics.

Right, okay. And then cash flows Brain, generally about your cash from operations is 1.5 to 2x net income on an annual basis, is that still the goal this year or is there something changing about the cash flow dynamic.

No, I think that’s still the same for the year, I think for the last 5 years we’ve managed about one and a half times and I think our expectation is still the same, I think this quarter there was a little bit timing just seems to be a little bit less we see in Q2, Q3 as we said is off to a strong start that basically offsets the shortfall in Q2, and I think there is a little bit of effect from the ongoing shift towards a little bit more subscriptions that is more pronounced this quarter, but for the full year I think our expectation is for that relationship to be similar.

Okay. And just lastly, you’ve won a couple of large ERP deals this year in Charlotte and Pasco county schools, and I’m just wondering if you feel I guess what your win rates are on larger deals on ARP and if you feel like your winning rate is starting to increase on larger size opportunities? Thanks.

Well, the sampling on deals of those sizes are probably small enough but it’s hard to get meaningful market intelligence out of it. We do know on broader samples that our competitive position in those products has improve pretty significantly over the last 2 years. So we are pleased with that. Our people work very closely we know that smaller marketplace out there is very competitive and that we need to respond to everything we see in the marketplace and our customer base to improve our competitive position and our people have done a very good job doing that to seeing those results. But again percentages on deals the size of Charlotte, Pasco, could be misleading, because there just isn't enough. Just as you observed winning those 2 deals is significant and Charlotte would be largest city that purchase this, it’s an arms [ph] wouldn’t deal, no existing relationships. Amazon [ph] deal against the primary tier 1 players and we I think one of the pretty solid player there. So we feel good about that and we would certainly hope that that will position us even better and those have the opportunities going forward. There are other active opportunities in that size range where I think we are playing pretty well most situations.

Our next question comes from the Charles Strauzer at CJS Securities.

My 2 questions one can you give us a quick update as you could on California and kind of what’s going with the court systems there? And then also in the sense of the backlog both timing and mix you can give sort of more color on that? Thanks.

Yes, sure, Charles. As we’ve said before and many of you aware that the California courts marketplace has change pretty significantly this year there was a state wide build going on intention was the build a system for California that the counties would adopt, adopt and that project has been shelved so many of those counties have pretty old systems and certainly in need of new systems and had again been anticipating this new system that no longer will be built. So it is active. I don’t know exactly how many I want to say, but certainly there are handful that are moving relatively quickly to try to buy a new system in a few months for the past to target the street relatively soon and again there are several other counties they are in that process and would expect to receive our future then in the coming month or 2 really. So it’s an active market place obviously we know it’s a very big state and we add that to the country it changes the landscape significantly. I think we are pleased that we are seen as a leader in the state. We didn’t have a presence there because going national or the courts offering has been really coincidental with that build. So there haven’t been any decision [indiscernible] but I think they recognize what we’ve done in these other states wide implementations has been successful. Obviously going live with the segment in Oregon that quickly demonstrates our ability to execute is going to be important part of the decision process. So it’s active. There are opportunities. We’re excited about it. But we will see how it goes from here but it’s certainly good opportunity.

Great and just if you could give some more color on backlog in terms of timing?

Yes, we’re pleased with backlog growth this quarter which is all time high and there is an organ or amount in there. So it’s really made up of a lot of winds across the divisions for not outside deals. So backlog is going nicely and I use to say we didn’t pay a lot of attention to it and didn’t encourage people to over analysis. I think as we have the shift that we are seeing from traditional licenses to staff arrangements as thing you call data licenses [indiscernible] accounting purposes. It probably use the pretty good indicator of market activities. So our sales in booking certainly appear somewhat stronger than what would be indicated by looking at the financial statements. So I think backlog is encouraging at this point.

But on the timing of the backlog it is marginally lengthening I think a year ago 70% of our backlog was expected to be recognize in the next 12 months at the end of last year is more like 65% as subscription backlog which is multiyear and some of the larger contract to the multiyear continue to be a bigger piece of the growth there. It lengthens modestly. So a little bit longer term visibility there.

So roughly what percentage of bank loan would you say assess [ph] right now?

The Safe backlog was the subscription backlog at the end of the quarter was $73 million out of 360 million that grew 45% over the last year second quarter.

The next question comes from Nathan Schneiderman with ROTH Capital.

John, I wanted to start with the question for you. You spoke to modest improvement in the environment. And I was just curious if you could detail what particular data you’re seeing that makes you say that?

Yes, we tracked a number of ERPs and the value of them in everything you’d expect as to track, we do have to normalize it, because overtime we want in certain markets or geographies where we were now, so an increase doesn’t necessarily mean the market is strong, so we tried to normalize it for our change in terms of foot print over that period of time, and based on what we track, we feel that the market probably contracted around 30% from where it was in 2007 or ‘08 and ‘09 in the peak, and then it probably has recovered somewhere by the around of middle of that in the last year or so. I don’t think that means local governments are necessarily spending more freely, but as we indicated that things grew older and older in the pipeline, those decision processes are happening. So, the ERPs are coming back a little bit and decisions are happening a little bit more normal, but certainly not recovered all the way back. And so I think the increase are back, further growth levels is probably more attributable to the improvement in the competitive position.

When you look at the RFPs, what percent would you say they’re up year-over-year and if the sale cycle has improved by what magnitude?

I think they’re probably up 10 or 15% year-over-year and I think that sales process has improved because I think people we don’t deal that were in the pipeline and our piece coming out now, reflect opportunities where they are really is essential need that has to be addressed. So there is little more pressure on them to execute on the process more normally.

Question on the Microsoft relationship in outlook I gather from your comments you are not expecting the Microsoft business to generate operating profit in 2013. My sense is maybe that’s it change in view and can you just clarify that and if there has been a change in view what’s driving that and what in general are you thinking about revenue expectations for that product line maybe third party and direct in 2013 just broad-brush?

Pretty hard to say. I don’t know because the changing view I think our view is probably pretty broad and if all somewhere in it and we’ve built tougher for the long time the rolled out products and it takes a long time and I think that’s why you see us to do 1 or 2 this kind of investments that are catalyst for growth in earnings down the road only 1 or 2 to time because we know the process its very long. I think it’s kind of interesting right now that probably that most exciting opportunity the most significant price of growth in Tyler is around or obviously product and as many of your know. We’ve been in good demand, well for 10 years. So it’s significant contributor or certainly very pleased with the investment we made there but it takes a long time as that indicate even when successful to build a successful business around it. So I think as we’ve been saying for some time we had a product that released in the second half of last year that exciting but it still takes some time to build the profitable and successful company around it. And I think that will take 2 to 3 years as we are indicating here to become profitable and obviously once we should become profitable incremental revenue beyond that will be very high margin as in this case it’s royalty base then the costs relatively effects. So I don’t think it’s changed off a lot. There is a lot of visibility around it, but it’s indicative what the time it takes to establish good presence in the market and build the business around it.

The next question comes from Jonathan Ho at William Blair.

Yes, just sort of quick question around sort of the SaaS adoption terms, it looks like a pretty big pickup again this quarter, has your view changed at all relative to sort of that overall trend and perhaps maybe what the end mix will look like in terms of SaaS versus license?

I think that’s a fair observation and I think our forecast projected will continue and so we are in a 30% range that is up bit meaningfully from where we have been last few years and again the forecast is somewhat consistent with that for the next couple of quarters. So it could be a [indiscernible] trend we will have to see. It is also a little bit reflective of -- our SaaS offering is much broader now. Initially it was just Munis and it continue to spread to some other applications. But it’s virtually all of our enterprise applications now, so that obviously makes difference as well.

And when you look at it in terms of adoption we look at both the number of new customers which is what we said this quarter about a third of the number of new deals were SaaS based. But the dollar value they tend to be on the smaller side. So the dollar value that new deals in assess model was more in the 20% range which is fairly consistent with prior quarters maybe little bit higher.

Got it. That’s helpful and not to beat the Microsoft topic too much but I just wanted to understand from your perspective -- what are some of the signs that the product is getting traction. Or what are some the milestone that you look for? Is it third parties that are validating or what has to take place for the adoption to really pick up here?

Well. Obviously we got their channel in hours, their channels as we said we don’t have a large visibility in individual deals. What we can see is that partners start to build businesses around it start to move away from products they might have marketed before we look for resellers of theirs, they have customer basis this select to this really to be the follow on product of deal. Rollout individual store base and so far. And they have a lot of activity along those lines but again so -- seeing actual revenue which is we are all interest for will take some time but they certainly have partners around the world that our new customers, new companies to this state people whether due to have proprietary product for previously resold the Microsoft or another product that are moving toward dynamics as their products for the customer base in the marketplace and obviously as they rolled that out in the traction in the customer base those can be significant opportunities. So we see that kind of activity with certainly continues to make us comfortable. So this will be significant down the road but we continue to be cautious about the timing of that. In our own channel, obviously we can see the forecast and we’re certainly active in a number of different deals, few of them relatively significant and obviously we’re looking for that decision processes to progress. But these have the earliest are fees that were written last fall, last winter, our typical sales process is a year or so can be longer, and so while we’ve won a couple of deals that as you can see a little different than a typical city or county, not for profit or loss that might have a little different process the typical deals that we pursue are still in process and haven’t yet reached a decision, but we’re certainly attracting a number of those that we would expect to make decisions in the second-half of the year.

Got it. And just one final follow-up around sort of the maintenance revenue, are you guys kind of looking at maintenance price increases similar to what you’ve shown in the past or is the stone environment where there maybe -- you have seek maintenance increases, a little bit lighter than normal?

It might be a little bit lighter, but literally instead of 4 5 into 3 4, it’s not a situation where we have to not have an increase or have a pretty significantly lower, but they could be modestly lower. It’s not across the board, if you look at individual clients and in some cases cities have grown and they use other system as different and is significantly greater value on what they’re getting from us and the increases totally just applied and the value proposition can be reinforced to the customer. In other cases that may not a have done the case and if we’re getting an increase where many, many years from international purchase and may not be as one. So, on some cases, side-by-side situation but again there is a strong value proposition we have and evergreen strategy with the systems are improve significantly these investments were talking about for the new business market obviously rolled out for the installed customer base within the maintenance agreement. So we have a very strong argument in terms of the value proposition customers event very long with returns on investment. So I think increases will be supportable going forward but we certainly wanted to add the value to the client and in the case where it were get ahead of itself and we certainly provide that relief to the client.

Our next question comes from Mark Schappel at Benchmark.

John, I was wondering if you just give us an idea of your plans for additional head count additions for the balance of the year?

We are -- as we provided additional heads lot of it right now is in professional services and as we indicated that put the low pressure on margins depending on the division of the complexity of the products it could be 90 days or it could be 6 to 8 months depending on those positions in terms of the on-boarding and getting them to a point where they are productive in terms of revenue. But we will continue to add heads mostly in the professional services area at this point in time. We don’t have exactly what the number would be but I will guess that that it’s probably similar to first half 40 or 50 organic heads for the second half of the year.

And then with respect to the large deal With City of Charlotte is it fairly assume that that’s subscription deal?

No, that’s not a subscription deal.

It’s not. Okay.

Our next question comes from Raghhavan Sarathy at Dougherty & Company.

Two questions from me. First in terms of license revenue growth it was down slightly after increasing last couple of quarters on a year-on-year basis, I was wondering whether you are -- whether you recognize any revenue from the Charlotte deal you talked about and then how we should think about license revenue growth potentially rebounding the back half of the year?

Charlotte is a percentage of completion accounting deal. So there was virtually no revenue recognition in Q2. So that will ramp-up and be a multi quarter implementation so another worth new thing recognized meaningfully in Q2 and the expectation is again there is a depending on how the mix falls out between subscription and perpetual, but we still believe that we will finish the year with license growth probably above 10% for the year.

There are a lot of variables in determining what the new business level is and you would think that licenses recognized would be high among those and reality is, it’s really not. It bounces all over the place and the timing of it and the volume of it is it necessarily that reflect your current business. The mix of business SaaS versus traditional, the accounting of the deals TOC versus recognizing on delivery, number of different variables basically make it such that the license number in the quarter isn’t that reflective. I can tell you because of that what we do is as we look at every deal and whether it’s traditional or whether its SaaS and -- PLC always different things. We try to normalize work that we represent in terms of new license revenue we talk well -- straight deal of that type and based on that which is where we track or -- what we’re doing in the marketplace. The first half of this year was very strong it was up significantly from the first half of last year. And how it fall through and one fall through to the financial statement is a different issue. But we are pleased with the modest recovery in the marketplace and again our performance within that market in the first half.

I guess let say control the work, but it is fair to say that hospitality assumptions is based on about -- 10% license certainly [indiscernible]?

Yes.

Okay. And then in terms of I think John probably make the comment about software services margin being pressured by increased head count. At the second quarter margin reflect the -- or had expenses on the increased hiring and how should we think about that margin in the back half?

Both kind of rolling -- everybody is not hired and same day and all don’t become productive on the same day. So I would say it doesn’t necessarily reflect the full volume because we continue to higher people that won’t be productive for some period of time. But obviously people we hired 3 months ago and 4 months ago will begin to become productive. So I think the impact will probably remain somewhat the same through the second half of the year.

[Operator Instructions]. At this time there appear to be no more questions, Mr. Marr, I’ll turn the call back over to you for closing remarks.

Sure. Okay. Well, thank you for joining us on the call today. And if there are any further questions, feel free to contact Brian and myself. Have a good day.