Tyler Technologies, Inc. (TYL) Q1 2014 Earnings Report, Transcript and Summary

Hello, and welcome to today's Tyler Technologies First Quarter 2014 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, April 24, 2014. [Operator Instructions] I would like to turn the conference over to Mr. Marr. Please go ahead.

Thank you, Andrew, and welcome to our First Quarter 2014 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. Brian will review the details of our first quarter results and updated 2014 guidance. 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 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 today on the call will relate to the corresponding period of last year, unless we specify otherwise. John?

Thanks, Brian. Our first quarter results built upon the solid finish to 2013. From a historical perspective, this was our 13th consecutive quarter of year-over-year revenue growth, and our eighth straight quarter of double-digit revenue growth. Our GAAP net income of $11.9 million made this our most profitable quarter ever. Historically, we have very little or no sequential revenue growth from the fourth quarter of one year to the first quarter of the next. In this quarter, we did better than that with sequential revenue growth of $3.7 million. We have to go back to 2009 to find the last time when earnings increased sequentially from Q4 to Q1. And that was the only time it happened in the last 14 years. Our recurring revenues from subscriptions and maintenance continue to be major drivers of our growth, as together they grew 19% and represented approximately 63% of total revenues for the quarter. Our subscription revenue growth of 52% reflects a continuing shift toward cloud-based Software-as-a-Service businesses, as well as strong growth in our e-filing revenues from courts. Software license and royalty revenues also had excellent growth, up 27% over the last year. This is the second consecutive quarter where licenses and royalty revenues were greater than $11 million, and grew year-over-year more than 27%. Gross margin improved 80 basis points to 46.6%, reflecting our high level of software licenses, as well as the earnings leverage from incremental recurring revenues. We had a solid quarter from our new contract signings, with bookings for the quarter very strong in our financial in ERP solutions, and appraisal services. And somewhat light for courts and justice, where bookings tend to be somewhat lumpier than elsewhere in our business. I'll discuss that specifically later in the call. Some of the more notable contract signings in the quarter included an agreement valued at $5.8 million with Kansas City, Missouri, to replace its aging permitting software with our EnerGov planning, permitting and licensing solution. We are starting to see good traction in the market with EnerGov, which we acquired in 2012, both in standalone opportunities, and in conjunction with our new -- with contracts in our Incode and Munis ERP solutions. We also signed an EnerGov contract valued at nearly $2 million with the city of Henderson, Nevada. For our Munis ERP solution, we announced agreements with the cities of Pasadena, California, and Rapid City, South Dakota, as well as Portage County, Wisconsin. We also signed new Munis contracts with Bloomington, Minnesota and Greenville, North Carolina and contracts for our Incode solution with Draper City, Utah, and Seguin, Texas. We signed a contract to deliver our iasWorld property appraisal and tax administration software and services to the Ministry of Home Affairs in Brunei, a sovereign state located in the north corner of the island of Borneo in Southeast Asia. We expanded our courts e-filing business as the common wealth of Massachusetts signed a contract for our Odyssey File & Serve product to power a 6 court e-filing pilot program, which is expected to lead to e-filing being expanded to courts across the state. This is a transaction-based revenue arrangement. We also announced 2 significant products during the quarter. The first is the launch of our iasWorld Field Mobile Solution for Windows 8. Field Mobile is designed to allow appraises to work with the iasWorld property review workflow features, while collecting and updating property characteristics in the field, both online and off. This application is the first tablet solution for appraisers built on Windows 8, integrating directly with our iasWorld appraisal and tax administration system. We also launched the Odyssey File & Guide solution, which provides courts with the powerful suite of tools to guide self-represented litigants through the process of completing court forms, and filing cases online. Courts can now easily create web-based interviews for their court, by leveraging the library of existing interviews from other jurisdictions in the Odyssey filing guide authoring tool. This provides courts with an easy way to produce online interviews that apply the business rules of the court and guide self-represented litigants with relevant and informative content about the rules of the court. We believe that the application adds significant value to our e-filing solution and further strengthens our competitive position as the leader in court's e-filing. Now I'd like for Brian to provide more detail on the results of the quarter and our annual guidance for 2014.

Thanks, John. Yesterday, Tyler Technologies reported its results for the first quarter ended March 31, 2014. Since our press release and 10-Q are both available, I'm going to add color around some of the key factors in the quarter and review our guidance for 2014. Then we'll move on to John's comments on the current quarter and our outlook for the remainder of 2014. In our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. Our non-GAAP earnings exclude share-based compensation expense, the employer portion of payroll taxes on employee stock transactions and amortization of acquired intangibles. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. Revenues for the first quarter were $112.6 million, a new quarterly high, up 17.6%, and all of our growth was organic. Software license and royalty revenues increased 27.2%. In Q1, we received $659,000 of royalties on public sector sales of Microsoft Dynamics AX 2012 by other Microsoft partners, down from $891,000 a year ago, but up sequentially from $473,000 in Q4. In addition, we had approximately $1.3 million of revenues related to Tyler's direct sales of dynamics, which are included across our various revenue lines. In Q1, 2013, revenues from our direct sales of dynamics were $272,000. Subscriptions continues to be our fastest growing revenue line, and increased 52.2%. We added 32 new subscription-based arrangements and converted 15 existing on-premise clients, compared to 22 new arrangements and 19 conversions in the first quarter of last year. Approximately 27% of our new software clients opted for one of our cloud-based solutions, compared to 33% of new clients in the first quarter of 2013. The subscription line also includes a fast-growing revenue stream from e-filing for courts and online payments. These revenues rose approximately 150% to $7.5 million from $3.0 million last year. Included in subscriptions revenue this quarter was approximately $3.9 million related to our Texas e-filing contract, which accounted for a little more than half of our subscription revenue growth. We expect to continue to see long-term growth in the these revenues as both current courts clients and new clients like Texas and Massachusetts adopt our Odyssey File & Serve solution, and more of them move towards mandatory e-filing. Our blended gross margin for the quarter rose 80 basis points to 46.6%. The increase reflects the higher level of license and royalty revenues, as well as margin leverage from the incremental recurring revenues, offset somewhat by startup costs from new staff and e-filing implementations. Our non-GAAP gross margin also expanded by 80 basis points to 47.5%. SG&A expense increased 12% in the quarter and was 22.5% of total revenues, a decrease of 110 basis points from last year's first quarter. Noncash share-based compensation expense was $3.5 million compared to $2.6 million. $513,000 was included in cost of revenues and $3.0 million was included in SG&A expense. Excluding share-based compensation, SG&A expense increased 9.9%. Operating income was $19.9 million compared to $14.5 million, an increase of 37.3%. Non-GAAP operating income was $25.0 million, up 33.3%. The non-GAAP operating margin improved 270 basis points to 22.2%, as leverage in both SG&A and R&D expenses enabled us to grow operating income at a much greater rate than gross margin. Net income was $11.9 million or $0.33 per diluted share, compared to $8.5 million or $0.25 per diluted share. The fully diluted share count increased by approximately 1.6 million shares as a result of stock option exercises in the last year. Our effective tax rate in Q1 was 39.4%. Non-GAAP net income was $15.4 million or $0.43 per diluted share, up 34.6% compared to $11.5 million or $0.34 per diluted share in the first quarter of 2013. Adjusted EBITDA, which is EBITDA plus noncash share-based compensation expense, was $26.9 million or $0.76 per diluted share, an increase of 32.7% compared to $20.2 million or $0.60 per diluted share in the first quarter of 2013. Free cash flow was $12.9 million compared to $12.0 million in last year's first quarter. Excluding real estate CapEx, our free cash flow was $13.4 million versus $14.9 million. Cash flow in the first quarter of last year benefited from the early payment of a portion of incentive compensation, which moved into Q4 of 2012 approximately $4.6 million of incentive payments that would have been made in Q1 of last year. We did not repurchase any stock during the first quarter, but have repurchased some stock in April, which represents our first stock repurchases executed since the fourth quarter of 2011. Day sales outstanding and accounts receivables improved to 66 days at March 31, 2014, compared to 72 days at March 31, 2013. DSOs decreased sequentially from 87 days at December 31, 2013, which is our normal seasonal trend related to the timing of maintenance billings. Our backlog at the end of the quarter was $540.3 million, up 39.8% from last year's Q1. Backlog related to our software business, which excludes backlog from appraisal services contracts, was $508.8 million, a 41% increase. Backlog included $117.0 million of maintenance, compared to $111.9 million a year ago. Subscription backlog was $183.2 million, compared to $97.3 million last year, and included approximately $64.5 million related to the Texas e-filing contract. Our bookings for the quarter, which are calculated from the change in backlog plus revenues, were $101.0 million, down 1.1% from last year's first quarter. It should be noted that bookings in Q1 of last year included an unusually high number of multiyear staff contract renewals and conversions from on-premise clients, as well as the statewide courts contract with Rhode Island. For the 12 months ended March 31, bookings were up approximately 36% over the prior 12-month period, including the Texas e-filing contract. Excluding the effects of Texas e-filing agreement, bookings in Q1 were up 2.7% over Q1 of last year. As a reminder, bookings will not reflect the true value of new transaction-based contracts for e-filing or online payments, such as the one we signed with Massachusetts in Q1. Revenue from these arrangements is recorded on a per filing or per transaction basis, and even though the volumes in future revenue streams maybe very predictable, we do not include future revenues and bookings, because they're dependent on those transactions occurring. Only the current quarter revenues from those arrangements hit bookings as they are recorded. Therefore, current bookings and backlog did not capture the future revenue stream from those arrangements. The e-file Texas contract differs from our other e-filing contracts in that it is a 4-year contract that was converted to a fixed revenue arrangement from its original per filing structure. As a result, we included the total value of that contract of $71.5 million in bookings in the third quarter of 2013, and the backlog related to it will work down as revenues are recognized over its term. Had that remained a transaction-based arrangement, as it was originally structured, there would be nothing in backlog related to that contract, and we would record in bookings each quarter's billings as they occur. Conversely, with the Massachusetts e-filing contracts we signed in Q1, nothing has bookings or backlogs in the current quarter. And when the system is implemented and begins processing filings, each quarter's revenues will hit bookings as they are earned. We signed 22 new contracts in the first quarter that included software licenses greater than $100,000, and those contracts had an average license of $451,000, compared to 11 new contracts with an average license value of $418,000 in the first quarter of 2013. Our total headcount grew to -- grew by 35 to 2,608 employees at the end of first quarter, compared to 2,573 at the end of the fourth quarter. Based on our first quarter results and our current outlook for the balance of the year, we have revised upward our revenue and earnings guidance for the year. Our revised 2014 annual guidance is as follows. We currently expect 2014 revenues will be between $470 million and $478 million. We expect 2014 diluted GAAP EPS will be approximately $1.39 to $1.46, and fully diluted shares for the year are expected to be approximately 36 million to 37 million shares. We expect 2014 non-GAAP diluted EPS will be approximately $1.83 to $1.90. For the year, estimated noncash share-based compensation expense is expected to be approximately $15 million. We expect an estimated -- we estimate an effective tax rate for 2014 between 39% and 41%. The tax rate may be somewhat volatile based on the effects of the timing and volume of stock option transactions throughout the year. We expect our total capital expenditures will be approximately $12 million to $13 million for the year. Total depreciation and amortization is expected to be between approximately $15 million and $15.5 million, including approximately $6.5 million of amortization of acquired intangibles. Now I'd like to turn the call back over to John for his further comments.

Thanks, Brian. We are pleased with Tyler's first quarter performance, which by most measures was our best quarter in history. And as our revised guidance indicates, we have a positive outlook for the remainder of the year. Many of the factors contributing to our success this quarter are similar themes to last year. Activity in the local government market has returned to prerecession levels and remains good. Our competitive position is very strong and our win rates continue to improve, which has enabled us to gain market share and expand our leadership position in this space. Similar to last year, our quarterly bookings were relatively flat with the same quarter of the prior year. Breaking this down a little further, on the perpetual license side, we had strong bookings for our ERP solutions, with both the number and average licenses for larger deals increasing. This was offset somewhat by a lower level of SaaS contracts. With our Courts & Justice solutions, where there are typically fewer, but larger deals, and the timing of new contracts varies from quarter-to-quarter, we did not have any significant new software contracts in Q1. And the Massachusetts e-filing contract did not contribute to bookings, because it is transaction-based. Our confidence in the outlook for the rest of 2014 and beyond, however, is supported by a pipeline of new business opportunities across our product lines that is at an all-time high. That pipeline includes a significant number of unsigned awards. The California courts market is currently very active, and we expect the courts in a number of counties, including some of the larger counties in the state, will sign contracts this year for our new case management system and that we will continue to build on our early leadership position in that market. As of today, we have been selected by 13 of the 16 California courts that have signed contracts for new court case management systems. We did not sign any new courts in the state in Q1, but have signed 1 new contract since the end of the quarter. We've been notified of our selection in several other counties, and there are certain funding considerations which we expect will lead to some contracts being executed in the second quarter. We also expect that most, if not all, of our Odyssey contracts in California, will ultimately include transaction-based e-filing arrangements. And while today there is obviously a great deal of interest in the California courts market, we continue to have a solid pipeline of Odyssey opportunities in other states. In our courts' e-filing business, our e-file Texas system is performing extremely well, and we continue to bring in additional counties live in this system on an optional basis. With mandatory e-filing from the next wave of 12 counties in Texas set to take place on July 1. As mentioned earlier, we signed an agreement in Q1 with Massachusetts for a pilot e-filing program that is expected to ultimately lead to a full statewide e-filing system. Results for our Microsoft Dynamics AX relationship this quarter was somewhat mixed. Our royalty revenue from this quarter from sales from bars were down from last year, but up sequentially from Q4. Royalties this quarter represented sales in 13 countries around the world. We expect that the royalty revenues may be somewhat lumpy from quarter-to-quarter, and represent both a risk and an opportunity in the short-term results. In our direct sales channel for Dynamics, we signed 1 new contract during the quarter with the San Francisco County Municipal Transportation Authority in California. We also have several unsigned awards for Dynamics. Our Dynamics implementations in progress are going well, and our installed Dynamics customers are referenceable. Brian detailed our revised guidance for 2014 earlier in the call. The upward revision reflects our first quarter results, as well as our current assessment of the opportunities and risk in our plan. While we have an increasingly positive outlook for this year, there are uncertainties regarding the mix of new business between our license and cloud models, as well as uncertainty over the timing of revenue recognition based on the terms of new contracts. In addition, as we mentioned earlier, our tax rate may be somewhat more volatile than usual this year. And our diluted share count depends on both the level and timing of option exercises, as well as our stock price. While all of these variables suggest a range of potential financial results for the balance of 2014, I'm very pleased with the broad market recovery. Tyler's considerably improved competitive position, as well as, and maybe most importantly, the execution of our team has achieved on significant -- on the significant number of new projects underway. All of this adds up to a strengthened leadership position. We are a busy company executing in a high level and I want to thank the more than 2,600 Tyler employees responsible for these results. Now, Andrew, we will take questions.

[Operator Instructions] Your first question comes from Brian Kinstlinger of Sidoti & Company. Brian Kinstlinger - Sidoti & Company, LLC: The first question I had, you mentioned John in California, you've signed a number -- sorry, you've been awarded a number of case management deals that are unsigned. Outside of the 16 that have awarded, and 3 on to you, are you also aware of any other county courts that have awarded to a different MSA than you?

No, just the 3. Brian Kinstlinger - Sidoti & Company, LLC: Great. And then the follow-up would be, you also mentioned California, you expect to include e-file with the court contract wins on case management, yet some of the counties have an e-file software vendor already. In those cases, do you expect to fully replace that vendor, or would there be 2 options for filings?

Could be a little of both. There certainly could be multiple options, and on the front-end, it's actually a requirement in California. But we would expect to -- that most of our engagements eventually include us as the primary e-file solutions.

Your next question comes from Charlie Strauzer of CJS securities.

When you look at the guidance that you're giving out, the revised guidance here, what assumptions are you building in for California and also for dynamics, if any?

There is very little built in to our current year guidance for unsigned contracts at this point in time in the Courts & Justice area. Most of their work will be projects out of backlog. So some of these awards that are not yet contracted will require that we get started, and we will, but I think our risk there is pretty limited. And on the other hand, there won't be a tremendous amount of upside, as it will take time to ramp those opportunities up. In the financial side of our business, it is more typical that we sign contracts, deliver software and recognize revenue, whereas almost everything is POC on the courtside. I think our assumptions on dynamics are pretty conservative, and therefore, if the revenues continue to be relatively light, which is where I characterize them now, that exposure is somewhat limited, and I would expect it would be offset by strength in other areas. And certainly, we're hopeful that those revenues accelerate and contribute at a higher level, and that will be upside.

And John, just expanding on dynamics, if you could a little bit more. When you kind of go into some of the RFP processes, bidding with your dynamics offering on direct model, and when you win or lose, what are some of the factors that would cause that decision to be made either for or against you, that you're seeing become more recent?

Yes, it's a good question. And obviously, our proprietary products are very strong in some of those marketplaces. So it is a bit of a challenge for us to position all of these products properly. The award we mentioned on the call is a Transportation Authority, and some of these authorities, and some of these kind of complementary markets in our space are very good places for dynamics to play and initiatives that we're developing. Being a newer system, this would be true of really any newly launched system. Its strengths are its user experience, the stack of technology, the interfaces to other products. Really, at a high level, the product shows very well and is pretty exciting product, and is being received that way in the marketplace. A challenge with any new product is the depth of the functionality. And in our core markets, those requirements are very, very detailed, and we're confident that dynamics will build those out over time. But that might be the area that it's most challenged. But it's definitely received as an exciting product, a strong user experience, technology is attractive to people. And those that want an earlier stage product that will be going up its bell curve in terms of functionality are interested in it.

The next question comes from Scott Berg of Northland Capital Markets.

John, can you comment on the percentage of deals that went SaaS in the quarter is the -- and I know they typically are smaller deals, but it was the second quarter in a row where it's been kind of sub-30%. Can you talk about what's in the -- how you view the pipelines today, is that -- should that be viewed as the current trend, or I believe the view 3 months ago was a higher level of SaaS deals, likely in the pipelines for the year?

Anything we can measure would suggest that, that's probably still a pretty good percentage to look for. You want to remember that it pretty much doubled in the weaker environment in 2010 and '11. And I do believe that part of that was not just a choice of technically how our product was deployed, but a little bit based on the financial environment, and it eliminated the capital investment that was needed to purchase a new system, and at some jurisdictions that needed a new system, but weren't in a position to make the capital investment, selected it, again more as a financial decision on the way they acquired it rather than a technical choice. And so I think, right now, the market in terms of its conversion to SaaS is probably catching up with that. So it's stalled a little bit. So I think long-term we may stall there a little bit to catch up with that dynamic, and I would expect it to begin to grow again once that's occurred.

Great. Then the dynamics revenues were up sequentially for the second quarter in a row where -- I know you've been -- this point might not be the exact term, but they've been later than expectations? Is that more on the -- you've seen that more in the new business side, or is the conversions of existing customers on maintenance maybe converting to the new versions slower than expected?

Probably a little of both. And I'd remind you that, conversions, there is very little or no license revenue that we did agree with Microsoft that conversions that could be kind of our evergreen strategy and theirs, but customers' ability to swap out a Microsoft or a Tyler product, they get credit for the investment they had, obviously both of us are very interested in the longer-term recurring revenues, and we're trying to build that from a base as well. So there are some conversions going on that may not show up initially as licenses, but will begin to grow the base of our current revenues.

Fantastic. Then the last question I have for Brian. I believe you mentioned in your remarks, you bought back a few shares in the month of April. Any color on the size or number of shares there. And how you view your buybacks for the rest of the year -- calendar year?

Not really. We typically don't disclose the specific numbers until we get to the end of the quarter. But -- so we'll just leave it at that.

The next question comes from Jonathan Ho of William Blair. Jonathan Ho - William Blair & Company L.L.C., Research Division: Can you give us a little bit more detail regarding, maybe the size or the quantity of contracts that were pushed out from Q1 to Q2? And was that sort of a surprise. So can you maybe talk a little bit about why it is that those contracts were pushed out?

I'm not even sure they're pushed out. It's just the timing of the market. It wasn't really so much that these deals weren't awarded and contracted. It's just a natural cycle that they were in, but it does appear that there've been a number of awards, and then we expect there will be more, and we would anticipate that a reasonable number of those will be contracted in the second quarter. I appreciate the interest in us being more granular on that, but it's hard to know when an award actually gets contracted and I hate to get in a position where we were -- have leverage against us to get contracts signed by the end of Q2. So I guess our color at a high level is that, even though bookings weren't particularly robust in the first quarter, the market is very active. We feel very good about the position we are in, and a lot of those particular opportunities, and we see some of that in the way of awards already, and we do expect that contracts in the quarter should be strong. Jonathan Ho - William Blair & Company L.L.C., Research Division: Got it. And then you talked about sort of the broader environment getting back to levels at sort of the pre-downturn phase, and continuing to improve. Can you give us a little bit more color in terms of how you see that trend, and do you think things will actually get to sort of above average status over the next 12 to 18 months? Just want to get a little bit of a sense around that.

It's pretty stable right now. Now it clearly rose to an elevated level beginning last summer, which is an unusual time for things to get that busy. So at that time we were pleased, and yet we were uncertain as to whether that was pent-up demand, deferred decisions that needed to be made, and a little bit of spike. And I would say now, 3 quarters later that, that market has been sustained. And as we've characterized it, it's a good market, and it's strong, it's consistent with prerecession levels. It's not incredibly robust. It's just a good solid regular market. Quite frankly, we're very satisfied with that. And if that's the level that sustained over the next couple of years, we're pleased with that. But the bigger change in our results has everything to do with our competitive position. So across the board our win rates are up, and we expect for that to continue, and that's what we're focused on and investing as we go forward.

The next question comes from Raghavan Sarathy of Dougherty & Company. Raghavan Sarathy - Dougherty & Company LLC, Research Division: Just a few questions from my end. You talked about the Massachusetts e-filing opportunity. You said it's starting up, is the e-filing mandatory in the state, or if it becomes mandatory, or what could -- how big this opportunity could be if it's adopted statewide.

It is not mandatory at this point. In the 6 jurisdictions that are part of the pilot are relatively small. So the amount of revenue in this year's plan is pretty insignificant, quite frankly. It would probably be a full year from now before we see meaningful revenues from that. And we don't control whether those are just higher adoption rates, and a broader footprint or whether it actually goes mandatory. But it is our hope, and the clients' as well, that the exposure would be significantly higher a year from now. The volumes would suggest that this could be a, say, a $4 million to $8 million run rate, depending on whether it's mandatory or just higher traction. Raghavan Sarathy - Dougherty & Company LLC, Research Division: Okay. And then my second question is on license revenue growth, which you talked about. In the past, we have seen a switch to SaaS impacting your license revenue growth. Last couple of quarters, you reported 27 plus percent license revenue growth. Can you talk about how we should think about the license revenue growth for the year as a whole?

Well we don't report that breakdown as you know, but certainly I wouldn't want the expectation to be at 27% for the year. But it certainly would be -- our expectation would be -- certainly would be up double digits. And so we are pleased, obviously, in the first quarter to have 52% growth in subscriptions granted, a fair amount of that coming from e-file Texas. But strong subscription growth along with strong perpetual license growth is a really good combination for us, and we do expect for the year that both of those will be up at significant levels. Raghavan Sarathy - Dougherty & Company LLC, Research Division: And just 1 final question. We are looking at the tough [ph] comparisons for the bookings for the second quarter, so you had a couple of large deals last year second quarter. You seemed bullish about the business. Should we expect bookings to go up in the second quarter given you seem to indicate you have a number of unsigned awards?

I'd have to look back at second quarter of last year. I don’t know that number off top of my head. As I said, I think the number and size of the counts will sign in the second quarter will be significant. And it will be a good number. But I don’t know the comparison off the top of my head.

Your next question comes from Mark Schappel of Benchmark.

John, in the recent past, I think you've cited competitive win rates of about 70% in your core ERP business, and about 80% in your Courts & Justice business. I was wondering if those win rates held up in the quarter?

I guess I'd have to look at exactly what I said, 70% probably a little high. It's in that range, when we are in the finals. But there are usually deals that are not in our core market, that occasionally, don't make the finals. So if you're talking about percentage of wins to actual bids, it's a little lower than that. But certainly up over the last couple of years, and I think that's a pretty good number for Courts & Justice. There are few meaningful losses over the last few years.

Okay, thanks. And then, I was just wondering if you could just give us a little bit of an update on your implementation capacity, especially with respect to your confidence level to ramp up for the other projects in California?

We feel good about it. Certainly, one of the challenges that a growing company like this has, and it's a challenge you like to have, but we have a strong core of strong professionals with the right subject matter expertise and the right experience to execute on these projects. And certainly, we are adding people, but obviously we are adding them at the lower end of the skill set to join the team. But I think all of our teams will have seasoned veterans leading the projects and that's what's important. So certainly, that is something we are very, very focused on. But we -- it's what we do well. And especially in the Courts & Justice area where the growth is at the highest level, it's something that they've been preparing for some time and with the leadership, that division does very well. So we will be adding a lot of people. Those costs are in our plan. There was a lot of onboarding in the second half of last year in the financial side of our business. And we are largely through that, and we are in that process now on the Courts & Justice side.

The next question comes from Kevin Liu of B. Riley & Co.

Wanted to clarify one thing on the Massachusetts e-filing win. If it does hit that $4 million to $8 million run rate eventually, does that assume that you guys just roll out a little bit more beyond kind of the 6 initial pilot counties, or do you expect a statewide roll out?

Yes, the higher end of that range would either require very high adoption rates, or mandatory and statewide.

Got it. And for the unsigned awards you feel like you're going to get for California, are any of those going to come in as SaaS transactions?

I'd expect some of them would, and some of them have. And we also have set up arrangements with multicounty hosted arrangements, so that the smaller jurisdictions, rather than bearing the cost of a full implementation have collaborated on a hosted solution. So we do have a combination in the state.

Okay. And just 1 last one. On the appraisal services, the revenues there were down in Q1, but bookings and backlog were pretty strong, so just curious what's factored in the guidance in terms of how much growth or kind of revenue flowing out of backlog we should expect to see over the coming quarters?

The tax and appraisal division is really split with its appraisal service business, as well as its tech or software business. The appraisal service business will be a little stronger this year, but generally is managed to be a relatively flat part of our business. As you may know, years ago, it was 27% of our revenues, and now it is around 4%. And so that's somewhat by design. It's an important offering. And another sticky point that we offer to our clients. But we would expect those revenues to be low growth, or somewhat stable over time. There tech or software business is now growing in line with, say our financial software business. So that's where we'll see more growth in that side of the business.

And we do expect that appraisal services, although it's down in Q1, a lot of that really was related to weather. Because of the particularly rough weather, a lot of places were in hampered field collection efforts to drive revenue. But with a combination of the backlog and particularly a strong cycle starting in the state of Indiana this year. It should be up, kind of mid-single digits for the year.

The next question comes from Matt Williams of Evercore.

Maybe just one for me. But I'm curious, just if you could provide any color around sort of the backlog or how the demand pipeline looks around Munis and EnerGov. It seems like customers are a little more engaged around maybe deploying those 2 solutions together. So I was just curious about sort of what the outlook is there on that side of the business, and sort of why customers may be coming around to tying the 2 solutions together and going with joint deployments a little bit more going forward?

Yes, that's going well. We had applications with that functionality within Tyler, but we wouldn't necessarily call them industry leading. And acquiring EnerGov was about having an industry-leading solution in that space. There are small growing -- they were a small growing company, they are now a small growing division of Tyler. They are focused on kind of point solutions, decisions that are exclusively around those applications, when I say they, the division itself, and they're winning direct deals on that basis, and really creating the volume of business that they can be responsive to. And the revenue synergies do come from, including those applications with Munis, as well as Incode in the marketplace, and we've had good success with that and driven incremental business for that division that's mostly handled from the Munis and Incode channels, both sales and service. So that's exactly what we wanted to see happen there. The other thing that's hard to measure, but we know is happening is, when you have a 3-day demonstration for a major city or county and half a day of it was related to those applications, instead of that being something that we kind of survived with our earlier applications, it's now something that strengthens our overall competitive position. So again, you'll never know the deal you won that you may not have, but along with driving additional EnerGov revenues, we do believe that it's improving our competitive positions with the other applications. So we're pleased with all of that.

And maybe just 1 quick follow-up on the e-filing opportunity. It seems like the most significant opportunity is obviously when states mandate e-filing. And I'm wondering if you could just provide a little bit of color on sort of what the interest level is or what sort of the holdups might be for particular states to actually mandate e-filing rather than just making it an option?

Well, it's ...

I realize that's probably a difficult question to answer.

Yes, it is. I may guess the biggest observation, and it is just interesting that so many of these states continue to have so much manual filing, and I think all of us that are exposed to technology would look at that and be convinced that it's just not reasonable to think that a significant amount of the filing will continue to be manual, 3, 5, 8, 10 years from now. So we are convinced that what's going on in Texas and what's going on in other states we're involved in, will be adopted around the country. We see a lot of states and major counties following and watching and communicating with places like Texas and other jurisdictions where e-file has been successful. And we're convinced that most of the country will move in that direction, and we feel we're in a great position to capitalize on that. We have a tremendous amount of activity going on right now, installing case management systems, as well as the awards and the market that we've talked about on this call, and previously, and most of those have the expectation that e-file will follow. It's not always contractual, we don't think it's necessary -- it's not necessary to put that barrier up in closing the original deal. It's the customer's expectation and ours that once the case management systems are in place that the logical follow on will be to put e-file in front of it.

[Operator Instructions] The next question comes from Josh Goldberg of G2 Investments Partners.

I had a couple of quick questions. First, I know you talked a little about your back half of the year being stronger both in bookings and revenue. Obviously, your -- midpoint of your revised revenue guidance would imply roughly about $120 million of revenue per quarter for the next 3 quarters. I know probably you might start a little slower and then ramp up as the year goes on. But could you help us understand where that incremental $8 million is coming from. Is it coming from subscriptions and licenses, or just across the board? And I'll follow up.

The license -- licenses are relatively high really for the first quarter. And so we wouldn't expect to see that number dramatically higher throughout the year but relatively constant, kind of that level. Subscriptions will continue to grow throughout the year would be our expectation. As well as professional services, there's been a lot of onboarding as I indicated earlier in financials. Those people are now becoming available to projects. Then in the second half of the year, we'll see some of that as well in the Courts & Justice side. So we will see some growth there as well. And maintenance will grow marginally as it always does throughout the year. So less in licenses, more in the recurrings and professional services.

Okay. And with that case, it would also seem like your earnings will grow much higher than where they are in Q1. If the mix shifts to more of these services contracts or revenue, that would not show as much earnings for us. I'm just wondering what gives you the confidence on the earnings side to get to the $183 million to $190 million.

Well it's true that the margins on professional services are lower than licenses in the recurring lines. However, as I indicated, we've had a high level of onboarding, so these are resources that are on the payroll, they were investing in otherwise as well, that are not yet productive from a revenue standpoint. And as we go into the second half of the year some of those resources will become revenue-productive. So as the revenues grow, the leverage in many areas of our business, the SG&A level, certainly in the help desk and in the development side, so we would continue to expect to see some margin expansion later in the year.

Okay. And then just regards to the bookings level, you mentioned that you think June will be a strong bookings level. Just for reference, since you didn't have the number, it was roughly $147 million in the June quarter. And in each of last few quarters, you've grown your bookings over $40 million from the first quarter into the second quarter, a couple of years back you actually grew it over $60 million. It seems like the second quarter usually has a very strong bookings level to it. Does that feel right to you that the second quarter usually has a very strong bookings level, might be one of the strongest for the year even, as you look back? Or looking forward.

There are lot of variables that go around, as John mentioned earlier, what specific quarter contracts fall in. Last year, in Q2, we did have a very large deal with New York City for property tax side. And so that was one of the things that pushed Q2 up last year. I think we clearly expect that the second half of the year end will be very strong in terms of new bookings and the significant amount of those will fall in Q2. But I don't think we can give specific bookings guidance with respect to any particular quarter.

And maintenance was normal in Q2 as well. So that's one of the reasons too.

At this time, there appear to be no more questions. We do have a question now, a follow-up from Raghavan Sarathy from Dougherty & Company. Raghavan Sarathy - Dougherty & Company LLC, Research Division: So in terms of the California superior court, the case management system, you talked about a number of awards, but in general, you see -- what's, so I'm sort of wondering, what's driving these courts to make a decision by the June end. And what sort of expectation you have that 50 superior courts, it seems like there's a pickup in activity, do you see most of the courts making decision by the end of this year?

There are some funding considerations as far as we understand that required that they make decisions, and have some projects underway by the end of June. Now I think only the courts that are close to making decisions have been engaged in a process will use that as a sense of urgency to get something done. And that is not the majority of courts. But I think a number of courts that are well into their process of making an evaluation will use that as a reason to make an award, get a contract in place, and get underway. So we would expect that there would be a reasonable number of decisions. I'd just rather not characterize that, because it's hard. We don't control that, but we expect that there will be a number of contracts that are a result of that. Subsequent to that, it's possible that those that were close used it as a reason to make a decision and get underway, and it might slow down a little bit for some time, and that would be fine. At that point, we will have, as you know, we have 13 contracted awards at this point, and that number, we expect to grow, somewhat meaningfully in the second quarter. We will have a lot of projects underway, and a lot of business there. But whether that's maybe half of the total number of counties, could be somewhere in that area, and I certainly wouldn't expect the other half to make decisions in the second half of the year. So by the end of this year, it could be 50% or 60% of the total number of courts, that might be a reasonable expectation. I don't think it would be much more than that.

Mr. Marr, I'll turn the call back over to you for closing remarks.

Okay, thank you Andrew. And thank you all for joining us on the call today. If you have any further questions, feel free to contact Brian Miller or myself. Have a great day.