Tyler Earnings: Demand Picture Still Good While Rapid Transition to SaaS Remains Ongoing

Wide-moat Tyler reported first-quarter results that fell short of our estimates for both revenue and profitability. SaaS deals continue to come in faster than expectations, which has a muting effect on revenue and margins, and the firm does not provide quarterly guidance, so we do not view the shortfall as meaningful. We consider Tyler’s demand environment to be healthy with normal patterns of bookings, subscriptions, and transactional revenue. Additionally, the firm reiterated 2023 guidance, so we kept our model largely unchanged, which in turn holds our fair value estimate stable at $475 per share. We continue to see federal stimulus funds as supporting the market and see consistent growth and margin expansion over time. We believe Tyler is the clear leader for municipal software needs and therefore view shares as attractive.