泰勒科技 (TYL) 2003 Q2 法說會逐字稿

Good morning, welcome to the Tyler Technologies 2003 second quarter earnings results conference call. Today's call is being recorded. At this time, for opening comments and introductions, I would like to turn the call over to the President and CEO, Mr. John Yeaman.

Thank you, Ann. Welcome to our second quarter 2003 earnings call. With me from our management team are John Marr, Jr., our Chief Operating Officer; Brian Miller, VP of Finance; and Ted Bathurst, our CFO. Now I would like for Brian to give the safe-harbor statement. Then I will have preliminary comments, Brian will review the details of our operating results and then I'll have some wrap-up comments and we'll take questions. Brian?

Thank you, John. During the course of this conference call, management may make statements that provide information other than historical information and 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 other information on those risks.

John?

Thanks, Brian. As you have seen from our earnings release this morning, this was another very good quarter for Tyler. Our results met or slightly exceeded our expectations. This was by a wide margin our best second quarter since entering the technology sector and it was our ninth consecutive profitable quarter.

Although the overall economy continues to be uncertain, and our market is clearly impacted by government budget pressures, it's an indication that the strength of our competitive position and the dedication of our team that we have been able to consistently show growth and revenue and profits and gain market share over the past several quarters.

I will speak more about our specific guidance later in the call, but in general, our view of the second half is very positive. Last week in our quarterly management meetings, our business units across the board expressed an upbeat outlook. We're seeing a solid pipeline of new business and our new business signings are at a very good base with backlog at an all-time high. Cash flow remains strong, and we're continuing to invest in our products. As a result, we believe Tyler -- we believe that Tyler's very well-positioned to take advantage of the opportunities as the economy improves.

I would like for Brian to review the numbers for the quarter and I will make comments and discuss our outlook for the rest of the year.

Thank you, John. This morning Tyler Technologies reported its results for the second quarter of 2003 and our results, once again, reflected a substantial improvement over the second quarter of 2002. For the quarter ended June 30, 2003, Tyler had revenues of $36.1 million, up 8% from the second quarter of 2002. We had an operating income of $3.1 million, an increase of 35% compared with operating income of $2.3 million in the second quarter of last year. Net income for the quarter was $2.0 million, or 4 cents per diluted share, up 54% compared to net income of $1.3 million or 3 cents per diluted share in 2002.

EBITDA for the second quarter increased 23% to 5.2 million or 12 cents per share from EBITDA 4.2 million or 8 cents per share in last year's second quarter. Strength in our software-related revenues which in the aggregate increased 28% over the second quarter of 2002, continues to drive our growth. Software license revenues increased 17% over last year, software services revenues increased 64%, and maintenance revenues grew by 14% in the second quarter. Appraisal services revenues for the quarter declined 33% over last year in line with our expectations following the completion of the original Nassau county reappraisal contract.

The revenue mix for the second quarter of 2003 was as follows: Software licenses, 17%. Software services, 26%. Maintenance, 33%; appraisal services 20%, and hardware and other 4%.

For the second quarter of 2003, our overall gross margin improved to 38.4% from 34.8% in the second quarter of 2002. The higher overall margin compared to last year is the result of both the shift in the revenue mix to a greater proportion of software licenses, which carry higher margins, combined with improvements in margins for software services and maintenance, resulting from more efficient utilization of our people and increased operating leverage coming with growth in our software-related revenues.

SG&A expense for the quarter was 10.1 million, or 28% of revenues compared to 8.6 million or 26% of revenues in the second quarter of 2002. The increase in SG&A includes higher sales commissions associated with increased sales, higher insurance expenses, increased marketing personnel, and slightly higher R&D expense.

Our backlog of June 30, 2003, was at an all-time high at $131 million, compared to 86 million at June 30 of last year, and $115 million at the end of the first quarter of this year. We ended the quarter with $27 1/2 million in cash and short-term investments, after spending $20.6 million to repurchase stock during the quarter, including 5.1 million shares that we repurchased in our Dutch Auction tender for $4 per share. Cash flow from operations during the second quarter was $5.6 million, and our free cash flow after capital expenditures was $3.5 million. Up 88% compared to free cash flow, 1.9 million in last year's second quarter. Our capital expenditures during the second quarter were $2.1 million, including 1.7 million of software developments, down slightly from the Cap Ex level in the first quarter of this year. DSOs at June 30, improves sequentially to 88.7 days, from 93.3 days at March 31. DSOs at June 30 of last year were 94.2 days. Our stockholders equity at June 30 was $107 million, and we have no outstanding debt.

I would like to turn it back over to John for his comments on the quarter's results and the outlook for 2003.

Thanks, Brian. As we expected, we had a good, if not a great second quarter. The results in our software business continue to be outstanding, 28% revenue growth, including a 17% increase in software licenses is quite an achievement in this environment. The decline in our appraisal revenues was as expected. As we have discussed in prior calls, this business can be somewhat lumpy, with respect to large contracts. The contracts signings in the first half of the year give us reason to continue to expect better revenues from the appraisal business as the year goes on.

I want to comment on a few significant events that occurred since the end of the first quarter. First, in mid-May, we completed the repurchase of 5.1 million shares of our common stock at $4 per share through a Dutch Auction tender. We were very pleased with the outcome of the tender and given our cash level following the sale of our investment in H.T.E., and our view of Tyler's future, we believe that repurchasing our stock was an excellent and very accretive use of a portion of our cash.

Our free cash flow continues to be strong, and more than adequate to fund our capital expenditures and major investments in product development. We have not repurchased any shares in the open market since the completion of the tender, but we continue to believe that the stock is a good value, and we will assess market conditions and opportunities available to us in determining the timing for additional repurchases. Our board has increased the current repurchase authorizations so that it now totals just over 2 million additional shares. We have now repurchased almost 7.5 million shares of our stock since last August at an average cost of $3.99 per share, which should be a strong signal of our confidence in the long-term outlook for Tyler.

Our earnings outlook for the year 2003 as a whole is unchanged, although we have adjusted our EPS guidance to take into account the reduction and diluted share count for the stock repurchase in the first half of this year. Halfway through the year, I would say we're increasingly confident in the guidance that we started the year with. We still expect our total revenue growth for the full year to be between 8 and 10%. This expectation affirms that our software-related revenues license, services and maintenance will grow in the 20% range for the year.

We are anticipating increases across all of the software product areas, but particularly in financials and city solutions. This growth in software-related revenues will be tempered by a reduction in appraisal services revenues as we ramp-up on the new follow-on contract with Nassau County and the Franklin County reassessment project. The year-over-year revenue decline in the second half of 2003 won't be as large as the decline we experienced this quarter; however, those two contracts alone will not fully replace the revenues that the original Nassau contract generated this last year.

We expect the gross margins to trend upward for the full year because of improved revenue mix and operating leverage. We anticipate EBITDA of between 44 and 46 million for the year, which includes 23 million from the H.T.E. gain.

Our expectations are for EPS of between 53 and 55 cents for the year, which also includes 36 cents related to the H.T.E. gain. We expect to have capital expenditures in the 10 to a million dollar range, mostly for new product development, which is slightly lower than our earlier plan.

Lastly, I would like to comment on the announcement we made this morning regarding the assumption of additional corporate responsibilities from some of our key senior operating management personnel. John Marr, Jr. who runs our muni's division, will take on the additional role of Chief Operating Officer of Tyler Technologies. Our board established a succession plan under which John is scheduled to succeed me as CEO of Tyler a year from now. At that time, it's planned I will become chairman of the board while remaining an officer of the company and continue to work with John. Glenn Smith, who runs our courts and justice division, and Dusty Womble, one of the leaders of our Incode division, will each take on the corporate responsibilities as executive vice presidents of Tyler. As I have said many times, one of the greatest strengths of our company is the depth and the industry expertise that we have in our management group. And these new roles John, Glenn and Dusty will be able to contribute more broadly enabling Tyler to take advantage of this tremendous opportunity available to us in the local government market.

Now with that, we'll take questions.

Thank you. If you would like to ask a question during this time, simply press star and then the number 1 on your telephone keypad and questions will be taken in the order they're received. To withdraw your question, do so by pressing star and the number 2. To allow everyone the opportunity to ask a question, please limit your question to one plus one follow-up question. Also, as a reminder, if you're on a speaker phone, please pick up your handset before presenting your question. We will pause for just a moment to compile the Q&A roster.

Your first question comes from Tom Meagher of BB&T Capital Markets.

Yeah, good morning. Congratulations on a terrific quarter. John, maybe you can review the competitive situation for us. I know traditionally you have run up against more of the local mom-and-pop-type firms, smaller than you guys, but are you starting to see more of a sun guard data system, post HP or a Maximus more frequently those days?

I think the smaller -- the smaller vendors we have seen are as we expected, becoming increasingly less competitive. They have strong customer loyalty in their existing base and a good service reputation, but with the pretty rapid change in technology, they have a hard time making the investments that you have seen us make over the last two or three years, so that continues to be going in the direction of the less meaningful part of the market.

With respect to SDSs three different divisions in our space, for the most part, they're pretty neutral. I wouldn't say they're gaining market shares from our perspective. We see all three of them from time to time, but not necessarily anymore than we have in the past.

The larger companies are probably pushing down a little further in this space than they have traditionally, given the challenges they have in their core marketplace, but, we think we have some competitive advantages there, cost being one of them, and a turn-key really full-solution deployment methodology, which they don't have, they generally use third parties and other deployment resources. So, the shift from the small regional player to the larger companies as we expected and really why we put this together in the first place definitely continues to occur.

Okay, as a follow-up, does that create opportunities for you, given what you mentioned about customer loyalty and that kind of thing to potentially acquire a larger geographic footprint in some of these places with those type firms?

We're not opposed to that. There are maybe a couple that would be interesting to us. But we have been very successful organically growing our own geography. We have got a bigger presence than we had before in the central and midwestern states. We're starting to have good success on the west coast, and certainly the northeast, southeast, and the Texas and surrounding states have been strongholds for us. So organically, we have been able to grow that pretty successfully, and even though we have to be a little more patient in doing it that way, for the long-term, it gives us a more manageable company because those companies -- those customers all have the same products and new releases, new services that we offer automatically are available to those people with the same products and all of our resources that are trained on those.

When you bring a new company in, in our business, obviously, they have different products and all of our products and services aren't immediately marketable into that base. So, if we thought we would have a difficult time penetrating a certain geography where we thought we ought to have a presence, we wouldn't be opposed to doing an acquisition in those areas and we look at those from time to time. But given the success we have had growing geographically, organically, I think our bias is still in that direction.

Great, thanks again. Great quarter.

Your next question comes from David Yuschak of Sanders Morris Harris.

On the -- the business picked up pretty strongly in June, given some increasing receivables I saw in the quarter versus the first.

Well, with respect to receivables, we have a lot of maintenance billings, June 30 is one of the peaks for -- peaks for those maintenance billings. Typically we'll see receivables spike up with relation to the annual billing.

I guess, and then a second question is a compound one. Discuss a little more about the pipeline as you see it today, across your product segments, particularly given, you know, you have a record backlog here in the current quarter and comments that I heard from Manatron [ph] on a conference call, their last conference call where they spoke particularly optimistically about the next two to three years for appraisal. That was an area you guys were tempered, beginning of the year and that does seem like it's beginning to some build legs as well, so, could you comment about the breadth of the backlog pipeline and what you see going ahead by those segments.

I can comment on that. The -- the backlog, as you know, is very strong at this point in time, so we have done a good job getting contracts in hand and building that up and, obviously, that is a favorable trend. As you indicated, our experience in the last 90 days has certainly been positive in the appraisal market. Six months ago, we were less enthusiastic about that. That has been shown in our numbers this quarter, but that definitely picked up in the contracts we signed and the outlook we have.

In the other lines of business, the software lines of business, I think we would still say that we're not in a very robust market at the moment. It's not real weak, it's certainly a large enough market for us to meet our objectives, but certainly the pressures on government are having some effect and it's not the most robust market. So what we have done and what we talked about earlier growing geographically, growing in terms of size and range of accounts has enabled us to have a market big enough to meet mostly our objectives out of it, but that market is less than completely robust as we have told you before.

Our projects are really funded by taxes at the local level, which are mostly property and utilities and things like that. On a direct basis, they're not affected much, but the indirect pressures from the state and other revenues have a little bit of an effect. The positive thing in that is we really believe that as that recovers and as that demand is building up has to go to market, that the improvement we have had on the competitiveness of the products and the size of the market that we have grown into is going to put us in a position to take advantage of that recovery when it comes back.

Kind of combining the different questions being asked, these smaller regional players that have downsized or gone away, that capacity to respond to this market can't just be turned back on when the market becomes stronger. And along with good numbers we're sharing with you, we built the resources and the product development areas and the service deployment areas, as well as the sales capacity to take advantage of that market as it comes back.

I think you guys said earlier that you beefed up on the SG&A and R&D, as well as sales people. That's an indication you're building resources there to take care of the regional opportunities. Would that be fair to say?

Yeah, we continue to build capacity there. I think as Brian said as well, though, that's also a little bit of a reflection of the mix of revenues we saw, obviously our cost of sales on the higher margin, software and service products, which is what we had a lot of in the second quarter, the SG&A on that is higher and there is more R&D on that. Definitely, we're building our sales channel through this process.

Let me just make one quick comment about congratulations to you, John, and the rest of the senior management team. You have always had good operating management out there, and I think it's good to see that being brought up to the corporate level, so congratulations to you, Glenn, and everyone else.

Great. Thank you.

Your next question comes from Charlie Strauzer of CJS Securities.

Hi, good morning, gentlemen. Echo David's remarks, congratulations to you, John Marr, on the promotion.

Thanks, Charlie.

You're welcome. A couple of quick questions -- questions for you, first of all, can you talk about backlogging. Is there a way to break it out by service type, just a rough numbers to get a sense of what the backlog looks like.

We don't really have have that broken out by-product line or type of service. But, you know, clearly there were significant editions on the appraisal side. In the first half of the year, we signed the $28 million contract with Nassau County as a follow-on, and we signed a $9 million contract with Franklin County, Ohio, and another $4.7 million contract on the tax software side with Fulton County, Georgia. Those are three of the largest additions to the backlog. But we don't have a breakdown by-product line. We don't sort it that way.

Yeah.

The appraisal has increased as part of our backlog. That's fair.

I don't think the competition for a second, the EPS is selling their federal government business to be Lockheed. Is there any -- any of this, that they're selling to Lockheed, areas that you can accomplish particularly in the court side that you know of?

I don't think so. I think all of that business that they're talking about doing there is all specifically federal government business, and I think that's the reason they're exiting it. I mean they have had their success and state-related business and I think they just decided it makes sense to do so. Looks to me that I don't know much about the detail. Looks like a trade, they're trading government business for commercial business.

Got you. And just going to Odyssey for a second, and actually the new appraisal software, can you talk about what is happening there in the pipeline and you know, potentially, at least one contract on Odyssey that could be signed, talk a little about that and how the Beta's going on the appraisal package.

Okay, well, we -- we would have hoped at this call to announce one of the contracts we talked about at the last quarter, and that's just been delayed as some of the larger deals have been. It certainly hasn't gone away. We feel optimistic we'll get that done before the end of the year. In fact, we should be looking to a couple of contracts by the end of the year.

With respect to the installations, we presently have Minnesota and Lee County, they're going very well, and then the prospects for the Odyssey courts and management system is still as good as we had said from the start. Been slower than what we had anticipated. With respect to the Odyssey-based [indiscernible] system, it's in Beta in two locations and that's a very early part of the Beta tests, so we feel good about where we are and the prospects there appear to be very good.

And would you be prepared as you kind of get through Q3 and before Q3, the same kind of trends you have been seeing, you know in, success of building the backlog. Would you be prepared to give '04 guidance, or, if not to raise -- I'm sorry, '03 guidance a little more?

I don't think we will be prepared to do that now. I don't think we have any indication at this point that would -- would make us want to adjust. As time goes by here if we have success, we can certainly look at than. I think where we are is where we wanted to be with respect to anticipation.

Definitely a project for setting the bar conservatively. I think in some of the mistakes on the industry. One last question, just a technical one, what is the current share count as it stands?

Shares outstanding as of June 30, and really in effect as of today is 40 million -- 40.4 million.

And fully diluted?

I would add, you know, it's going -- going to range obviously depending on the share price, but if you -- I would say the average for the last six months is about 1.8 million. Incremental diluted shares.

Got it. That's great. Terrific quarter, guys, keep up the good work.

Thanks.

The next question is from Brian Kinstlinger from Sidoti & Company.

Hi, guys, I wanted to talk quickly about the revenue growth clearly tax and appraisal was down 30%. -- you mentioned. I'm curious if you have any metrics regarding your financials business or your core business as well so we can see the breakdown of where that revenue came from.

Well, I mean in terms of the software growth, a lot of the growth in this quarter in the software licenses was in our courts and justice division, with a couple of contracts in Texas for our integrated justice system. Not the Odyssey system, but the integrated system that we have installed a number of places in Texas. And on the software side as well. We have -- not the appraisal services, but the software side. We had a significant increase on our tax and appraisal software and the contract in Fulton County, Georgia, was a part of that, but we had a good quarter in the tax software as well. And those are the places where we saw the greatest growth in licenses.

In terms of software services, again, the tax and -- or courts and justice division had a strong quarter. Our financials, city solutions also were up significantly and our tax and appraisal also was up as well, so kind of across-the-board there, and you saw the kind of growth that we have in software services. But the -- the biggest grower on the services side was in the courts of justice area this quarter.

And with the promotion you mentioned, I'm curious, and with the overall business, what is the potential of wage increases in the near-term? And is there any impact at all on the margins on that in.

Basically the whole transition plan is neutral in terms of cost.

Okay. Obviously, SG&A increased and you're talking about some of the reasons. I'm wondering if you expect that percentage of revenue to stay pretty constant or, you know, or the actual total dollar value, you know, what are your plans for spending for '03 throughout in your expansion geographically here?

Well, I would expect that the dollar values would stay around the range where they are. Health insurance is a little bit of a wild card these days, but in general, I would say the dollar values would stay around the range. As you know we see a significant growth in our guidance. Calls for significant growth in revenues in the second half of the year, second half is typically much stronger than the first half. So as a percentage of revenues, you would expect to see SG&A be a lower percentage in the second half of the year, but the absolute dollars would be around the same range. Of course the commissions go up as revenues go up.

So we're not going to see anything lower than the $10 million that you roughly spent here?

I would not think you would see anything significant. I don't know of anywhere where we would see expect to see any significant decreases in terms of absolute dollars.

We look at the second-half guidance. Would it be accurate to say the third quarter might be stronger in terms of earnings compared to the fourth quarter due to the Minnesota contract? Is that software license revenue? You thinking that that's going to be booked, a big portion of that in the third quarter, which would left, obviously, margins?

Yes. The answer is yes.

Great. Just a couple of -- one more question on the tax assumption. That stayed down for two quarters is that likely where we're headed for the rest of the year, at 30.8%?

That's -- no, 30.8 is the year-to-date, and that's in effect skewed because of the calculation that you go through for the realized gain on H.T.E..

Okay.

Keep in mind in that gain was the utilization of a capital loss carry forward, which, for accounting purposes, prior to that sale, we did not give ourselves a benefit for. So when we sold that stock and realized the tax gain, we were able to utilize that capital loss. But going forward, the effective tax rate should be about 38.5%.

Okay. So the second half of the year we'll expect that to pop back up?

Yeah, I'll just pull out the realized gain and then everything else use 38.5%.

Okay, last question is related to Odyssey. I'm just wondering, you know, what you think is holding, you know, some of those counties back. As I recall, some of it wasn't necessarily budgetary, some of it was. Some seemed to be red tape and, what the latest delays maybe entail.

Well, I think it varies, but it appears that for the most part on the deals that we're closest to, it's a budgetary issue, and it's not that the money is not there, it's just much more difficult to get to it, which has caused some time delays because of the amount of competition within each of these political agencies to get that money. So, it's still continues to be a problem. But I think we're going to come out of it just fine

Have you kept your prices the same there in I mean is it -- maybe there's a temptation of lowering prices or do you think, you know, the price is right and at the right time, these budget issues may disappear a little bit.

Right. We don't believe it to be a pricing issue, and we have held our price just where they have been from the start.

Thanks, guys.

You bet.

Your next question comes from Jack Salisman of [indiscernible].

Thank you. John, congratulations. A great choice and looking forward to chatting with you about your promotion. It was great.

Thanks, Jack.

Great quarter. I guess not to beat you guys up on Odyssey, but if -- if the delays on the Odyssey contracts are the cause of the delays by these government agencies for a variety of reasons, are we seeing competition coming up at all? Are they closing the gap? I know you guys had a big headstart. Are you concerned at all that there might be additional competition coming up on Odyssey? That's my first question.

Second one, it seems like you're starting to sign on average larger contracts than you have done in the past. Is that a -- is that a casual observation or do you think that that could be a trend that's going forward or am I mistaken, but just on the few that you have announced in the last couple of months, it just seems like the size of these things are -- are larger than usual. Are you guys reaching more of a significant critical mass in terms of dealing with the various the government agencies, or is that just a unique circumstance.

And lastly, on cash flow, excluding any additional share repurchase, you can give us a sense of where cash might be at year-end?

Okay, let me see if I can answer the first two. The competitive situation at Odyssey.

Uh-huh.

We don't see anything changing there on the landscape. Certainly that could be the case. But, we have not seen it. We have not seen it with respect to the RFPs and the situations that we're involved in today. So at this point, we still think we have the product that can [indiscernible] the market and that's not to say something may not come along. The second question was largely -- the larger deals. Yeah, well, I think obviously some of those that have been announced were in the assessment area and they tend to be larger and have been in our recent history. We have always strived and it's been one of our objectives to move into bigger deals and as we gain mass, I think that we're going to see more of those and -- and we strive to do that.

What was the last one?

Cash.

In general, we finished the quarter with $27 1/2 million in cash.

Uh-huh.

As we sit here today, we have got more in the $33 million range of cash, so it's been good in terms of cash collection since the end of the quarter. And, you know, based on our EBITDA, you know, clearly expect we would be north of 40 million. So, it's hard to, you know, I don't have a back number for you for the end-of-the-year cash, but it's very solid.

That sounds good.

If I could generalize, most of our earnings is cash. Obviously, that's one of the things we pay attention to before we deploy revenue.

Uh-huh.

In terms of if you just look at EBITDA, we do have to -- obviously we don't have much interest income. We don't have any interest expense. And the other equation that's due now is cash taxes. We paid $5 million in the second quarter, primarily results of the gain on H.T.E.. We'll be paying about a million dollars again in the fourth quarter. Then, prospectively going forward, we're going to be paying cash taxes on everything. And --

And that's the modeling of using 38.5, roughly.

Accounting kind of ignores what you -- what's really happened on the tax side, meaning if you have a net operating loss carried forward, you don't get money back from Uncle Sam, but you get the benefit for it.

Uh-huh.

What I'm saying is we don't have anymore net operating loss carry-forward or any capital loss carry-forwards. Every dollar of tax income we make we'll have to pay tax. 35% federal and about, you know, 4%, you know, another federal benefit on the state side. So that's one way to, you know, kind of forecast cash.

Okay. Great job again, guys.

Thanks.

Okay.

Once again, I would like to remind everybody, if you would like to ask a question, press star and the number one on your telephone keypad. The next question comes from Mike Lewis of BB&T Capital Markets.

Good afternoon, thanks for taking the call. You beat my revenue estimate in the quarter by about 2.6 million, which was very strong, and as I look at the third and fourth quarters going out and trying to stay within the guidance of 8 to 10% growth, did you -- I guess the question is: Did you see some revenue hit early for -- that you're expecting later on in the year?

Uh-huh. There was a little bit of timing.

There was.

Yes.

Okay, so we can safely assume to back a little bit out later in the year.

I think that's accurate.

All right, , I missed your Cap Ex, what your projected full-year Cap Ex would be. Did you say 10 million?

Yeah. 10 to 11.

10 to 11 million, and then your EBITDA trails Cap Ex by maybe 5 to 10%, so would I assume 9 to 10 million on EBITDA?

For the second half?

For the for the full year.

Well, our guidance for the year was 21.

Yes, that's full year.

For the full year.

Yeah, 21 to 23 without H.T.E..

Yes.

Okay.

Yes.

Okay. Well, thank you very much.

You bet.

Your next question comes from Shelly Berkman of Bear Stearns.

Congratulations, guys. Great quarter. And I think you got the right guy, John Marr to lead the parade. I think that's a great choice. As far as questions answered, most of them were.

I would just like to, once again, spend a moment on Odyssey like last quarter. I think some of these questions may have been answered. As far as competition for the product and I joined the call late, so if this has been answered, you can let me know and I'll listen to the replay. As far as competition coming in for the product, as far as a product that may compete on price point, as far as a product which may stand up to yours, is there any insight out there by you guys, you had a big job start, that anybody's working on something similar. And that could be a reason why some of these decisions were put off?

We're confident there are other people working on new courts management systems that look like ours. To -- to -- to my knowledge, we have not seen that in the deals that we're working on right now, but it's -- I mean it's certainly safe to assume that that's coming. We don't see that at this point as being anything that has slowed down our competitive advantage. That's not to say that, you know, six months from now or a year from now that might not be the case. We feel that our product will stand up against anything.

Well, I guess it's sort of like a catch-22. I guess if the product was out there and you were signing up municipalities left and right, people may just get out there and bring their product to market quicker if they saw you were doing such a great deal of business. So, maybe that's what they're waiting to see, how your product actually does in the market before they see if they want to compete in that area.

Well, that could be with that. But that certainly isn't by design on our part.

Right. [ Laughter ]

Ouch.

You have to -- I mean now that we do have Odyssey up and running in two separate client installations that increases our competitive position and now we have a product that is installed and running. Which has been a problem in the past.

We're expecting formal conditional acceptance by these entities in the near term, and that, too, will send a message.

I think CJS touched on this question, but I would also like to come back. Obviously, the first half of the year looks a little stronger than we may have anticipated back in January. You had a great quarter. You still forecasting 8 to 10% revenue growth.

The reason you're not bringing up guidance -- is because of the uncertainty, perhaps, in what you're going to sign on Odyssey by the end of the year. Or is there something else that may be a little bothersome here in the second half, which I would think the economy is getting better. Obviously you have the wind in the right direction now. Or is it just we're being ultraconservative here.

I think, Shelly, it's the external issues that we don't control. I think as we have said, you know, it's not just the numbers that we publish. We're trying to do the fundamentals that position us well for the future, and we feel good about the product investments we have made and their competitive positions going forward. We -- we feel real organized in that we have good quality resources to provide service, especially deployment resources, which is required to scale the software model. And we have improved the size of our market, the geography and the sales capacity. But, you know, until there are signs this market is going to be more robust, we can do everything right and not necessarily grow beyond the guidance we have given. So, until we see a market that's robust enough for us to be confident that we can get back to the level of growth that we had talked about a couple of years ago, and it was certainly genuine talking about those numbers, we don't control all of those issues.

I think our guidance is based on, for the most part, all the issues we control, and we have good confidence and as this market comes back, I think we have done the things to be in a position to be a higher-growing company. We don't have enough visibility on that to change anything at this point.

Okay, congratulations. Good quarter. Charlie, it looks like you're driving and we're passengers, so do a good job.

Thanks.

Thanks again.

Your next question comes from Brian Kinstlinger from Sidoti & Company.

Hi, guys, one follow-up. Last quarter you mentioned you had roughly seven proposals active on Odyssey and one had retracted. Did you get any more -- do you still have those seven active or were any others retracted and have you added any?

Yes, we added some. Those seven are still active and there is a -- six more, about six more.

Yeah.

close to 12.

Somewhere, 12 to 15 that are kind of active prospects that we're working on.

The pipeline there grew significantly.

Yes.

Great. Thanks.

Your next question comes from Charlie Strauzer of CJS Securities.

You had a 30% gross margin in the appraisal business, tends to be historically at a high level. Is that something sustainable or you think that may grow as some of these new contracts coming on board?

Actually it's a little lower than historical. Last year in this quarter we did 30% in appraisal. Last -- same quarter of last year, we did 34% and year-to-date, 30% and last year, we're at 33%. It typically doesn't fluctuate wildly but there is some scale there, and with the revenues that -- a lower level with the Nassau contract having wound down and the new contracts just winding up, you know, we would expect that as that business picks up, that the margins would improve again. But kind of in that historical range of last year, 33, 34% is -- is kind of where they would fall on strong volume.

Good enough. Thank you very much.

At this time time, there are no further questions. Mr. Yeaman, are there any closing remarks?

Yeah, thank all of you for joining us today. If you have any further questions, please feel free to contract Brian Miller or me and thank you.

This concludes the Tyler Technologies 2003 second quarter earnings conference call.