Hello, and welcome to today's Tyler Technologies Fourth Quarter and Year-End 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, February 5, 2015. I would like to turn the call over to Mr. Marr. Please go ahead.

Thank you, Kate, and welcome to our fourth 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. Next, I'll have some preliminary comments. Brian will review the details of our fourth quarter operating results and 2015 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'd refer you to our Form 10-K and other SEC filings for more information on those risks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year, unless we specify otherwise. John?

Thanks, Brian. We finished an exceptional year in 2014, with fourth quarter financial performance that continued a trend of very strong growth in revenues and earnings. From a historical perspective, this was our 13th quarter of double-digit revenue growth and the best fourth quarter in the company's history by virtually any financial measure. Our recurring revenues from subscriptions continues to be our fastest-growing revenue line. Our subscription revenue grew 23% and reflects strong growth of our e-filing revenues from courts as well as a continued gradual shift with the cloud-based Software as a Service business. Software license and royalty revenues were up 10% over last year. This was our seventh consecutive quarter of software license and royalty revenue over $10 million. We had another very solid quarter for bookings, which were up 28%. On a trailing 12-month basis, bookings increased 9%. However, bookings were up 27% with the Texas e-file contract considered on a comparable basis to other transaction-based e-filing arrangements. This was a robust quarter for SaaS bookings, with a total contract value of approximately $31 million in SaaS agreements signed. Some of the notable contracts signed in the fourth quarter included a 7-year multi-suite SaaS agreement with the city of Mobile, Alabama valued at approximately $11 million. This is the largest SaaS deal in the company's history in terms of total contract value. Mobile selected our Munis ERP, Incode Municipal Court, EnerGov planning, regulatory and licensing and Tyler Public Safety solutions. Mobile is the second largest city in Alabama. We also signed a contract valued at approximately $8 million with Marin County, California for Munis ERP solution. Following an extremely thorough evaluation, Marin chose Tyler to replace more than 250 ancillary systems county-wide, including a financial system from a Tier 1 ERP vendor, to enhance reporting capabilities and…

Thanks, John. Yesterday, Tyler Technologies reported its results for the fourth quarter ended December 31, 2014. These results are considered unaudited until our Form 10-K is filed, which is expected to be on February 18. I'm going to provide additional data on the quarter's performance and review our guidance for 2015, then we'll move on to John's comments on the current quarter and our outlook for 2015. 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. The reconciliation of GAAP to non-GAAP measures is provided in our earnings release. Revenues for the fourth quarter were $127.4 million, up 15.1%, with 14.5% organic growth. Software license and royalty revenues increased 9.6% and were the second highest in the company's history, just behind Q3 of 2014. The license revenue growth is particularly notable given the record high level of SaaS contract bookings in the quarter. In Q4, we received $881,000 of royalties on public sector sales of Microsoft Dynamics AX by other Microsoft bars [ph], up from $473,000 a year ago. In addition, we had approximately $1.2 million of revenues related to Tyler's direct sales of Dynamics, which are included across our various revenue lines. These direct Dynamics revenues increased 8.2% from $1.1 million in Q4 of 2013. Subscriptions continue to be our fastest-growing revenue line, and increased 22.8%. We added 24 new subscription-based arrangements and converted 12 existing on-premises clients, representing approximately $31 million in total contract value compared to 26 new arrangements and 15 conversions in the fourth quarter of 2013, representing approximately $12.5 million of total contract value. New SaaS clients…

Thank you, Brian. As I indicated earlier, we are very pleased with Tyler's strong finish to 2014. And as our initial guidance indicates, we are looking forward to another successful year in 2015. Market conditions in the fourth quarter generally continued the trends we saw throughout 2014. Activity in the local government market is good and has returned to normal prerecession levels. Our competitive position remains very strong across all our major product suites. And our win rates remain very high, which is enabling us to gain market share and expand our market leadership position. In the California courts market, most of you are aware of our competitive wins over the last 2 years. We've been selected in 25 of the 28 decisions by California courts for the new case management systems. We are now actively engaged in those implementations, and we're pleased to report the courts in 3 California counties are now live on Odyssey. We continue to pursue a number of significant long-term opportunities in California as well as other states. Those include expanding our relationships beyond case management to include our Odyssey-integrated justice solution, adding applications for jails, prosecutor, public defender and probation. We also look to continue to add new e-filing arrangements with existing courts and software clients as well as new clients. These growth opportunities are not unique to California, and all are part of our long-term growth strategy for Courts & Justice business nationwide. Texas and Georgia were both active states for new Odyssey business in the fourth quarter. While Courts & Justice was our fastest-growing product suite in 2014, all of our business units are performing at a very high level. We're especially encouraged that we've been able to grow license revenues over the last year, while expanding our SaaS client business. We…

[Operator Instructions] The first question comes from Jonathan Ho of William Blair & Company. Jonathan Ho - William Blair & Company L.L.C., Research Division: I just wanted to start out with sort of the Microsoft arrangement and what you guys think in terms of the ongoing spend that's still going to be there, even if you're not supporting sort of the full development effort at this point.

Well, again, the contract naturally -- the R&D contract naturally expires at the end of the release of the next version, which hasn't been publicly announced, but is probably sometime very late in this year. So the R&D spend and the commitments to customers and sales channels and really everything that we currently have in our Dynamics practice really won't be changing much in the current year. Subsequent to that, as that release goes out, a significant number of people that are involved in the R&D of Dynamics will be redeployed more than in -- on other proprietary projects, and our activity on that side will be somewhat different. So our spend this year will be very much at the current run rates, and it will decline significantly next year. Jonathan Ho - William Blair & Company L.L.C., Research Division: Got it. And then it seems like you guys saw some uptick in terms -- or changes in the dynamics around your SaaS business towards larger deals. I'm just trying to understand sort of what you're seeing out in the field. Are you starting to see maybe a shift towards customers being willing to adopt in a different segment of the market in terms of the SaaS deals? Can you maybe give us some thoughts in terms of how that trend is progressing, and whether you think more customers will elect SaaS over time?

Well, as we've said in the remarks, that's going to vary quarter to quarter, whether we're talking about Dynamics or our proprietary business. And I think we've been around this 30% or 1/3 of deals in value for some time, and I think that's probably still a reasonable assumption. Certainly, the sampling for Dynamics is far too small to draw any conclusion based on the mix in a given quarter or 2.

And the next question comes from Scott Berg of Northland.

A couple of questions. John, first, just to expand on the Dynamics relationship. With the ending of the contractual R&D relationship, does that mean all the functionality is essentially built in at this point and nothing new will be needed in future releases after Dynamics 7? We're just trying to understand what your long-term responsibilities will be for that product, especially if you will be gaining royalties on the future products after 7.

Yes, that's a fair question, a little of both. Certainly, the initial features, functions for the public sector that were targeted to be added and that our role represented are largely achieved. I certainly would say that if things were far more robust and the business were performing at a different level, then there'd be a greater likelihood that we'd continue the level of spend we've had. And we'd continue to add more and more functionality. There are always things, obviously, you can add. The market and the competitive landscape are always changing. So I think the initial objectives have been satisfied, and the decision is to not continue to invest at that level. Always been contemplated. What does that mean once our role has been satisfied from an R&D perspective? And while we've never disclosed the specific terms of the arrangement, it certainly was always understood that nothing is forever, and there was a very long runoff where we'll be compensated for royalties in the product based on the investment that we've already made. In broad terms, the current rates or percentages of our royalty for licenses and maintenance will continue at their current level or about 10 years. And then for another 9 years, they'll continue on a declining basis. So we will continue to share in those royalties for the product we've helped build for a very long time.

Great. And then, John, could you expand a little bit on the investment in Record Holdings and how that expands your opportunity? Obviously, it takes the Odyssey case management system into different countries. But how do you view the TAM, the overall sales opportunity, the deal sizes there and just trying to better understand what that can mean to you. Obviously, it's going to take some time, but on a longer-term basis?

Sure, well, the first thing to say is we did end up making a financial investment that we think will be very helpful to the company. It's a smaller private company, and I think they can use that to much more quickly get to market and get a leadership position in a changing marketplace. It isn't where it started. It started as a natural partnership where, obviously, we have a very strong position here in America. For Courts & Justice, they have a very strong position in Australia and, to some degree, in other parts of the world. They do something that's completely complementary to what we do and not at all competitive to what we do. So their ability to introduce us to clients in the marketplace in Australia and, to some degree, in other parts of Europe and some other places in the world is interesting to us. They've got the same kind of relationships that we enjoy here. And they've got an exciting offering that they're investing in here in the States that I think can be hastened along significantly by our relationships and by the capital investment we made. More specifically, in terms of the TAM, I understand Australia to be similar in size to Texas. So while we all know it's a very big country geographically, it's roughly that size of an opportunity. And as we saw, when California went from really not an addressable market, given their own build, to becoming available to us... It's hard to find new Texases and new Californias, so that's intriguing to us. It's obviously a similar type of government and court system to the States, obviously English-speaking. So we think that's a significant opportunity for us.

Okay, great. And then the last question for me, at least, Brian, on the licenses for the current California Courts & Justice deals. I know the level of customization there, at least initially, was going to be a little bit more than maybe some other states, given some of the complexities there. Can you kind of characterize how the runoff of those license deals are kind of expected to hit the P&L over the next maybe 4 to 8 quarters in terms of is there anything different, substantially different in that timeline relative to other Courts & Justice deals or your PDLs?

Not particularly other -- for similar-size kinds of deals. We're -- as we mentioned in the prepared remarks, we're actively engaged in virtually all of those implementations at this point. We recognized in 2014, total license revenues were in -- for our California contracts were just under $2 million. And as we move into '15, that recognition will accelerate. Virtually all of our licenses in the Courts & Justice business are going to come out of backlog on a percentage of completion basis. Some of those play out over as long as 5 years in the case of Los Angeles. So we'll certainly recognize more than that in licenses in '15, and it will probably stay at a similar level in '16. And we do anticipate adding additional California clients along the way as well as adding additional case types to some of the existing clients. But I think the key is we've recognized really very little of the licenses in California to date. Total licenses for all the California agreements are a little under $30 million. So there's still quite a bit there to come in the next couple of years. And that's part of the reason we have confidence in being able to grow licenses at a continued nice rate next year, even with a high level of SaaS business.

The next question comes from Brian Kinstlinger of Maxim Group.

I'm wondering if the seasonality in your business, which has decreased over the last decade, maybe how we should think about it in 2015?

Our seasonality as we've gotten bigger and as more and more of our revenues come from recurring revenue sources, has smoothed out a bit. I think as -- and I think that will -- that trend will really continue. I think some of it inherently, some of the licenses and nonrecurring revenue sources can be somewhat lumpy. But I think when we look at 2016 -- 2015, we probably, again, expect to see that seasonality from -- both from a revenues and an earnings standpoint smooth out. Typically, the first quarter revenues are at the lowest level, and then they expand throughout the year. But I think as we look at '15, the last 3 quarters of the year, revenues are fairly consistent from quarter to quarter, and earnings would not fluctuate as much from quarter to quarter, as we may have seen in some of the prior years. And to some extent, that was the pattern we saw in '14 as well.

Great. And then 2014 was a fantastic year for RFP activity and certainly your win rates. As you enter 2015, how would you characterize the procurement environment and pipeline of RFPs that you see? Is it similar to '14? Is it stronger than '14? Is it maybe not as robust?

Probably somewhat similar, with the exception of California. Obviously, we ended up being about $20 million above revenues than what was in the initial guidance, which is unusual for us. We're usually pretty close on the revenues, and about half of that came from California. Two things, that market we knew became an opportunity with a change in the project they were managing themselves, but to see 29 counties make decisions that quickly is unusual in our space. So a lot of that rolled forward. And obviously, there isn't going to be that kind of a dynamic in the market to place this year. The second thing that happened is there were budgetary pressures where they actually had to get underway and spend some of that money. So ordinarily, you might see those in bookings and backlog, but not realize much in the way of revenues in the current year when an opportunity presents itself. So I would call that somewhat of an anomaly. C&J's, our Courts & Justice Division's pipeline is strong. There's a lot of other opportunity in the country, but clearly, that was a little bit of an outsized deal that happened very quickly in 2014. And I would say that would be the exception. Otherwise, I think everything else should perform relatively steady and on the trend that it's been on.

Great. The last question I have, have you identified -- have you been able to identify the market value of MCAD's court business? And what of that is addressable to you and maybe how much you've been awarded, details like that? And is everyone expecting to switch if their product's not supported anymore? Just some details around that, please.

I don't think we've put a number on it. I think there are some early defections, and I think that's meaningful not just for those deals. Certainly, Harris County is a very large county. But I think if enough significant clients move away from that, its ability to sustain itself for the remaining clients will be impacted. So I think -- you just don't know what's going to happen. This doesn't happen very often, that somebody just wholesale-ly exits the marketplace. Generally, there's a very long process. We all know it's hard to kill a software company, as they say. So normally, it was a very long process to -- someone leaving, say, the competitive new business environment and becoming a legacy vendor. And often, it's 8, 10, 12 years before their customers really start defecting in numbers. But this is certainly different. There isn't a company there to support it on a sustainable basis. If there were enough clients, then maybe there'd be some kind of an ecosystem developed around it, and that doesn't appear to be happening. So we had expected that's a fertile market for us in the next few years.

Our next question comes from Alex Zukin with Stephens.

Picking up the theme, kind of the last question. If you look at your pipelines looking at 2015 and even 2016, can you just step back for a second and give us a sense of what gives you the continued confidence that kind of the end market demand is there, it's strong, and it's in this multiyear ups -- continues to be this multiyear upcycle?

Well, I mean, obviously, we've got all kinds of different leading indicators to it, and whether it's RFPs and demos and the rates they're moving. If you remember, in 2009, '10, '11, there was a big pipeline, but people weren't making decisions on time. They weren't operating in a normal schedule of these processes, and things continued to get delayed and on and on. And that isn't our experience now. A reasonable number of new opportunities continue to enter the marketplace. The processes are moving along in an orderly typical fashion, what we saw before the 2008 to 2011 or '12 cycle that was slow. And so it just seems to us from, again everything from RFPs to demo schedules to awards that the pipeline, people come out of it, people go in it. And the processes, most importantly, because really, if you remember specifically in those years, it wasn't that there weren't deals out there. People weren't making decisions. And when they were, they were scrutinized much further in meetings. Additional meetings and processes were added to the situation, and that's not our experience now. So it's not a tremendously robust market. As we've said, it's more typical and normal. And the biggest change in our growth in the new business market clearly is attributable to the improvement in our competitive position. So as long as we have a healthy market, invest as we have been -- and this year, we mentioned in the remarks, there are a lot of incremental investments in this year to support that and not take for granted, that we're going to continue to benefit from the market share that we've enjoyed in the last year or 2.

That's helpful. And then just another question on the incremental justice software systems that you're putting in behind -- into the Odyssey customers. What is the typical incremental uptick that you see from those deals or from those customers versus the initial deal?

Yes. Well, obviously, it depends a little bit on what we sold them initially. But what you're seeing, and we had some of it in the remarks, is, very often, there's an opportunity that's a multiple of the original agreement, especially in these very large counties. And the reason is twofold. Sometimes, those initial engagements are not all for -- are not for all the case types. So in the case of Harris County, we go in for a certain case type and, then a quarter later, it's expanded to include additional couple of case types. So it can expand significantly because you went in for criminal and then you add civil. And the second way is you only sold them case management initially maybe and then you expand it to include probation and jail and prosecutor and all these other types of applications as well. So in a lot of cases, we're happy to get our foot in the door. It could be a single case type, it could be a single application. And when that's the case, the incremental value going forward could be -- would be a multiple of the original engagement. If the original engagement included all case types and the full suite of applications, then obviously, it'd be significantly less.

The next question comes from Matt Williams of Evercore ISI.

Maybe just 2 for me, but I guess, first, you talked about some of the incremental kind of hiring this year on the services side, and I know there's been a fair amount of investment on the e-filing side as well. Could you talk a little bit about how you expect to sort of leverage some of that services, capacity and maybe some of the other investments around e-filing as the Texas deal sort of matures a little bit and some of the implementations start to accelerate with some of the services capacity?

Sure. We are absorbing -- I mean, this plan -- last year, as you know, we had nearly 300 basis points in operating margin expansion, which is significant. We had a high-growth rate, and that helps your ability to do that. After a year like that, in our view, we certainly would like to grow margins. There's a little margin expansion in the plan. It's not unusual that our margins do a little better than planned in the year. So that would be great. But in our view, this is a year where we obviously need to grow the organization to perform the higher level of business that we have on our plate. So there were a lot of people that have actually already been hired, but are still in the onboarding process. So we're training them. They're parallel in other people, and they're not yet financially productive. So we're carrying that now and will-- in the year. And we'll continue to add people in that area as we go forward. I mentioned earlier, we are clearly, as we went through the plan for this year, choosing to support incremental development efforts, features, functions, broadening what the products do for our clients. And we feel it's a good investment to make to sustain the momentum that we've had in the marketplace as we go forward.

Great, that's helpful. And then maybe just kind of touching on the Record Holdings investment that may be looking across the broader product portfolio, whether it's on Courts & Justice or Munis or any of the ERP or schools offerings. Are there other sort of opportunities that might make sense from a product standpoint, not necessarily from a specific company standpoint, but are there any kind of, I don't want to call them holes in the portfolio, but any opportunities from a sort of product functionality standpoint, where this type of investment as opposed to a pure acquisition might make some sense?

Well, we'd probably not get too specific from a competitive standpoint, but just talk about this in general. I don't believe there are entire enterprise areas that we have no meaningful presence in at this point in time. So I don't expect us to be talking to you about a product we built or a company we bought that's an entirely different suite of application than anything we've done historically. Our objective, though, as a company, is to be -- have a leading position in all of the important enterprise areas of local government. So obviously, the way the company has been built, everything doesn't enjoy exactly the same level of leadership. There are many areas where I think we're a clear leader, with strong competitive and defensible positions. And there are other areas, quite frankly, where we do reasonably well because of Tyler's broad offering, presence, brand, et cetera. And I think EnerGov is a good example of a case where we had applications in that space. They may not have been, on their own, industry-leading, but they were functional, and served our clients well as part of a broader suite. And we stepped up and acquired a company that had a presence and had the potential to be a clear leader in that narrow niche. And that's what we've been achieving with them. There are other areas like that, where we currently may not be a very clear leader in that very specific niche, but we have a presence and it's part of our broader suite. And those are decisions we're making strategically. Do we invest further in our own organic products to grow them in that direction? Or from time to time, when something presents itself, is there an ability to acquire a product that improves those features within our customer base?

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

First question, you talked about the opportunity Record Holdings brings you in terms of opening up the Australian market for Courts & Justice, but I'd be curious as to whether you feel there are other international markets that your existing products would serve well? And then also whether there are kind of acquisition opportunities out there that could push you more so outside of the U.S.?

We mentioned the U.K. in our remarks. It really would be the major English-speaking countries in the world are potential opportunities for us. It's kind of early to be specific about that. We've been -- we've had people travel to those countries, attend trade shows, talk to clients, talk to partners. And we do believe that there is a meaningful opportunity, that our product's competitive, that it's reasonably ready to be deployed in certain countries. And so that's something that we expect to pursue over the next few years. Will the revenue be significant in the next few years? Probably not, but hopefully, we'll build our presence in some of these countries that will allow us to sustain our growth as we eventually begin to saturate the U.S. marketplace.

Great. And then just looking at your SaaS pipeline today, obviously, in the fourth quarter, it seemed like your customers are willing to buy a number of products on a hosted basis. Are you seeing that still within the existing deals that you have? And are the durations for these deals also getting longer?

Okay. Yes, I said earlier, I'd stick with this 30% or 1/3 level. Quarter to quarter, it jumps around, but if you look at our trailing 12 months, generally, that seems to be the adoption rate. I would expect that it will continue to expand over time, but it seems to be at a slow rate certainly in the government marketplace. So that would be the way I'd look at it as you kind of do your modeling. I would say yes to the second part of your question. I think we had one 10-year engagement in the fourth quarter, several 7s. So the old 3- to 5-year engagement, in some cases, seems to be morphing to often 7, occasionally even longer.

[Operator Instructions] The next question comes from Mark Schappel of Benchmark.

So most of my questions have been answered. I just want to know, John, I just want to make sure I heard you correctly earlier in the call with respect to your decision to redeploy R&D resources away from Dynamics. Is your decision related to the slower-than-expected uptake rate of that particular product?

Well, the decision not to extend the R&D side of the relationship beyond AX 7, no. Microsoft's -- that's their choice, to a large degree, and that's the decision around that. And then the question becomes, what do you do with the R&D resources? Well, the reason we were brought into this in the first place is that these are largely strong subject matter experts that bring those skill sets to that product, and they have the same value back in the proprietary Tyler place. And fortunately, this is a decision we're making well ahead of the release of that product. So the ability to redeploy those strategically into different product sets within Tyler is something that will be absorbed through the normal headcount growth that we would have seen, attrition, maybe in some cases being willing to get a little ahead of what the normal headcount growth will be because we've got experienced, talented, Tylerized kind of people rather than going out in the broader market to recruit. So it's our expectation that the majority of those people will find productive places in proprietary Tyler development environments.

So this was a Microsoft decision to discontinue the R&D around the product. Is that correct?

Yes, yes.

It appears there are no more questions at this time. Mr. Marr, I'll turn the call back over to you for closing remarks.

Okay. Well, thank you for joining us on the call today. Have a great day. And if there are any further questions, then feel free to follow up with Brian and myself. Thank you.

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