Tyler Technologies Q2 2021 Earnings Call Transcript

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Provided by Quartr
July 28, 2021

Key Takeaways

  • Tyler completed its largest acquisition to date, the $2.3 billion purchase of NIC on April 21, and reports early integrations have gone smoothly with cultural alignment, joint pipeline development and weekly showcases driving cross‐selling opportunities in states like Florida.
  • The company recorded 49.1% total revenue growth in Q2 2021, including Tyler’s 12.4% organic gain, with recurring revenues up 79%, subscription revenues up 133% (24% ex‐NIC) and bookings rising 50% (17.5% ex‐NIC).
  • Tyler was chosen as one of two vendors for the IRS’s new digital payment processing solution, expected to generate $40 million–$60 million in gross revenue annually (netting $5 million–$7 million) starting January 2022 under a six‐month initial term and four one‐year renewals.
  • Major deals in the quarter include a $9.3 million AWS‐hosted multi‐product agreement with the Colorado Department of Regulatory Agencies, integrating IntelliTrac, Socrata, SceneDoc and NIC payments, along with several other seven‐figure SaaS contracts.
  • Tyler continues its shift to a cloud‐first approach by migrating deployments to AWS, and notes that RFPs, demos and trade shows have largely rebounded to pre‐COVID levels, potentially accelerated by American Rescue Plan funding for state and local governments.
AI Generated. May Contain Errors.
Earnings Conference Call
Tyler Technologies Q2 2021
00:00 / 00:00

There are 9 speakers on the call.

Operator

Hello, and welcome to today's Tyler Technologies Second Quarter 2021 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. And instructions will follow at that time. And as a reminder, this conference is being recorded today, July 29, 2021. I would like to turn the call over to Mr.

Operator

Moore. Please go ahead.

Speaker 1

Thank you, Andrew, and welcome to our Q2 earnings call. With me 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 on our quarter results and then Brian will review the details. I'll end with some additional comments and then we'll take questions.

Speaker 2

Brian? Thanks, Lynn. During the course of this conference call, management may make statements that provide information other than historical information It 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 ks and other SEC filings for more information on those risks.

Speaker 2

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. Lynn?

Speaker 1

Thanks, Brian. First, I want to provide you with an update on the NIC acquisition and our progress in the 1st 3 months post closing, And then we'll move on to a review of the quarter's results. As you know, we completed the acquisition of NIC during the Q2 on April 21st. With a purchase price of approximately $2,300,000,000 this was by far our largest acquisition to date and our first acquisition of a public company. NIC is a leading provider of digital government solutions and payment processing that serves more than 7,100 federal, State and local government agencies across the nation.

Speaker 1

We believe that the combination of NIC and Tyler provides tremendous opportunities for incremental growth The combined company is the public sector market leader for payment solutions and state enterprise contracts to deliver Tyler solutions at the state level, including our MicroPact and TeleTrak platform. We discussed our vision for those opportunities on our investor call in early June. I'm extremely pleased with the Progress we've made toward these objectives in the 3 months that NIC has been a part of Tyler. Our teams have prioritized our opportunities and are very engaged, Working well together in a regular cadence. Our pre acquisition impressions regarding the high degree of compatibility between the cultures of the 2 organizations Have thus far proven to be accurate and leaders in both organizations have commented on how natural the combination feels.

Speaker 1

Our payments teams are working together and have been very encouraged as we learn more about each company's strengths and how complementary they are. As we noted on our June call, the State of Florida is a great example of the kind of opportunities we're pursuing. NIC is in the process of implementing a statewide payment processing solution for the state government in Florida. And the contract allows for local governments in the state, more than 400 of which are Tyler clients, To piggyback on that contract and we are actively pursuing those opportunities.

Speaker 3

For the

Speaker 1

last 2 months, We've also been conducting weekly showcases to familiarize NIC state enterprise managers with Tyler's broad portfolio of solutions And to surface opportunities in their states. We've already developed a growing joint pipeline that is generating active engagements with prospects in NIC states. And finally, our teams are actively working together to jointly establish the data and analytics platform for Connected Communities. Leveraging our respective strengths, including our Socrata data and insights platform and NIC's Gov2Go citizen portal. Together, NIC and Tyler can now provide the most expansive set of capabilities for citizens to interact with government at all levels.

Speaker 1

Turning to the quarter. NIC, like Tyler, had a very strong second quarter as they continue to benefit from the recovery from the pandemic With a growing demand for citizens and businesses to interact digitally with government. NIC also recorded Higher than expected revenues from its tour health and pandemic unemployment initiatives, although those lower margin revenues are currently Although NIC's results are only included in Tyler's consolidated financials from the date of the acquisition on April 21, For the full quarter, NIC's core revenues, excluding revenues from Tour Health and pandemic unemployment initiatives, grew 23.5%. We're also very pleased to report that in late June, NIC was selected as one of 2 vendors to provide the internal revenue service with a digital payment processing solution, which will allow individual and business taxpayers to securely pay their federal taxes. The contract has an initial 6 month term with 4 1 year renewal options and revenue under the contract is expected to begin in January of 2022.

Speaker 1

The actual revenue will be driven by the number of taxpayers who choose to pay online and who choose to use the NIC platform, And we expect to aggressively market our solution. We currently estimate annual gross revenue under the contract to be between $40,000,000 $60,000,000 with annual net revenue of $5,000,000 to $7,000,000 after interchange and merchant fees. This contract significantly expands NIC's payment processing at the federal level and underscores the strength of NIC's platform and leadership in public sector payments. Moving on to our consolidated results, our 2nd quarter was very strong, reflecting the inclusion of the results of NIC from April 21, with both core Tyler and NIC operations exceeding expectations. Total revenues grew 49.1%, Driven by the inclusion of NIC as well as the acceleration of Tyler's organic growth to 12.4%.

Speaker 1

Recurring revenues comprised 79% of our 2nd quarter revenues and were led by 133% growth Revenues with the inclusion of NIC. Excluding NIC revenues, subscription revenue growth was robust at 24%. Software licenses and services revenues also rebounded from the low point in last year's Q2, growing 17% Or 7.6 percent excluding NIC. As expected, our margins were down compared to Q2 last year At some costs and lower margin revenues like billable travel that declined in 2020 due to the COVID pandemic began to return. Margins were also impacted by the inclusion of NIC and particularly by the continuation of their lower margin COVID related revenues.

Speaker 1

As a result, our non GAAP operating margin declined 100 basis points to 26.5%. Bookings in the Q2 grew 50 percent to approximately $464,000,000 with the inclusion of NIC. Excluding NIC, bookings rose 17.5%. Our largest deal of the quarter was a combination license SaaS arrangement with the Colorado Department of Regulatory Agencies valued at approximately $9,300,000 for our IntelliTrac regulatory, Socrata Data and Insights and SceneDoc Mobile Field Inspection Solutions, as well as NIC's electronic payment solution, And all those solutions will be hosted in AWS. This deal is a great example of our ability to add value by offering multiple Tyler products, many of which came from recent acquisitions into a single deal, enhancing the competitiveness of solutions like IntelliTrac.

Speaker 1

We also signed a large public safety license contract with the Lake County Sheriff's Office in Illinois for our CAD, RMS, Mobile, field reporting, Brazos eCitation, soft code process service and Socrata Data Insight solutions Valued at approximately $4,100,000 In addition, we signed 4 other license deals across multiple product suites, each with contract values greater than $1,000,000 SaaS contracts represented 65% Our new contract software value in the Q2. Our largest SaaS contract was a 5 year deal with Dubuque, Iowa For our Munis ERP and EnerGov Civic Services solutions valued at approximately $4,600,000 We also signed SaaS contracts For our Munis ERP solution with Charles County, Maryland valued at approximately $4,000,000 and DeSoto, Texas Valued at approximately $3,500,000 We also signed a SaaS deal for our Tyler supervision solution with Riverside County, California, valued at approximately $3,300,000 This is the largest deal to date for our supervision product, which came to Tyler through the acquisition of Caseload Pro a little less than 3 years ago. And in fact, the value of the single contract is greater than the total annual revenues of that business when we acquired it. In addition, We signed 9 other SaaS arrangements during the quarter, each with a total contract value of greater than $1,000,000 In addition to the IRS payment processing contract, during the Q2, NIC signed extensions of its state enterprise contracts For digital government and payment processing services with the states of Oregon and Idaho.

Speaker 1

NIC also signed a 5 year SaaS agreement 1st RxGov Prescription Drug Monitoring Program solution with the province of New Brunswick, Canada, marking the first International deployment for that solution. We're pleased to see the increased market activity and trends that reflect our markets are rebounding back Now I'd like for Brian to provide more detail on the results for the quarter.

Speaker 2

Thanks, Lynn. Yesterday, Tyler Technologies reported its results for the Q2 ended June 30, 2021. Note that the results of Data Spec and ReadySub, which were acquired on March 31, are included in our consolidated results for the full quarter and the results of NIC are included in our results from the date of acquisition April 21. 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. A reconciliation of GAAP to non GAAP measures is provided in our earnings release.

Speaker 2

We've also posted on the Investor Relations section of our website under the Financial Reports Schedules with supplemental information provided on this call, including information about quarterly bookings, backlog and recurring revenues. GAAP revenues for the quarter were $404,100,000 up 49.1%. Non GAAP revenues were 405 $4,000,000 up 49.4 percent. On an organic basis, GAAP and non GAAP revenues grew 12.4% and 12 point 3% respectively. Software license revenues rose 3.4%.

Speaker 2

Subscription revenues rose 133%. Excluding the contribution from NIC, subscription revenues were still very strong, growing 24%. We added 170 new based arrangements and converted 62 existing on premises clients representing approximately $73,000,000 in total contract value. In Q2 of last year, we added 125 new subscription based arrangements and had 42 on premise Conversions representing approximately $39,000,000 in total contract value. Subscription contract value comprised Approximately 65% of total new software contract value signed this quarter compared to 43% in Q2 of last year, As we continued our shift to a cloud first approach to sales, the value weighted average term of new SaaS contracts this quarter was 4.1 years Compared to 3.7% last year.

Speaker 2

Transaction based revenues, which include NIC portal revenues, Payment processing and e filing are included in subscriptions and are included in subscriptions were $119,600,000 Up 4 63%. That amount includes e finding revenues of $16,300,000 up 14.5%. Excluding NIC, Tyler's transaction based revenues grew 24.1%. For the Q2, our annualized non GAAP total recurring revenue or ARR Was approximately $1,300,000,000 up 58.2%. Non GAAP ARR for SaaS software arrangements for Q2 was approximately $325,000,000 up 25.9%.

Speaker 2

Transaction based ARR was approximately $479,000,000 up 4 63 percent And non GAAP maintenance ARR was approximately $478,000,000 up 2.4%. Our

Speaker 1

backlog at the end

Speaker 2

of the quarter was $1,630,000,000 up 5.6%. Because the vast majority of NIC's revenues are transaction based, their backlog at quarter end was only $21,000,000 As Lynn noted, our bookings in the quarter were very robust at $464,000,000 up 50.1 percent And includes the transaction based revenues of NIC. On an organic basis, bookings were strong at approximately $364,000,000 Up 17.5%. For the trailing 12 months, bookings were approximately $1,300,000,000 Up 9.6 percent and on an organic basis were approximately $1,200,000,000 up 1.3%. Our software subscription bookings in the 2nd quarter added $15,000,000 in new annual recurring revenue.

Speaker 2

Cash from operations and free cash flow were both negative in the 2nd quarter as Q2 included approximately $19,000,000 of acquisition related costs. In addition, cash from operations and free cash flow were negatively impacted by the timing of cash collections by NIC On behalf of government agencies prior to the close of the acquisition and remittances to the agencies post acquisition, This is purely a timing difference and will normalize in future quarters. Our balance sheet remains very strong. During the quarter, we paid down $185,000,000 The debt incurred under our revolver in connection with the acquisition. We ended the quarter with total outstanding debt of $1,565,000,000 and cash and investments of $380,900,000 Since the end of the quarter, we have repaid an additional $52,000,000 on the revolver.

Speaker 2

And today, we have outstanding $1,513,000,000 of debt With a blended stated interest rate of 1.01%. We have raised our revenue and EPS guidance for Full year of 2021, which is as follows. We expect 2021 GAAP total revenues will be between $1,530,000,000 $1,557,000,000 and non GAAP total revenues will be between $1,535,000,000 1.5 We expect total revenues will include approximately $32,000,000 of COVID related revenues from NIC's Tour Health and We expect 2021 GAAP diluted EPS will be between 3 point $0.68 $3.81 and may vary significantly due to the impact of stock incentive awards on the GAAP effective tax rate. We expect 2021 non GAAP diluted EPS will be between $6.70 $6.80 Interest For the year, pre tax non cash share based compensation expense is expected to be approximately $102,000,000 We expect R and D expense for the year will be between $94,000,000 $96,000,000 Fully diluted shares for the year Are expected to be between 42,000,000 42,500,000 shares. GAAP earnings per share assumes an estimated annual effective tax rate of negative 2% after discrete tax items and includes approximately $46,000,000 of estimated tax benefits related to share based compensation, which may vary significantly based on the timing and volume of stock option exercises.

Speaker 2

Our estimated non GAAP annual effective tax rate for 2021 is 24%. We expect our total capital Expenditures will be between $48,000,000 $50,000,000 for the year, including approximately $10,000,000 related to real estate and approximately $22,000,000 of capitalized software development costs. Total depreciation and amortization is expected to be $126,000,000 including approximately $89,000,000 of amortization of acquired intangibles. Now I'd like to turn the call back over to Lynn.

Speaker 1

Thanks, Brian. As you can see, Our team of professionals, including our new team members at NIC, Data Spec and ReadySub executed at a very high level in the 2nd quarter, Driving results that surpassed expectations. As I've said before, I'm extremely proud of how our team members have responded to the challenges of the last year and a half With incredible grit, grace and resilience. And we're proud that Tyler has recently been named a Best Place to Work By publications in Washington, D. C, Colorado and Mississippi, joining several other locations where Tyler has received similar awards.

Speaker 1

We continue to invest in and in some cases accelerate all of our long term strategic initiatives, In particular, our shift to a cloud first approach, with a focus on optimizing our products for the cloud and transitioning SaaS deployments from Tyler Data Centers As a result, our competitive position has also continued to strengthen. We continue to see indications that our market is returning to normal as many delayed procurement processes are moving forward and new processes are starting. RFPs and sales activities such as demos are trending toward and in some cases exceeding pre COVID levels. While not a significant factor in Q2, we expect that the $350,000,000,000 of aid to state and local governments and 100 and $67,000,000,000 of aid to schools under the American Rescue Plan Act will provide a significant measure of relief to budget pressures faced by many of our clients and prospects and potentially provide a tailwind over the next 2 to 3 years. With that, we'd like to open up the line for Q and A.

Operator

We will now begin the question and answer session. On your touch tone phone, if you're using a speakerphone, please pick up your handset and then press the star key and the number Please limit your question to one follow-up and then place yourself back into the queue for additional questions. The first question comes from Peter Heckmann with D. A. Davidson.

Operator

Please go ahead.

Speaker 4

Good morning, everyone. Great to see a very strong quarter for both Tyler and Egov right out of the box. Congratulations on the IRS win. Just curious, if I'm looking at it correctly, the annual guide, which You just gave in June, but didn't go up as much as the relative beat in the quarter. Were there some elements in the quarter that were maybe more one time in nature or was it affected just by the Timing of the close of NIC versus your original expectations, or do you think that there's something that we should be thinking about for the back half

Speaker 2

Well, I'd say one of the factors Certainly, we've increased the expectation around the amount of revenues, certainly both in this quarter and continuing on into the 3rd quarter around the COVID related services that NIC is providing. Those have gone on a little bit longer. We expect they'd wrap up really in the Q2 and those Continuing on into the second half of the year. So, that's part of the factor around the second quarter Outperforming on the revenue side, but not expecting to see that same bump in the second half of the year. Otherwise, yes, we took up the guidance a bit, but typically by the in the second quarter, we're not Looking to raise numbers quite a bit until we have better visibility around the second half.

Speaker 4

Okay. And then just, again, congrats on the IRS contract. That's a pretty good sized deal. But Do you believe it will be will you be recording it gross or net?

Speaker 2

That's Merchant and interchange fees. So, it's a higher revenue number, but lower margin.

Speaker 4

Lower margin. So on a gross basis, Maybe margins come through at high single digits or so.

Speaker 2

Yes. I mean, if we're looking at, we said, sort of between $40,000,000 $60,000,000 in revenues and the net revenue number Kind of in the $5,000,000 to $7,000,000 range.

Speaker 1

Yes, Pete. They're larger contracts. IRS and Texas are

Operator

The next question comes from Matt VanViet with BTIG. Please go ahead.

Speaker 5

Yes. Thanks for taking the question. Congrats on the quarter. Lynn, I guess, in part Your closing, you mentioned that significant amount of stimulus funds sort of still available to local governments in particular. But curious in terms of what you're hearing, a lot of that recently reported as being unspent and people looking at what Kind of time duration that might actually entail.

Speaker 5

Curious how much of that is sort of inspiring some of this uptick in RFPs And then conversely, has any of the delays in the proposed infrastructure bill Put a little bit of a pause in some of these as those governments look to see kind of what else might be coming before they spend some of these funds now.

Speaker 1

Yes, Matt. I think I probably read the same journal editorial yesterday about the some of the unspent funds From the American Rescue Plan. I don't know that I think what it's done is it's provided confidence. We've talked before. The reality is that the impact of budgets was a lot less severe than before.

Speaker 1

Those funds are still sitting there. Some of those funds do have some timing elements with respect to when they need to be spent, and some of that is still TBD. I think when you're seeing the more releases in RFPs, the things that we're seeing in the market, Moore demos, the activity picking up, I mean, in some parts of our business really to pre COVID levels, some just almost getting back to pre COVID levels. I think the function of that too is just the general sentiment and mood out there. I think the American Rescue Plan Provides that confidence.

Speaker 1

We're also, as you know, most of our clients are now in a new budget year. And I think with those expectations For Moore funding, they saw the real impact to their budgets from last year were not as severe, and I think just I think some of that's coming back. And I think it just also highlights what we've talked about throughout the last year and a half is that the demand for what we do doesn't go away. It's going to be pent up. And so we're starting See that.

Speaker 1

So

Speaker 4

at a high level, that's

Speaker 1

what I'd say. And on the delays on the infrastructure bill, I don't know that that's really going to have much of an impact On what we see in terms of bids and RFPs in our day

Speaker 2

to day business. The American Rescue Plan, they've got until the end of 2024 to spend that. In fact, they just are getting the first half this year and the second half a year from now of those funds. So there's still a lot of Allocations and determinations within these governments around how they're going to spend that money. So, as we said in the prepared remarks, we really haven't Seeing much of an impact in terms of new deals and things that are of a significant size that are specifically tied to those funds.

Speaker 2

Most of the activity we're seeing today is more around the recovery of The resumption of some of those delayed processes and things that would have taken place in the last year otherwise.

Speaker 5

All right. Very helpful. And then following up on a number of deals that you announced with, I guess, both legacy Tyler and NIC products, So congrats on that. But just curious in terms of sort of an update of where you're at in terms of the full integration of the Sales teams, the go to market mechanism, are you just starting to get to some of that and we can see more of these deals coming through? Or do you think there's Already been a lot of progress and it's just more of getting through sales cycles from here forward.

Speaker 1

Are you talking specifically with the NIC integration?

Speaker 5

Yes. The integration of the go to market for NIC and to legacy, Tyler?

Speaker 1

Yes. So, the integration is going well. We talked about it on our I think it was our June update call. We've got a lot of excitement. We have our priorities though, we really want to make sure that they we don't do anything to mess up the business.

Speaker 1

We make their plan, retain their staff, identify These initiatives, get the sales teams aligned, and we're doing that. Obviously, Harry Herington, their founder, he decided to retire. One of the key things that we first had to do was establish new leadership. We've done that. Elizabeth Proffitt is now leading that division.

Speaker 1

She's been with NIC for Over 20 years and been responsible for selling most of their major state enterprise contracts, including Florida. As I mentioned in my comments, We've hit the ground running. Our Tyler teams are showcasing products, really 2 to 3 a week with all of their state GMs. Our payments teams have gotten together and working on Tyler technology integration plans, talking about how we can leverage NIC relationships. I guess I'd say all that stuff is it's active, it's going on, the excitement continues to be there.

Speaker 1

I'll echo my comments from back in June, balancing expectations. It's been around a long time. These things take time, but The excitement is there and we are seeing and identifying joint opportunities. It takes a while for those to come to fruition. But like I said, every time our teams meet, the excitement only continues to grow.

Speaker 5

Great. Thank you.

Operator

The next question comes from Scott Berg with Needham and Company. Please go ahead.

Speaker 6

Hi, Lynn and Brian. Congrats on a good quarter and thanks for taking my questions. I guess 2 probably simple ones. The first question is On just general deal flow from the Cortellers side, Lynn, you talked about how things seem to be normalizing more towards pre pandemic The volume of deal flow certainly speaks to that in the quarter. I guess my question there is that more just pent up demand that's Pulling out, are you seeing a true normalization maybe of those sales cycles in the last quarter or 2?

Speaker 6

And then my second question, Brian, is on your guidance For the year, the non, I guess, ongoing revenues from the Tour Health and the pandemic side from NIC was increasing 21 To $32,000,000 for the year, did that mean the overall NIC contribution for the year went up that much or is it just maybe a shift in revenues

Speaker 1

Thanks, Scott. I'll start and I'd say it's a little bit of both. Q2 last year was a slow year and we talked about in the last couple of earnings calls about how the impact was really A little bit differently across different parts of our business. But what we're starting to see now is that the number of RPs are up significantly from Q2 a year ago, Up over 50%. Trade shows are returning.

Speaker 1

Our unsigned selections, which we don't talk about a lot, those are up significantly. The number of new deals, as you pointed out, that we signed this quarter was, I think, up over 30% from a year ago. When you look at areas like I talked about last few quarters where we saw a little bit more slowdown was Moore on our high end financials, our Munis and our EnerGov solutions, we're certainly seeing the momentum growing there. I think Q4 was probably a low in those areas for RFPs and selections and those are up significantly. And remember, those types of deals, they generally take about 3 quarters from RFP to close.

Speaker 1

So there will continue to be a lag as we're seeing these RFPs come up. But that's continuing. Other places like our lower end financials, our ENCODE, I think RFPs now are actually back to 2019 levels. So it's there. It's a combination of pent up demand, but also just the market returning.

Speaker 2

And on The NIC COVID related revenues, yes, that increase in our estimate of what those revenues will be for the year and The increase in what was actually reported in the Q2 was added to NIC's revenue. So that's incremental To our estimates that we previously had for their full year revenues, unfortunately with some of the resurgence of COVID and the delta variant, there's more of a need for testing for a longer period with some of our clients than we had previously expected. And some of those agreements have been extended beyond when we expected that they would roll off. We still expect that They will taper down in the 3rd quarter and pretty minimal revenues from those in the 4th quarter.

Speaker 6

Excellent. Thanks for taking my questions. Congrats again.

Operator

The next question comes from Charlie Strauzer with CJS Securities. Please go ahead.

Speaker 7

Hi, good morning. Lynn, if Could you kind of talk a little bit more about the pipeline and the length of the sales cycle, if that's shrinking at all? And are you seeing a pickup at all in

Speaker 1

The first question I'm not sure I heard all that. The first question was about the pipeline. The pipeline is I think across all our major core apps, the pipeline is It's certainly returning. I don't know that it's I think there are parts of our business where it's back to full pre COVID levels and in some cases exceeding. Some places it's approaching there.

Speaker 1

So all the signs right now out there, all the leading indicators that we talk about, Demos and trade shows are coming back, RFPs coming being released, deals without RFPs, those are all up significantly, Sequentially quarter and significantly year over year, so that's significant. And the second question was about I didn't quite catch the second question. Charlie, could you repeat the second one?

Speaker 7

Yes. Just with the rash of cyber attacks you've seen in the news, have you seen any pickup in inquiries Your clients about maybe moving to the cloud more rapidly than they may have thought before.

Speaker 1

It's a good question. I think it's just all part The overall equation, I think the increase that we've seen, I talked earlier about our financial solutions, Munis and ENCODE, I mean our new deals there are 85%, 90% SaaS. A couple of years ago, it was more like in the 50% range. I think it's just I think that's just a piece of the puzzle. I don't know that there's anything specific around some of those cybersecurity things, but security is a big part of it.

Speaker 1

But I think it's that coupled with COVID, coupled with just the general direction the market had been moving over the last several years.

Speaker 2

This was the by a pretty good margin, the largest quarter we've ever had for flips Our customers moving our existing customers moving from on premises to the cloud as well. And that's One of the factors, I think, not the sole factor, but a factor in that desire of customers to move to our cloud solution.

Speaker 7

Thanks. And Brian, if you could just I mean, looking at the guidance a little bit, if you can give us a little bit more clarity as to how we should think about the cadence of the next few quarters, Just kind of help us plot that a little bit better. Thanks.

Speaker 2

Yes. The second half of the year Obviously, we'll include we only had a partial quarter of NIC. So obviously, we grow in the second half from that. But I'd say, generally, we would expect and also with the trailing off of the NIC COVID related revenues in Q4, I think we'll see Both of those quarters above obviously the 2nd quarter level, but the 3rd quarter will likely be our highest revenue quarter and A bit of a drop off from Q3 to Q4 as the COVID business rolls off. So Q3 is likely to be the highest quarter in terms of both revenues and EPS, so there's a little bit different.

Speaker 2

Generally, our 4th quarter is the highest, but there's somewhat of anomaly there.

Speaker 7

Well, thank you.

Operator

The next question comes from Rob Oliver with Baird. Please go

Speaker 6

ahead. Great. Thank you guys for taking my questions. Lynn, I'll start with one for you. You've cited the Colorado $9,000,000 win, which included IntelliTrac and NIC on AWS, kind of a great signature Win there and I'm just curious if you can maybe to the extent that you can walk us through a little bit, was that I assume that was Tyler contract in Origin, was NIC added on throughout the quarter?

Speaker 6

Maybe talk about some of Some of the dynamics there, it seems like a nice template for pretty nice meaningful subscription win here very early in the combination between the two. And then I had a follow-up question as well.

Speaker 1

Yes, that's right, Rob. This was a Tyler contract from the get go and It really emanated from our the MicroPact acquisition, our Tyler Federal business. MicroPact Had relationships with NIC even prior to our deal. And so it would not be unusual for them to have been in deals together. And Having them part of that is, I guess you say, it's a nice round out.

Speaker 1

It also I think it highlights, we talk about a lot of these large deals and I mentioned it in My remarks and it really highlights the value of our acquisition strategy over the years. I mean, when you talk about that's a deal that's it's our largest deal of the quarter. Well, That's our IntelliTrack that came from MicroPact. It includes Socrata, another recent acquisition, SceneDoc, the NIC payments. It includes our strategic alliance AWS, it is kind of a showcase deal for the quarter.

Speaker 1

And again, I think validates our acquisition strategy and how it

Speaker 6

Great. That's helpful. Thanks. And then I just had a follow-up. I mean, you guys have been pretty clear that payments is really the area where you're Kind of leading in terms of I don't want to say low hanging fruit because obviously it's not easy, but where you're kind of like leading the charge in terms of the integration.

Speaker 6

You did make a comment I believe Lynn about The Florida Master Limited or the Florida Opportunity. And I know that, but then I see sitting on 28 Master Enterprise Contracts. Just curious for any early color or indications around receptivity towards Got it. The product is being sold in there and I know also those states are being recipients of some funds now. So just curious for any color around that.

Speaker 6

Thanks guys.

Speaker 1

No, that's a good point, Rob. And you're right, we talk a lot about payments primarily because that was a big strategic initiative for Tyler before we even We started talking with NIC and what's interesting there is just how our as our teams get together, how complementary our products are and how the things that was on Tyler's Development roadmap were things that really NIC had already not just done, but perfected and things that Tyler had already had with their systems or things That NIC needed to do. But you're right, beyond payments, we talk about that a lot. But one of the things that makes us really excited is the ability to sell Tyler products Through those state contracts and really leverage those NIC relationships. I mean, they've got very deep relationships at the highest levels of Government areas where really Tyler just didn't have access, and I'm talking about governors and senior decision makers.

Speaker 1

And you get in front of those people and we're able to get in front of those people and try to talk to them about what are you guys trying to get done, what policies are you pursuing and Whether it's economic development or HHS or prison reform or whatever it is, and we've got the solutions to do it. And that's Really the crux of what we're doing with these weekly showcases with Tyler products is we have to educate all of The state GMs and the entire NIC executive team as to what our portfolio is really all about and how we can leverage that. And I don't want to minimize that because we talk a lot about payments, but that is something that we see as significant upside. Real helpful guys. Thank you very much.

Operator

The next question comes from Jonathan Ho with William Blair and Company. Please go ahead.

Speaker 3

Good morning. Congratulations on the strong quarter. Just wanted to maybe Dig into some of the billable travel or some of the lower margin revenue that returned this quarter. Is there a way for you to maybe quantify for us maybe how much has returned and Maybe what you expect in terms of, I guess, the rest of the year in terms of how that will come back?

Speaker 2

Yes. I don't have the number in front of me for billable travel. It's not significant. It's still Well under what we typically did, which was about $5,000,000 a quarter pre COVID. It's probably on the order of 20% of that has come back, but it's come back a little sooner than we expected Just as we're starting to see employees coming back to the offices, our customers are starting to want to see Our sales people and our implementation people in some instances back on-site and we still expect that we'll continue in most cases To deliver the majority of our implementation services remotely, there is a desire in an increasing number customers to see people back on-site and so that's picked up even a little bit sooner than we Our clients never went home.

Speaker 2

The first responders and those agencies continue to work and so They're ready to have us back on-site as well. So we're seeing a bit of that come back, but still well under the pre COVID levels.

Speaker 1

Yes. And Jonathan, we're also we're doing things to try to incentivize more remote delivery of service as well in terms of pricing and things like that. And I think we're still trying to feel it out. As Brian said, the expectation is we will not go back to pre COVID levels. There are parts of our business That really sort of still demand on-site, as Brian mentioned, public safety.

Speaker 1

But on the others, we're going to be working with our clients and working in different ways to

Speaker 3

Can you maybe help us understand how Tyler can leverage those contracts and maybe what the advantages of Having those contracts over a traditional RFP process, what can you do with those that you couldn't do before? And what does that sort of You'll make it easier in the contracting process. Thank you.

Speaker 1

So you're talking about the NIC state contracts?

Speaker 3

Yes.

Speaker 1

Yes. So it's a couple of things. I mean those contracts that NIC has done an amazing job over the years. It takes them a little bit longer, But really of establishing contracts that are extremely open ended and as we like to use the term hunting license. And so It allows those under those contracts to pursue a lot of different opportunities with a lot of different agencies and in some cases even local jurisdictions.

Speaker 1

It allows them to push products, but more importantly too, it also what they also bring is, as I just mentioned, is There are deep relationships with different agencies and different higher execs at the state level, areas that where Tyler just didn't have any exposure. And so it's leveraging those relationships, leveraging Tyler's products, leveraging those open ended contracts Really creates a whole new opportunity for Tyler that we've never seen before. An example would be, we're having discussions with a particular state with some court solutions And we're actually able to have conversations at an extremely high level in a place where Tyler traditionally just had not been able to do it. And those relationships coming from those state contracts. And I mentioned the State of Oregon and the State of Idaho as renewals For NIC and what's important there is the Oregon contract, that's an extension, but that's an extension of a 10 year relationship.

Speaker 1

The Idaho contract is a 2 year extension on a 22 year relationship. So these are very deep relationships that NIC has done. Getting these renewals is something you don't take for granted and you got to continue to deliver value. And I think the flip side of that is what Tyler As we continue to leverage those relationships and put more products, it will actually bring that more value to those contracts

Speaker 3

That's helpful. Thank you.

Operator

The next question comes from Keith Housum with Northcoast Research. Please go ahead.

Speaker 8

Good morning, guys, and congrats on a good quarter. I just two questions for you. 1 on the IRS contract. I think I heard you say there's 2 you're 1 of 2 vendors that have been Nick, perhaps rather than more color, are you guys splitting the revenue in the payment process here or is there an opportunity perhaps expand that down the road?

Speaker 1

Yes. So you're right. So they went with 2 providers. No, it's not a partnership. What will be chosen is by the actual Citizen or business who chooses to pay.

Speaker 1

It's not unlike there are certain areas with our e filing where there we may be the There may be multiple people who are providing that service even though the back end is through Tyler. We'll be marketing and doing what we can. We'll be trying to provide the best service. What's interesting though is that prior to this contract, they had actually I think they had 4 vendors, None of which were selected here. There are 3 vendors and both of us and the other vendor were new selections by the IRS.

Speaker 8

Great. Congratulations. And then look at the NIC growth, obviously, that's a strong quarter for those guys. Was it more transactional based or would they are they having That's with the platforms that they were developing prior to your purchase, the payments and the recreational license and such.

Speaker 1

Yes. So I think they had, as you mentioned, a really great quarter. I think the revenue was Around 19%. And really, they really outperformed in a couple of areas. Their state enterprise transaction revenue, which includes payments, And also their outdoor licensing, their recreation.gov as more and more people are getting outdoors.

Speaker 1

It's just it's up significantly over a year ago. Obviously, we also mentioned the COVID related services continue to outperform, even as we expect those to taper off. But yes, it's that stateenterprise Transaction revenue, really payments, outdoor licensing and COVID. Great. Thank you.

Operator

The next question comes from Curt Materne of Evercore ISI. Please go ahead.

Speaker 3

All right. Thanks very much. Lynn, can you just give us an update on how it's going in terms of moving more of your products over to AWS at this point in time? When do you think you can have maybe Plurality of products running on AWS and, get some of the benefits to the business model from that. I'm just trying to get a sense on how far along we are on that front.

Speaker 1

I'd say we're still in the early innings there. The expectation for me is across our business lines is as we We're taking existing clients across all of our core apps, and we're putting them in AWS, running them and verifying the Obviously, we're doing things already to make changes to our products to make them run more efficient in AWS, But this also helps provide a roadmap. And I think as you see going into next year, you're going to continue to see Movement of new business into AWS because the goal is to eventually move out of 2 Tyler data centers to 1. So we're going to need to start bringing that down. We'll start with new business And then we will probably start accelerating our we've already been accelerating our flips, but at some point put together a more robust migration for existing.

Speaker 1

But I'd say overall, we're still in the early innings and I think we'd probably be in a more better position to report on that kind of progress Really starting next year.

Speaker 3

That's great. Thank you for that. And then Brian, just as sort of a point of clarification, I know you don't want to get anything Yes, 22 related at this point in time, but should we just be zeroing out the COVID related revenue from NSE for 2022 at this point in time? Is that sort of What you would advise us as we start thinking ahead to next year, I know you don't want to give anything formal, but it seems like that revenue is going to be pretty immaterial next year.

Speaker 2

Yes, that's our expectation now that there won't be anything there next year.

Speaker 1

And to be honest, Kirk, that's my hope because that means that COVID is going away.

Speaker 3

Me too. So it's all hope it's 0. So anyways, all right, guys. Congrats on the quarter.

Speaker 1

Thanks, Kurt.

Operator

And we have a follow-up from Matt Van Vite with BTIG. Please go ahead.

Speaker 5

Yes. Thanks, guys. Sorry, Brian. Just one quick follow-up. You mentioned And how much it actually impacted cash flow in the quarter?

Speaker 3

Yes, that was about $55,000,000

Speaker 2

How much The reduction from the liability we had on the books for funds payable to clients, how much that went down from The time of acquisition to the end of the quarter, so pretty significant impact. That's just money that's passing through. So over the course of a longer period of time, that impact is 0. It comes in and goes out. But just the timing of it relative to what was On their balance sheet at the time of the acquisition and paid shortly afterwards, ran through our Cash flow statement to the tune of about $55,000,000

Speaker 1

Yes, the gross versus net payments primarily. Yes, the Which also impacts margins. Cash

Speaker 3

The

Operator

next question comes from Joe Goodwin with JMP Securities. Please go ahead.

Speaker 3

Hey, guys. Good morning. Congrats on the quarter. Just a quick question on the master contracts. Great to see the renewals come through.

Speaker 3

But I guess now that NIC is Does that motion of actually securing your net new contracts or just new contracts with these states change at all? Any commentary there would be great.

Speaker 1

I don't think there's a fundamental change in that process. And like I said, what I believe will happen over time is NIC, as I said, they've done a great job of building these relationships. These are all very long term relationships. They got to continue to deliver value. And what I think will happen over As Tyler is able to enhance that value, it will only I think it will only help to facilitate those renewals in the future.

Speaker 7

Thank you.

Operator

And was there a follow-up, Mr. Goodwin?

Speaker 3

No, there wasn't. Thanks.

Operator

Thank you. At this time, there appear to be no more questions, Mr. Moore. So I'll turn the call back over to you for closing remarks.

Speaker 1

Great. Thanks, Andrew, and thanks everybody for joining us today. We certainly hope you stay safe and healthy. And if you have any further questions or follow-up, please feel free to reach out to Brian Miller and myself. Thanks, everybody.

Operator

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

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