After working through increasingly wider budget gaps and record deficits for so long, its understandable that some states are reluctant to get excited about the Recovery Act. Governors and legislatures in some states are refusing to use stimulus dollars because they believe it would create a dependency on funds that won’t be there two years from now. But for anyone in the business of helping to shore up the bottom line, life is good.
“We’ve not seen a dramatic effect on business,” says Director of Market Development Rick Copeland for Dallas, Texas-based Tyler Technologies. “We believe the market we serve is somewhat insulated because we are selling products to help improve efficiencies and save money – this kind of economy promotes that.”
The market Tyler Tech serves? State and local governments – and a lot of them.
Tyler Tech has more than 7,000 installations in the United States, Canada and the United Kingdom. They serve 3,100 counties, 36,000 cities and towns, and over 14,500 school districts. “Tyler’s core competency is the public sector. Period. We don’t have any other market. It’s not just a vertical for us,” Mr. Copeland said in an interview with CivSource on Monday.
Tyler Technologies first quarter numbers also came out Monday, and despite the economy, Tyler Tech had the “best first quarter in history in terms of revenue and earnings,” according to their CFO, Brian Miller. Their earnings included a 92 percent increase over the prior year’s first quarter earnings, and $69.6 million in total revenues.
State and local IT spending is expected to grow at an average annual rate of 5.1 percent, from $51.2 billion in 2009 to $59.5 billion in 2012, according to market research firm Gartner Inc. Tyler Tech is positioned extremely well in this harsh economic climate. “The Stimulus package will end up funding critical projects that would have been a burden on the local budget, freeing up other funds for our types of projects,” Tyler’s CEO John Marr said during the earnings call.
Two key markets for Tyler Tech are in education and courts – two areas with big dollar signs behind them in the stimulus package.
Nearly $17.5 billion in education funding for K-12 and higher education has been obligated to states around the country, according to the Department of Education’s latest numbers (.xls). But that figure is little more than a fifth of the $90 billion expected for education over the next two years.
No Child Left Behind is still a daunting benchmark for many school districts across the country. Those looking to tap part of that $90 billion must use the Recovery Act funds to improve student achievement by establishing better data systems to track student progress. Last week, the Department of Education released a document (.doc) describing how schools could use Recovery Act funds to drive school reform and improvement through technology. “At the heart of improving schools and school districts are systems to gather and analyze data and provide feedback to educators, students, families, and the community in order to improve student and teacher performance continuously,” the document says.
K-12 education has become a fast area of growth for the company, where development of new products has matured, and word-of-mouth promotion is spreading, Copeland says. Tyler has made some important acquisitions recently to make an impact on education, including the purchase of PulseMark LLC, a provider of specialized information warehouse solutions for the K-12 school and local government markets.
One major Department of Education initiative Tyler is looking to help with, is known as longitudinal data systems – a data system capable of tracking student information over multiple years and even multiple school systems. According to the National Center for Education Statistics, twenty-seven grants were awarded in March of 2009 to implement Statewide Longitudinal Data System (SLDS). Since 2005, 41 states and the District of Columbia have received at least one SLDS grant, most of which have been between $1 and $3 million.
Court and justice systems have been and continue to be one of Tyler Technologies’ strongest areas. The division had the highest software revenue, which grew 19% from last year. “We have good adoption rates and good word-of-mouth with our courts products and I think there is some real opportunity,” for expansion, Copeland said. Although much less than education, the Recovery Act will provide $4 billion for the U.S. Department of Justice to enhance state, local, and tribal law enforcement. One product, Mr. Copeland mentioned is Tyler’s Odyssey suite. Odyssey helps leverage technology in court cases, jails, juries, law enforcement, prosecution, and supervision. Through case management, public access software, and financial management offerings, Tyler has become one the top players in the space.
Tyler Technologies is looking to do $292 – $298 million in revenue during 2009, according to yesterday’s earning call. But as Recovery Act dollars continue to pump through the economy, public officials at the state and local level are still waiting to see what happens. “The uncertainty of [the stimulus package] causes local officials to wait, but on balance, it’s good for our business,” said Mr. Marr.
“Tyler will continue to expand geographically and with the average size of client,” Mr. Copeland said. “We’re looking at bigger municipalities and larger sites.”
One thing that may help speed that along is a two-year-old deal with Microsoft. In January 2007, Tyler and Microsoft announced a strategic alliance to develop core public sector functionality for Microsoft Dynamics AX to address the unique accounting needs of public sector organizations worldwide. The deal will build the next generation of public sector financial applications, according to Copeland. “When you combine the largest vertical player with the largest software maker – that’s going to have an impact,” Mr. Marr said.
As for the stimulus package, Mr. Copeland thinks everyone is in “wait and see” mode. “No one’s really sure yet. [The money] hasn’t been out long enough to see what kind of affect it will have. By the time we get into summer, things will clairify.”