Hello, and welcome to the Tyler Technologies Third Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to John Marr Jr. Mr. Marr, please go ahead.

Okay, thank you and welcome to our third 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, next I'll have some preliminary comments. Brian will review the details of our operating results. Then I'll have some final comments and then 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 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 projects. We would refer you to our Form 10-K and other SEC filings for more information on those risks. Please note that our growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. John?

Our third quarter financial results extend our solid performance over the last 6 quarters as this was our seventh quarter with the year-over-year revenue growth. We're pleased with what we do with strong results for this quarter with overall revenue growth of over 21% and double digit revenue growth in all of our software related revenue lines. Our organic business has returned to double digit growth levels even with a higher mix of cloud arrangements in our Infinite Visions business which includes the Windsor, UniFund and CSA acquisitions all completed since last October perform low in the quarter contributing just over 8 percentage points to our overall revenue growth. We continue to see strong growth in our recurring revenues from subscription and maintenance which together grew 24% and represented approximately 59% of total revenues for the quarter. We have seen continued growth and gradual improvement in the marketplace which began to turn around about the middle of last year. The improved market together with our strong competitive position led to another quarter of strong bookings that were up 15% from last year. Some of our notable recent contract signings include an arrangement with Sioux Falls, South Dakota's largest city to provide a wide range of Munis ERP Solutions including financial management, human capital management, self-service and content management. In arrangement with the West Contra Costa Unified School District in California which is the 24th school district to choose our Munis ERP Solution in California. Agreements with the city of Hayward, California and Gillette, Wyoming and Boulder City, Nevada which signed a 7-year SaaS agreement for our Munis Solution. And California's Palmdale School District has purchased our Infinite Visions ERP Solution. We also announced an agreement with the City of Converse, Texas, the multiple suites Incode solutions including ERP, municipal courts…

Thanks, John. Yesterday, Tyler Technologies reported its results for the third quarter ended September 30th, 2012. You've seen the press release and the 10-Q has been filed this morning. So I'm going to provide some additional data on the quarter's performance and turn the call back to John for his final comments on the current quarter and our outlook for the remainder of 2012. Revenues were $93.8 million, a new quarterly high, up 21.6%. Organic revenue growth was 13.1% led by increases in our recurring revenues for maintenance and subscriptions, as well as growth in our software services revenue. Our acquisitions of Windsor, UniFund and CSA accounted for revenues of $6.6 million or 8.5 percentage points of growth. Software license revenues grew 14.1% with 2.6% of that growth organic. We're now seeing year-over-year license growth in 3 of the last 4 quarters following 8 consecutive quarters of declines. This is particularly encouraging in light of the strong growth we've seen in our cloud-based business. Subscriptions continue to be our fastest growing revenue line and grew 41.9%. Organic growth was 37.7% and the impact of acquisitions was 4.2%. We added 12 new subscription-based arrangements and converted 19 existing installed clients compared to a total 12 new arrangements and 17 conversions in the third quarter of 2011. Approximately 23% of our new software customers in the quarter opted for one of our cloud-based solutions while 77% purchased the deployed solution with an associated perpetual software license. The subscriptions line also includes a growing revenue stream from transaction-based revenues such as e-filing for courts and online payments. These revenues rose 48% to $2.6 million from $1.7 million last year. We expect to continue to see solid growth in these revenues as both new and current customers adopt our audit e-filing service solution and…

Thanks, Brian. We are encouraged by the modest but continuing improvement in the marketplace as well as the improvement in our competitive position due in part to decisions to invest heavily in product development even as new business markets were generally week. Last week I had the opportunity to visit our Windsor office in Phoenix, the home of our Infinite Visions products. As you know, just a year ago this week we acquired Windsor and in the following month followed up by acquiring CSA and UniFund, their 2 retailer partners. We're very pleased with their performance as well as their integration with each other as well into Tyler. This process has been very well managed by our local government team as well as the Infinite Visions teams. Now I'm convinced we will exceed our expectations with this division for years to come. Revenue from our Microsoft Dynamics AX products continue to grow although somewhat slowly. Both Tyler and other Microsoft partners are now actively selling Microsoft Dynamics AX and the pipeline is building. We have very little visibility into the Microsoft partner channel pipeline and most of the early opportunities that Tyler is pursuing with a dynamic solution had not yet reached the decision point. This quarter we recorded $269,000 of royalty revenues related to the dynamic sales by other Microsoft products that result in the second quarter. That amount has a little more than the total royalties from the first 2 quarters combined. The royalties this quarter represent about -- are represented from 23 clients in 13 different countries. Most of the sales by Microsoft partners in the first quarter have been upgrades from other Microsoft products which do not carry a license royalty that do want maintenance royalties for Tyler. In addition we had approximately $167,000 of revenues…

[Operator Instructions] And the first question comes from Nathan Schneiderman from Roth Capital.

I have a few questions for you and just when you look at prospects for Microsoft royalty revenue, do you think about giving that number north of $1 million quarterly run rate. Do you think it's going to take until the second half of 2013 to get you there or is it likely to be sooner than that? And is this just in general looking like it's -- the Microsoft revenue flow is maybe looking like it's not going to move the needle here too much until we get to 2014 or am I misjudging that?

Well not to give you a -- not to try to -- not to give you a good answer is, but we really don't know Nathan. It is increasing steadily, the number of accounts increases, the footprint of the marketplace, 13 counties -- 13 countries that's last by quarter, activity we see, I don't see anything at Microsoft that they are discouraged by. So kind of those less tangible broad indicators are still positive and there're still a lot of enthusiasm around and the absolute numbers that we're booking certainly isn't that substantial. But it is growing, and we really don't know. We'll get a report in a week or 2 that will tell us how many sites and how many countries and what the dollars are for our -- this past quarter now, as you know the report we'll get and what we reported for this quarter was for the second quarter. So there is a quarter lag there, that's only their third quarter of complete presence in the marketplace. So -- but it's really hard to know. I think that we should approach that number that you mentioned certainly sometime in the next few quarters, but it's hard to say. It will be a little lumpy in our direct sales, I mean we could win a significant deal sometime in the next few quarters and that would make it somewhat lumpy on our direct sales, but there will probably be more of a drives alone continued bill.

Okay and, but just in general is this going maybe a little more slowly than you would have thought, let's say maybe a year ago or is this just about what you're expecting?

Well again I didn't have real specific expectations because we just wouldn't have been based on its actual. We have -- if you go back and look at our comments on this, we've always been cautious. We think this is an exciting project. We think it will be substantial, but I kind of set it if you look at Odyssey today which we're happy to report it's doing well, it's going to have well above overall Tyler growth experiences for the years coming forward. That product is approaching 10 years in the marketplace now and I'm not suggesting this won't take anything like that, but it takes -- that's a big success, but it takes a long time to get to a point where you have a market, you're going to have consistent revenue. So I think 2 or 3 years to build of book of business, it's consistent and substantial is we'll be successful for a new product like this.

Okay, it makes sense. Just you essentially mentioned Odyssey, I wanted to follow up with you on the California opportunity and maybe to make it a little more granular, if you look at cities or counties in California, how many of them would you expect to have a courts-related RFP over the next year or just so to help us kind of get our arms around the potential opportunity?

Well we'll be careful, because as we said we don't even normally think to dispose is posted on the administrative office of the courts website and I think some of you have maybe reported on. So we're going to have knowledge that deal. I don't want to get in a situation where we're being too specific or granular about that, but at least several. There are a couple of active processes now -- there is one multi-site process underway, so generally 3 to 6 decisions maybe in the next 6 or 8 months.

And the next question comes from Charles Strauzer from CJS Securities.

It's Jon Tanwanteng jumping in for Charlie. Can you expand a bit on the sales cycle, there is a period we're shortening yet and why or why not?

Yes, it probably is. Again there were extra steps and considerations that were being added to processes during the 2009 and 2010 timeline in that environment it probably has returned to be a little more normal. Decisions seem to be occurring on the process line that is published originally with the process and again for a couple of years it seems like most of those processes were extending beyond that.

Okay, that appears to be sustainable.

Hope so, I think so. Yes, I think that probably local governments adjusted to the new environment that they are in, projects that were delayed have got holding up that they need to be dealt with and yes, I hope that we're seeing that decisions are being made a little more normal.

Got it, and then on the Microsoft business, any further data points to share on initial client implementations and how they have been going?

They have been going well and I think the good thing about the time it kicks the ramp business in this business, it does also allow products to mature. So what we did in Redmond which was our earlier adopted site which were lot of resources added, lot of resources on our dollar and it's part of the early roll out. I think the product has already kind of matured through that process and we have a few small sites we're implementing now and those are more normal and able to support themselves from mostly the contractual professional services in the arrangement. So that's all good, the product is performing well, it demonstrates very well in the marketplace, and I think as we win more business, we'll be able to execute those contracts more within the contract arrangement itself and not have to subsidize them as much as you would in earlier release products.

Got it, okay and then what are your plans for cash flow in 2013?

Well, we haven't given 2013 guidance. We'll give that in connection with our fourth quarter earnings release. But we do expect as we -- it looks like 2012 cash flow will end up a bit above 2011. We do expect to see solid growth in cash flow particularly with the growth in our recurring revenues which generally are paid in advance that is a positive to cash flow from the deferred revenue growth. So we'd expect to see solid growth, but beyond that we'll get more specific on that when we give our guidance.

And the next question comes from Tim Quillin from Stephens Inc.

I just want to understand the fourth quarter guidance a little better, because I think the full year guidance that you have narrowed a little bit implies 4Q EPS of $0.24 to $0.29 which is obviously down quite a bit quarter-to-quarter. I just want to know what the thought process is there.

There are few things that affect that, and I'll just note that the -- that's giving narrowed the range for the year's guidance by a penny on each end, but essentially if you look at the midpoint, our guidance for the year has not changed. So the estimates that were on the street were a little bit flipped from our -- the mix -- the split between Q3 and Q4 from what we actually did. But when you look at the change from Q3 to Q4, there is a couple of things, first of all, we had the million dollars of R&D reimbursement in Q3 that won't exist in Q4 or in future quarters going forward, so that's a couple cents difference on that item. We do expect to see lower services revenues and margins with lower utilization around the holidays in particular on some of our large projects like some large court deals where we're just not able to get the same utilization with the Thanksgiving and Christmas holidays. We expect to see a bit higher SG&A, we had a couple of items in Q3 that won't be in Q4, we had lower incentive compensations we're going to have a cumulative catch up there. We had as well as a very favorable health cost experience over the last couple of quarters that was reflected in our Q3 results, we don't know what that'll be in Q4, but our guidance assumes normalized health costs there. And then the last item really is related to revenue recognition, as we get into the end of the year it looks like that both Q3 and Q4 have a little bit more cloud-based business in the mix that we don't get to recognize revenues upfront on obviously, as well as the potential for a couple of contracts that are traditional deployed contracts that may have terms that cause us to either have deferred revenue recognition or percentage of completion accounting. And some of those were still in the works so we're not certain about it but that little bit higher level of deferred revenue recognition and more cloud-based business in the mix contributes to that as well. So those all add up to kind of that were the reasons for that split between Q3 and Q4 being a little different.

Now that's helpful, and regarding that mix you had to previously expected software licensing to grow pretty nicely, I think double digits in 2012, do you think software license revenue will still grow for the year?

I think our expectation for the year, we had talked about low-double digits and then just north to 10% range, I think now we're probably looking at mid-single digit license growth.

And the next question comes from Brian Kinstlinger from Sidoti & Company.

The first question I had is related to the California opportunity, I'm wondering if you had discussions at all with the larger counties, and maybe what's your reaction was to your landslide victory in that small county? In addition, are you offering this in SAS form, or do you expect that all will be in software license form and whatever you win in that opportunity?

I think there are mega counties, as you know there were counties in California that are even bigger than a number of our state-wide deployments. And there are some of those that will be running a process but as you might expect their planning process and timeline will be longer than some of these smaller ones. So I don't think you'll see mega counties in this next 2, 3 quarter cycle, probably more of the year and 2-year out timeline. So I think that's what we're seeing there. We will not dictate whether it's a non-premise traditional deployment or a SAS arrangement, we'll put out either of those. At this point it seems to me that most of their -- most of the counties that are active are looking for traditional arrangements, we do have the benefit of significant recurring revenue either way, our maintenance fees and it's really kind of a modified subscription arrangement anyways, we don't resell next release that built into the fee and I think the recurring revenue will be significant either way, and obviously we're hopeful to get our eFile Solution a standard part of these arrangements either initially or as a follow on which is a very significant recurring stream for us as well. So we're certainly conscious of creating relationships that are sustainable and allow us to deliver the value to that marketplace that they really need and obviously support our business needs over the long term.

And just to that part of that question, have they communicated there was larger counties in anyway shape or form, how you won that in the landslide and has that been a discussion with those -- obviously those larger counties? So your functionality was so much better that showed than your pricing?

Yes, I mean other counties that have acknowledged that to us and congratulated us on that and I think we have our supporters out there. We'll be cautious. There are other capable companies obviously net marketplace that want to get a piece of it but obviously we've wanted an objective scoring process significantly and it is published on the administrative office of the court's website and so it does represent something that the market is looking for more than on our process. So we're encouraged that up, but we certainly will take the competitive landscape seriously out there at the same time.

Right, okay and one question on dynamics or 2 here together, maybe I want to try to size a pipeline in any way we can't age of growing, is there a number you can quantify of rough proposals you're looking at or dollar value you're looking at over the next year to bid on?

Well it's growing and even though it's on a small number I guess from a percentage standpoint the royalties are growing significantly and hopefully we reach a more significant base and then those percentage is continue. They're very actively engaged with the partners as 13 countries represented, and we certainly expect that to continue to trend up and hopefully significantly but as we've said it's very hard to gauge and it wouldn't be responsible for us to guess that and give you those numbers. In terms of our direct sales we have several dozen types of opportunities that we're pursuing, we've been fortunate to win a number of them but unfortunately they've tended to be smaller deals, $100,000, $200,000 license type fees, it's been good for us to win that business, it's good for us to now have 3 or 4 concurrent implementations going on to grow our own professional services group, to grow our programmatic expansions groups and those sorts of things and kind of built the business around this. There are some larger deals in the pipeline but it's hard to predict, it will be successful, and one will be successful with those, but we certainly hope to and expect to win what are more significant deals as we go forward.

Okay, last question I have is on eFiling. I just want to go back to the model, it's not much of a charge to your customers if I understand, they pay per transaction. So first, am I right, and then the second, so I'm interested in that operating margin contribution if it's pretty much 100%, and then I'm interesting and I asked this at the Analyst Day, trying to seize the opportunity for you, what percentage of your clients have this and is generally the larger customers of yours that don't have this that are going to implement as you think, like Minnesota I think that you talked about, just trying to gauge eFiling please.

Yes, it is both. We have sold in the past licenses and maintenance arrangements; we certainly prefer the collect approach and because the clients really get to pass a lot of those cost on to the law firms and the uses of the system in this case it is much more popular with the clients than in our other lines of business. So our other lines of business as you know kind of grown from the 15% adoption rates and maybe 30% through the recent environment, but this is at least an 80-20 situation -- by far there are more clip-based arrangements, and it seems to work better for both of us than purchasing a license which is the model we prefer less. We obviously have a number of clients, large clients and states that didn't have this, we still just acquired this 2.5 years ago. So yes, we haven't -- a lot of Odyssey clients that don't have an eFile solution in place and I think there is very strong interest, they had a customer forum just a few weeks ago that I attended and a number of those state-wide clients and large counties are actively considering what they're going to do in this area. So I think our ability to leverage this into our installed base as well as include it with the future arrangements is really strong. The growth opportunity here is significant, this has been successful and it's a high level of interest and people combining this with their case management system, makes a lot of sense. We're on a very good position on this, there will be investments we need to continue to make, capital investments as we host and have facilities to manage this and in some of these large arrangements, there are helpdesk we have to create for the law firms to come in, there are problematic extensions that sometimes have to made in different states. So in some cases I think we'll be talking about some investments ahead of the ramp and fees that there is certainly a significant opportunity here with other state-wide implementations and add-ons to some of our large counties.

All right, I just want to put one.

Brian, this would be high incremental margin types of revenues because of the direct costs are generally credit card fees and then we've got a bucket of costs associate with the infrastructure, that helpdesk the servers, the equipment that sort of stuff.

Sorry, last one I promise. So you said $2.6 million revenue this quarter, is the opportunity to drive the lead $40 million revenue that was at the opportunity is much higher in the long, long term obviously or is the opportunity there to double or triple it from there which might not get you there? I mean I'm just trying to figure out penetration rates, are you hardly penetrate into your client base yet?

Well I don't we're hardly, there are number of significant, Clark County is a big user, mentioned Las Vegas, New Mexico and a number of clients are using it but yes, there is certainly an opportunity that's a multiple of what our current business is, putting brackets around that right now probably hard to do but this is a significant growth opportunity.

And the next question comes from Scott Berg from Northland Capital Markets.

A couple of quick questions here, first of all in terms of the buying environments I picked up some data amongst the number of states where it seems like tax receipts as a whole are up which would indicate maybe a slightly improving and buying environment for your customers. Are you seeing anything in terms of any of their habits or what you're seeing, hearing in terms of maybe RFPs that would maybe support that or not support that?

Yes, I think, as we've commented I don't think the market is all the way back to where it was pre-2009 but it has recovered, decision processes are happening a little more normally and a little more of a normal timeline. Now I'd probably attribute a third of the improvement in our business over the last year, year and a half to recovery in the marketplace, but the other 2/3, and the more significant improvement, I think is more based on our improvement and our competitive position. As the market weakened, companies either chose or couldn't continue to make the level of investments they've might have wanted to in a different environment, and we were able to bid, and it's clearly differentiated us really across the board with that product. So I think we're benefiting more from that than the market recovery.

And then in terms of your guidance, I forgot if it was you or Brian that made the comments, that you're seeing more customers to choose your SAS-based product here in the third quarter and then in the fourth quarter. Do you think this is a permanent shift that you're seeing, because it's obviously not exactly in line with your expectations 90 days ago, or it's just maybe more transitory and we return that to -- I guess levels you've seen more recently.

I think it's a trend that obviously could jump around a little bit, but I think that the idea of hosted solutions and arrangements obviously is getting traction in the marketplace. And the local government marketplace is slower to embrace those changes than the commercial marketplace, so we've been in this now for 10 years, 11 years and it's only in the last year, year and a half that those adoption rates have started to move from 12%, 15% to 25%, 30%. I would think over time that, that is the trend that we'll continue, certainly if the broader markets continue to embrace that. We've also had a lot of success converting existing clients to hosted arrangements and those have been successful that we're traveled throughout our customer base and into the high level of interest in that, so we've continue to expect to see that happen as well. So with -- along with our eFile Solution, now we grew our subscription base business in the 30% plus range some previous years and you think is that base grows that, that would lower on a percentage basis and this year it's going to be more on 40%, pretty high. But really with the flips with the existing clients moving to hosted and with the adoption rate growing and along with the higher growth in our eFile business, we do expect that to continue to grow at a significant level, not probably 40% on a year-over-year basis, but significantly above our company growth rates.

And Scott, this quarter we had -- I'm sorry, in this quarter in terms of the adoption the percentage of new customers is fairly similar to last quarter but the mix this quarter there were a few more of the larger deals were as in prior quarters the cloud customers have tended to be more on the small side, and that bounces around from quarter-to-quarter but that's part of it the adoption rate as an increase to the mix of the size of those customers has changed a bit.

Great, and then last question for Brian, your DSOs in the third quarter were much lower on a seasonal basis when I think I was expecting, is that something that's sustainable going forward or will this be more of a I guess a short-term anomaly?

Well seasonally they do drop down normally in Q3 because they spike in Q2 with the maintenance billing, so you get a lot of billings, but the revenues are recognized over the next 4 quarters. So they do -- and we do collect a lot of those fairly rapidly so that leads to the strong cash flow in Q3. So it is seasonally normal that it drops but they are 13 days below where they were last year Q3, and we've seen a trend of improvement there. Some of that is a result of efforts on the collection side and trying to do better job of tightening that up. And I think the generally improving environment helps that a bit as well, and a little bit less deferred payment terms that were part of some of the contracts during the more difficult new business environment. So we certainly would like to continue to see that number come down year-over-year but seasonally this is a normal trend.

And the next question comes from Raghhavan Sarathy from Dougherty & Company.

Just a couple of questions from my end, first question is for John. John, you've talked about pipeline remaining active, we have highest volume, can you give us some sense for the year-on-year growth on pipeline through 9 months? And also as a follow-up, it looks like it's coming in the market place your competitive position is improved, I was wondering whether we should see some acceleration in your organic revenue growth given factors?

Well, we're not going to quantify the pipeline, it's just kind of a competitive issue but I think across the board we're seeing some improvement and the size of the pipeline as well as the behavior of those processes going along a little more normally. Obviously, the significant growth and pipeline would be more related to the court situation with the layer of California opportunities really adding significant link to their -- to market footprint, previously it was really that California didn't exist and obviously it's a big part of the market when that moves in. So that contributes significantly to that. I'm sorry what's the other half of your question?

Yes, the 2 things you mentioned where there is a recovery in the marketplace your competitive position has improved. If you look at the organic growth rate so for is about 10%. I was wondering whether these 2 factors could help to accelerate the organic revenue growth.

Well of course it has accelerated right, for 2 years we were relatively flat I think the year that was flat in the year that was 5% or 6% and now we're back in that 10%, 12% organic growth rate. We've got a bigger basement we used to have, so 10% or 12% our company behaves pretty well. It generally starts to provide the margin opportunity again at that level as well. I think for the most of our company, that's probably the right range for people to anticipate at a general level. We'll be more specific with guidance probably in January. But that's generally kind of the growth rate that we're expecting and targeting for the broader company. I do expect that Courts & Justice will grow above that trend line with the California opportunity being on top of what was already a pretty good pipeline for them.

So maybe if may if I get some clarification. If you win some of the California opportunities, there is then opportunities to accelerate from the 10% to 12% base level we are looking at?

Yes, little bit, but let's remember, I mean there were $60 million, $70 million unit for us and another -- going from 10% to 20% growth with them obviously is only another $6 million or $7 million a year in business which obviously don't we have a couple of points on our overall business. So I think within the division, they will grow more significantly. I think that'll provide an opportunity for them to have margin expansion over the long run. As I indicated earlier, they will have investments to make to prepare for some of the eFile arrangements where revenues ramp up after the investment you've made. But over the long run, that will be a significant opportunity for them. But again as only 20% of our overall business, even with the significantly higher growth rate, it is only a few percentage points on the whole company.

Okay and then just one final question. You signed to be on Charlotte I think earlier this year that I was thinking that you probably have the license revenue bump in the third quarter or maybe fourth quarter it seems like being more to half. So Brian, can you help us understand where do you are with that implementation?

With Charlotte, the percentage of completion contract and it is, it will take place over multiple quarters, I'm not sure the implementation term but I think it's probably a 6 to 8 quarter revenue recognition event. So the license it was an $8 million range kind of a contract with a few million dollars of license and that's -- again spread over multiple quarters, so there is some activity there has started ramping up this quarter, but the impact is, it doesn't provide a real bump in any given quarter.

Okay, so I'm sorry, final question. I'm not sure if you can comment on it, but I was just curious when I looked at the San Luis Obispo County scoring, who had the highest bid, yet you ended up outscoring your competitors even on price which was a bit surprising to me. I was kind of wondering, what were the sort of the dynamics that lead you to even score the highest on price quote as well?

I think the sophisticated buyer and they normalize those, so if somebody bid very, very light services and it was clear that it'd be more services required then we're included in the bid. They made those adjustments to make sure that they were comparing apples-to-apples. So I think our proposal was comprehensive. We have a good record of delivering within scope and I think they did their homework on that. So you're right, we ultimately scored better than what you first look might suggest.

And the next question comes from Jon Ho from William Blair.

I just wanted to talk a little bit about the maintenance pricing. Have you guys seen a shift at all in terms of pricing or are we seeing this bounce back to normalized levels as it seems like the environment is improving.

There is always some pressure on it. There are some vendors in the new business market that I think of having trouble winning business on, but costs and they are in some cases being aggressive and sometimes and something we have to respond to. We're pretty disciplined about it. We're pretty convinced obviously within our customers' interest, but with our evergreen strategy and long-lived investments for them, there is a lot of value in our maintenance arrangements. So we do try to stand on it. But yes, there'd be some stronger pressure, but again these are long-term arrangements and clients are not going to pay for things they don't believe have the value associated with them, but they don't necessarily select the lowest bidder either. They do select the system they think delivers the best value to them, which sometimes can be a more expensive solution.

Got it. And just in terms of your competitive wins. Are you seeing this more at the higher end of the market that you've traditionally played or is this at the low-end or is it just across the board that you're just seeing the competitive wins pick up?

It's across the board, I mean we talked Charlotte a minute ago, obviously the court's deal is a big deal. So we're doing somewhat better in larger arrangements. I think that's where we're very cost effective generally less than the tier-1 players. But our local government division probably had the biggest increase on a percentage basis and bookings this year which generally sells $100,000 to $300,000 arrangement. So it's across the board.

And just building on that, I mean do you feel like Tyler is now maybe distancing itself a little bit more from other competitors or potentially moving into its own category, just as a nationally recognized player. Just want to get a sense of whether at a strategic level that's taking place.

Well you got to be careful about that obviously. We certainly aren't going to rest on any laurels, but we're pleased, and I think we have clearly established the leadership position across the board with these applications and really across the country and geographically. So we're pleased with that, but there are still very viable competitors out there that are still kind of anxiously interested in the marketplace. And we're going to certainly expect that they continue to invest and compete, but what we've done the last couple of years in terms of market share, geography, size and major clients, we are pleased with.

And the next question comes from Mark Schappel from Benchmark.

Most of my questions have been answered, I do have one though. And John, I was wondering if you could just address whether there was a meaningful movement in RFP activity during the quarter that you saw.

Now it's more gradual than that. I don't think we could say, but again over the last 3, 4 quarters the pipeline has strengthened, and things are behaving more normally. But there is no spike in the quarter that's for sure.

Okay, great. And then with respect to the pipeline, I wonder if you just provide some additional on commentary what are you're seeing with respect to the large deals in the pipeline, whether you're seeing or you continue to see movement toward the larger deals.

I think outside of courts no, I don't think the mix in terms of size of clients is changing that much there. There aren't that many Charlottes out there, there are many more of the $0.5 million, $1.5 million deals that we often don't even mention. So now I think the volume in the pipeline is still in the midrange for our non-courts business. Obviously, the courts deals are larger deals for us.

The next question is a follow-up from Tim Quillin from Stephens Inc.

I understand that the stars and the moons aligned pretty well for you in the quarter in terms of margins, but even if you exclude the Microsoft reimbursement out, you're at 18.8% margin. I mean how far ahead of ourselves should we get in terms of thinking about margin potential for 2013 and 2014? Is that kind of that kind of close to 19% range? Is that an achievable level in kind of in the near to near-intermediate term?

Well, I think that, as John said earlier, as if we're growing in this low double-digit in the 10, 12-ish percent range that we would generally expect to see gross margin improvement something north of 100 basis points and with the opportunity again depending on the mix, depending on some of the recurring revenue growth. But the opportunity for a little bit higher than that. But we would expect to see 100, 150 basis point gross margin improvement, and potentially a little bit better than that on the operating margin line as we were able to leverage SG&A and we also believe that we'll be able to leverage R&D. Obviously, over the last couple of years, we've significantly increased our investment in R&D. And I think going forward over the next year or 2, we have an R&D infrastructure in place at around this level that'll continue to serve us well.

Okay, great. And then regarding the bookings outlook right now, in the fourth quarter of last year, you had a court booking with Maryland that you drove the number -- the bookings number up quite a bit. I understand it's hard to predict lumps, but are there opportunities out there on the court side where you could get to similar level in the fourth quarter of this year?

Timing is hard to predict, but there are I think 3 statewide processes that we're engaged in, probably only one of them in the size of the Maryland and Oregon deals. So the timing is hard to predict, but there are some of those and then again probably beyond those processes, you do have these counties in California that, by themselves, are comparable to many states. So there are big deals out there, but the timing of them will be very hard to predict.

I wouldn't expect that there'd be a Maryland size deal in Q4 based on what we see now.

And the next question comes from Brian Kinstlinger from Sidoti & Company.

Just one follow-up. In regard to the Maryland and Oregon deals that you did shine, is there any timing of software license payments based on how you're accounting for that? Again software license is flat, those were some huge deals and so I'm just wondering is there a certain core you expect to bump or a fall-off in software license?

Well they are recognized, both of those are percentage of complete accounting and so they're recognized over the implementation periods. There are 5- and 6-year typed implementations, so those licenses are spread over a number of quarters. Oregon is much farther along and they're not straight line over that period, so they're somewhat bell-curve type spreads. Oregon is much farther along, and I think Maryland is only a few percentage points complete. So we haven't recognized much license at all on Maryland, yet that'll be starting to ramp up in the coming quarters. Courts & Justice I think had about 20% to 25% increase in their license this quarter over last quarter. So some of that Oregon is reflected there, but again those are spread over a number of quarters, they're not lumpy at all and so it doesn't move the needle as meaningfully in any given quarter, but it's in that base and it's replacing other business that -- in smaller contracts that finishes up.

So just to be, just understand, so in Maryland when it ramps up, will there be -- suppose the first point is 20%. When they hit that, well you get 20% of license in one quarter or every quarter you gradually get a little piece of this software license.

No, it's the latter. It's recognized basically on percentage of completion basis measured by basically the service hour deliverables. So as we provide hours.

And as there are no more questions to present at this time, I'd like to turn the call back over to Mr. Marr for any closing comments.

Okay, thank you. And thank you for joining us on the call today. If you have any further questions, feel free to contact Brian and myself. Have a good day.

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