泰勒科技 (TYL) 2006 Q1 法說會逐字稿

Good morning and welcome to Tyler Technologies first quarter fiscal 2006 earnings release conference call. Your host for today's call is Mr. John Marr, President and CEO of Tyler Technologies. Mr. Marr, please begin your call.

Thank you and welcome to our first quarter 2006 earnings call. Joining me from my management team is Brian Miller, our CFO. First I would like to have Brian give the Safe Harbor statement, then I'll have some preliminary comments. Brian will review the details from our operating results. I will make some final comments and we'll take your 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. With would refer you to our Form 10-K and other SEC filings for more information on those risks. John?

Thanks, Brian. The first quarter marks Tyler's 20th consecutive profitable quarter. We continue to make progress on our strategic plans, improving the depth and breath of our offering, as well as broadening the footprint of the markets we address. I'm also pleased with the consistent gains we are making with all our products and their respective competitive positions. Each quarter, as we see meaningful net customer gains, Tyler further establishes itself as a clear leader in the local government software market. Our business continues to grow, overall 10% in the first quarter, with a favorable mix of revenues. License revenues were up 19% over last year and maintenance was up 15%, while appraisal services revenues have stabilized at a less-significant, predictable and profitable level. Our business model is performing well, as we generated $9 million in free cash flow during the quarter, more than four times our GAAP income. Our backlog is at an all time high and leading indicators are favorable. However, with slower revenue recognition, operating investment, and a recently acquired new division, the ongoing gap between G&A. and CapEx, we will continue to see revenues and GAAP earnings lag behind free cash flow for the foreseeable future, requiring a deeper look at the Company to fully appreciate our performance.

Now I'll ask Brian to review the financial results.

Thank you, John. Yesterday Tyler Technologies reported its results for the quarter ended March 31, 2006. For the first quarter of 2006, Tyler had revenues of $44.9 million, up 10% from the first quarter of 2005. Operating income was $3.3 million, an increase of $2.6 million from the first quarter of 2005's operating income, up $654,000. Net income for the quarter was $2.0 million, or $0.05 per diluted share, compared to net income of $470,000, or $0.01 per diluted share in the first quarter of 2005. Results for the first quarter of 2006 included a total of $611,000 of non-cash expenses, due to our adoption of SFAS 123(R). associated with our share-based compensation plan, and a one-time purchased-in-process R&D charge related to our first quarter acquisitions. We continued our trend of very strong cash flow performance in the first quarter. Cash flow from operations was $10.0 million for the first quarter -- excuse me -- up 34% from $7.5 million a year ago. Free cash flow was $9 million, an increase of 41% over free cash flow of $6.4 million for the first quarter of last year. The increase is primarily the result of higher earnings. EBITDA for the first quarter of 2006 increased 68% to $5.7 million, from EBITDA of $3.4 million in the first quarter of 2005.

Our software-related revenues, which includes software licenses, software services and maintenance, increased in the aggregate 13% over the first quarter of 2005. Software license revenues increased 19% over last year's first quarter. Software services were up 7% from last year's first quarter, and maintenance revenues grew 15% from the first quarter last year. Appraisal services revenues for the first quarter declined 9% from the first quarter of 2005 to $4.7 million, although they grew sequentially 6% from $4.4 million in the fourth quarter of 2005.

The revenue mix for the first quarter of 2006 was as follows: Software licenses, 17%; software services, 29%; maintenance, 39%; appraisal services, 11%; and hardware and other, 4%. The revenue mix for the first quarter of 2005 was: Software licenses, 15%; software services, 30%; maintenance, 38%; appraisal services, 13%; and hardware and other, 4%. Overall, 85% of our revenue mix was software related for the first quarter, compared to 83% for the first quarter of last year. For the first quarter of 2006, our overall gross margin was 34.5% compared to 31.8% in last year's first quarter. Sequentially gross margins decreased from 37.7% in the fourth quarter of 2005. The increase from last year's first quarter was due to an improved revenue mix, with more licenses and less appraisal services than last year, combined with higher margins for software services and maintenance, as well as higher margins in our appraisal business, following the reorganization of that business in last year's second quarter. The decrease in gross margin from the fourth quarter of last year is due to lower software license revenues in the revenue mix for the first quarter of '06, a trend typical of our first quarters.

Software license margins for the quarter were down slightly from last year at 60.7% versus 61.4% last year. The decline is because the first quarter of 2006 included a higher proportion of third-party licenses, which have a much lower margin than our proprietary software products. The blended margin for software services and maintenance increased to 29.3% from 28% for the same quarter last year, and decreased from 31.3% in the fourth quarter of last year. The gross margin for appraisal services was 27.5%, compared to 16.3% in last year's first quarter. SG&A expenses were $11.9 million for the first quarter of '06, and '05. First quarter 2006 SG&A expenses were 27% of revenues compared to 29% in the same quarter last year.

SG&A expenses for the first quarter of 2006 included $440,000 of share-based compensation expense, resulting from the adoption of FAS 123(R). and a one-time charge of $140,000 of purchased R&D. Excluding these effects, SG&A expense for the first quarter of 2006 was down 2.5% from $11.6 million in the fourth quarter of '05. Our backlog at March 31, 2006, reached a new high of $186.8 million, compared to $140.6 million at March 31, 2005, and $165.4 million at December 31st of 2005. Backlog related to our software business, which excludes backlog from appraisal services contracts, was $156.5 million at March 31, an increase of $19.6 million or 14% from the fourth quarter of last year, and an increase of $47.0 million or 43% from March 31 of last year. And the March 2006 backlog includes the $12.4 million Odyssey software license agreement that we signed with the Texas Conference of Urban Counties in the first quarter of this year, which will be recognized as revenues over the next three years. Appraisal services backlog was $30.4 million at March 31, 2006, compared to $28.5 million at December 31, 2005.

During the first quarter we repurchased approximately 250,000 shares of our common stock on the open market at an average cost of approximately $8.75 per share. For the year 2005, we repurchased a total of 2.5 million shares of our stock at an average cost of $7.20 per share. Our remaining authorization of shares that may be repurchased totals 1.8 million shares. We also issued 325,000 shares related to the two acquisitions we completed in January of 2006. Our capital expenditures during the first quarter were $1.0 million, which includes $73,000 in capitalized software development. CapEx for the first quarter of last year was $1.1 million, but included $482,000 of capitalized software development costs. Although we continue to spend significant amounts on product development, we expect that capitalized software development will remain at very low levels for the foreseeable future and that virtually all of our development costs in 2006 will be expensed.

Amortization of post-acquisition software development costs was $1.5 million in the first quarter. Day sales outstanding and accounts receivable at March 31, '06, were 77 days, compared to 101 days at December 31, 2005, and 83 days at March 31, 2005. December is one of the peaks of our annual maintenance billing cycles, and large amount of the related cash payments are received in the first quarter of each year. Our stockholders equity at March 31, 2006, was $116.6 million. We continue to have no debt outstanding and $30 million of available credit under our revolving credit facility. The first quarter results include the results of our two acquisitions, MazikUSA and TACS, Inc., from the date the acquisitions were completed near the end of January, 2006. We have accounted for these acquisitions in the first quarter, based on a preliminary allocation of the purchase prices, which is subject to revision as allocation is finalized.

Now I'd like to turn the call back over to John for his comments.

Thank you, Brian. The first quarter of this year shows improv -- improvement across all product lines and throughout our business model. Our financial systems division experienced a typical cyclically less-than-robust first quarter, but still added 30 new name accounts in 19 different states, with an increase of 12% in revenues over the previous year; clearly maintaining a leadership position in this space. And as you saw yesterday, we announced a significant win with the United States virgin Islands, where all the leading vendors competed. We believe the demo levels, RFP activity, as well as feedback from the market regarding our competitive position, supports that our objectives for this division are reasonable. Our courts and justice division signed the largest single license agreement in Tyler history during the first quarter with the Texas Conference of Urban Counties. This contract is for $12.4 million in licenses for its member counties and is likely to generate a total of $35 to $40 million over the next three or four years. However, as is the case with much of our new business, especially business based on our newer products, the revenue recognition will be slow. Consequently, we do not expect these awards to have any meaningful impact on the current years earnings. Beyond the TUC, the the broader court market has improved, and we remain convinced that we have the solution to become the leader in this space space.

Our tax and appraisal software applications had a productive quarter, as well. We announced a seven-county contract with Utah, as well as the Jefferson County, Missouri one. The tax and appraisal space has been very fragmented, and with challenges that many of our competitors have faced, I believe we are well-positioned to make gains here. Generally, we see a normal financial market allowing us to continue to build on the success we've experience experienced in this area during the past several years. And we see an improving market for courts and justice, and tax and appraisal software, with our divisions in this space beginning to provide a better balance in the business that we believe will lead to more consistency and, ultimately, better results.

As you know, during the first quarter, we completed two acquisitions, broadening our offering to include student information system software and retirement and pension management systems. So far, we're encouraged by what we have seen, and believe that these systems have the potential to contribute in a meaningful way to Tyler's future performance. The initial reception from our staff assigned to building the sales and service channels, and from the market and customer base, has been very enthusiastic. However, as with new products that we built ourselves, it will take sometime before these products contribute in a positive way to our financial results. Currently, we have hired and experienced resources into these areas to accelerate this process and, while we are enthusiastic about the prospects, there will be some cost in the interim. As far as our financial performance, we have been disciplined in managing our cost. While growing our business, we have held or reduced overall SG&A cost. Our backlog is at all time high, with our software related backlog up $47 million over last year, or 43%, and our free cash flow was $9 million in the first quarter.

So what does all this mean? Generally we like the market and we like our position in the current market. Look for us to continue to be sign new business, with a much better balance geographically, as well as across our product lines. Led by recent wins like the TUC and the United States virgin Islands, we are having success moving up as well. We will continue to see historically high levels of backlog and generate strong free cash flow. However, with a higher percentage of new revenues coming from our newer products, it sometimes provides extended terms for different customer assurances that dictate slower revenue recognition, as well as making the necessary investments in our new divisions, it is important to caution that, while there is much to be encouraged by, these recent accomplishments will not contribute positively to revenues or GAAP earnings in the current year. In fact, those measures will be the more challenging of our objectives in the short run. I believe the volume of new business is the best measure of our performance in the marketplace, and that our free cash flow over the course of an entire year is a better indicator of our current performance of the Company.

Our guidance remains unchanged from what we communicated in January. We expect revenues of $191 to $196 million, with appraisal service revenues expected to be relatively flat and software-related revenues to increase 13 to 17%. We anticipate earnings anticipate earnings per share of $0.29 to $0.32, with about 65% or more of these earnings coming in the second half of the year. We will have an estimated pretax expense of $1.9 million related to the stock options and employee stock purchase plan, as a result of the implementation of FAS 123(R). Because we do not get a tax benefit for all of this expense, the EPS effect on expense is approximately $0.04 cents per share. We expect to have an effective tax rate of 40.1%. We expect cash from operations in 2006 will be $24 to $28 million and free cash flow will be between $21 and $24 million. Our total CapEx for the year will be in the area of $3.5 to $4 million, and our depreciation and amortization will be in the area of ten to $10.5 million. We will add a significant amount of software amortization as a result of the acquisitions, but we cannot quantify the amount until our purchase price allocations are final.

Now we'll take questions.

[OPERATOR INSTRUCTIONS] Your first question comes from Charles Strauzer with CJS Securities.

Good day, gentlemen. When -- actually, two quick questions for you, John. First of all, the substantial free cash flow you're going to generate this year, really what's the main priority use for that. Is that still share buy backs?

Well, we remain, I guess, opportunistic in this. We continue to evaluate acquisition opportunities that are in the marketplace, as well as evaluate our own stock and respond accordingly. So we don't have a defined bias between stock repurchase or acquisitions. It's really based on the better opportunity.

Got it. And then Brian, this is probably for you, but the share count was pretty much constant with Q4. What's a good number to use going forward?

On a fully diluted basis for the year, we should see at about $42.3 million.

And what's causing the increase? I know you had bought back some stock earlier the year and last year.

That would assume no additional stock repurchases and no additional option issuances or exercises. So that would be based on where we stand at the end of this quarter. The difference is the $11stock price, which affects how much goes into the fully diluted calculation, how much stock we can buy back with the assumed proceeds. So the real difference in the fully diluted is the increase in stock price.

Got it.

And that assumption assumes an 11 stock price for the year.

Got it.

We've actually go about 39.2 million shares outstanding at the ends of the quarter.

Understood. Thank you. And lastly just the percent of the backlog that you think will hit, likely in '06, just roughly if you can share that with us?

At the end of the year -- we haven't updated that since the ends of the year. At -- most of it's new backlog. Relatively little of the new backlog will incre -- as John said, increase revenues this year. So it's not significantly different than what we reported.

Yes, because I'm just trying to get a sense of based on the revenue projection, how much additional sales have to be made throughout the year to hit those numbers, that's all?

All right, thanks, Charlie. There are some sales that are required. As I indicated, because of the nature of these sales and the contracts, the revenue recognition is pretty slow,. You're actually seeing some of that gap between free cash flow and earnings as it widens, actually, the software we deliver, contracts we're performing on and actually being paid for, but for one reason or another, revenue are not being recognized.

So with all that in mind, there are some sales required to meet the revenue and earnings number for the year. We think the amount that needs to be generated is reasonable. We've taken a close look at that. We have our quarterly meetings previous to this call and we think that's reasonable but, certainly, there's a little exposure there. We don't think there's a comparable amount of exposure in the free cash flow guidance. We think that our ability to bring this business in, execute and get paid, as well as the other real strong cash flow characteristics of our business is such that that is a much more reasonable number for us to attain, or potentially exceed.

And the year end, of our total $165 million backlog, we expected about $130 of that to be delivered in '06? So it would be a little bit more than that at this point is in backlog, but somewhere in that range.

That's another egregious amount to make up there at some point, but not now.

Right.

And congratulations on a great quarter. You guys have been doing a great job. Thanks.

Thanks, Charles.

Your next question comes from Tom Meagher with Friedman Billings Ramsey.

Good morning, congratulations on the quarter. Could you guys talk a little bit about the competitive environment, as you get larger and start to be larger contract, who are you seeing out there when you go up? I think you mentioned in the Virgin Islands, a number of people bid for that, so can you give us an idea of who those folks actually are?

Sure, I guess so. SAT and Oracle are the largest players in the states, and a deal of that size attracts them, either directly or through a systems integrator, but they're both there, as well as some of the tier two type vendors there. We think that we continue to get some traction on our argument that this space is under served by those type of vendors. The performance of those engagements being on time and on budget, the history of that is not good. Most people have been exposed to that, either personally or through people they know profession, and I think our message -- I know in that particular deal, the comfort level that we could execute on their time line and within the contract cost, I know that the confidence in that was something that was one of the determinators in their decision. So we see those folks on our high range. We see local and tier two players around the country, and we think our position, as a good size Company with significant resources exclusively focused on local government with a strong track record of delivering on time and on budget and then having the subsequent relationship that's predictable and nondisruptive to our clients, is one that continues to gain traction. And that's again predominantly speaking of the financial segment.

I think courts and justice as we indicated, we think that market's improved, certainly at least a little bit, to maybe even more meaningfully. And the timing of that we think is good, because we now have a number of installations that are successfully and [referenceable], where we can take prospects. We think the TUC deal, by itself, is obviously a very good deal for us. But again, just like the United States Virgin Islands, a deal of that size and scope attracted all the major players, and we obviously compared very favorably to those. So we think that speaks well of decisions in large counties and small and medium-size states that we see on the horizon. And those would be the companies that have been there historically in that space, as well.

And then in tax and appraisal, there are no large tier one players there. We are actually the largest player. And a lot of the regional or smaller players, they really struggle in that space, to be honest about it, and we think that provides an opportunity. We have several systems and between those systems, we have an offering that plays in most states in the country now, and we like our competitive ,there as well.

Okay. Thanks so much. I appreciate it.

Sure.

Your next question comes from David Yuschak with Sanders, Morris, Harris.

David Yuschak .Congratulations, guys, on a good quarter.

Thank you, David.

Keep bringing up the products thats selling in the marketplace. Just in looking at your comments, John and Brian, about the changing nature of revenue recognition and with backlog being where it is now compared to where you were a couple of years ago, is the business changing somewhat as you get more robust in software services that you are be going to depend more on backlog compared to the quick turn business, as we talked about, [inaudible], I think about 130 or so, 140 out of backlog for '06. And you've got another 50 or so to come up. Give us a sense as to, is it going to be more backlog dependent as revenues gets recognized and as that pipeline fills in the backlog? Or is there still enough quick turn business in there that, on any given quarter or depending on the macros, could really help boost revenue as well?

Well, we said in the past, that our backlog isn't an indicator we really look at that closely. And the reason is that it's made up of several different components, so it doesn't by itself dictate something when you just look at the single total number. And obviously maintenance is a significant portion, and while we have maintenance come and go throughout the year, the renewal rate's so high that how much of it's in backlog at any point in time? So in other words, whether that -- the contribution from maintenance is high or low, as an example, really doesn't mean anything, because the renewals are 98, 99%. So that's an example of a backlog item that we don't read much into. And historically, when appraisal services were a larger part of our business, you could have large appraisal service contracts that are multi-year that would distort how important backlog was to, say, the next 12 months.

That being said, I think the much larger software-related number -- nonmaintenance software-related number in backlog is something we will start to look at more closely. And obviously, when it's up as significantly as it is now over last year, it has to be a positive indicator. And it's probably happening for two reasons. Maybe three. I mean generally just performing better is the third. But the other two would be, we are doing some larger deals and larger deals take a little longer and that money stays in backlog a little longer as you earn it. And then the other one, as we mentioned on the call, is revenue recognition. And basically, in today's environment, there are any number of reasons why you would delay or defer revenue recognition on a contract.

So, yes, contracts that maybe, a couple of years ago would have been signed, delivered and recognized, today for one reason or another, that may take a lot longer. And in a lot of cases we sign, deliver and get paid for our performance in those contracts, but still don't recognize it. So, there's a few things to consider there. But in general to answer your question, David, I think we will be marginally more dependent on drawing revenues out of backlog than selling and earning them in a current quarter. Not a dramatic shift, but certainly marginly more dependent on that.

As long as that software's becoming more important --

I think it does and I think we'll try to do a better job of breaking that down so it's more meaningful to you.

As far as the incremental quick turn business then, what does that look like right now? Where is it coming from?

Well, that is from predominantly our financial business, with mature application that exist, routine implementations where were sign a contract, deliver and are able to collect and recognize revenue. And I think -- I really said that that business is normal, which is good. That business has been a strong performer for us. A little light in the first quarter, which is very typical and cyclical strategic, but if we look at the leading indicators. If we look at strategic accounts like the United States Virgin Islands, we see that performing very normal throughout the year. But the nice development that we like is that, while the revenue recognition may be slower, we are seeing a better contribution from the tax and appraisal software products and from courts and justice, which will mean more balance and more consistency going forward.

And then as far as the RFP activity, could you give us an idea of how that's shaping up now compared to where it was, maybe, at the end of the year?

Again, Q1 is a little soft. It might have been, I won't say concerned but looking at some symptoms to see if they developed at the end of the year and they really haven't. We think that things have I would the way we would have liked them to and that right now, you know, demo activity, RFP activity, scheduled decisions are pretty normal. And certainly in the financial segment, which is 60% of our business and probably a little better than anticipated in tax and appraisal and courts and justice. And again, the competitive things we measure and monitor, those are favorable.

So are you suggesting you are winning more than your share lately? Is your experience that wins as a percentage of RFP's are getting better?

I would say it's about the same in financials, which is a good position, and it has improved in the other line.

Okay. So net is, you're gaining ground. Another question on -- as you leverage out the model and particularly as you've indicated with the depreciation -- the amortization of your courts and your appraisal getting a drag until you ramp up the revenue, but as far as the SG&A component of the business model long-term, the view of the argument always is that it takes you a lot more resources to do local economy sales than it would be at the federal looking for a bigger contracts. How do you see the leverage coming out of SG&A as far as it's ability to get you to a. say -- is it going to be more of a gross margin to get you to a 15% operating margin, or how much potential SG&A leverage could you get longer term to get to you a 15% operating margin versus -- to do that gross margin?

Well, I think we have actually are in pretty good improvement on the SG&A line. I mean the absolute cost, if you take out stock-options expense and things related to the acquisition, the absolute cost is down as revenues are up 10%. I'm not sure there's a lot left there, David. We always are going to leverage the corporate and public company costs, but the actual sales and marketing probably will grow somewhat in line with overall revenues. And I think to answer your question, I think the opportunity is more in gross margin; that we have significant G&A related to that, which is relatively figured. We are not capitalizing hardly anything at this point in time, so those numbers will not increase and they'll roll off, so those absolute costs will actually decrease over time. And as we grow, obviously, that'll support nice margin expansion then.

One last question. As far as your sales support with good backlog and getting opportunities, maybe, to increase your wins, do you see the need to add more talent at the sales and marketing area to keep that going?

Oh, yes, we're adding consistently. They are not real big numbers, but we're adding a few people here and there in the tax and appraisal and courts and justice areas. We've had some pretty good consolidation in our financial channel, which made some people available to shift to public safety, so we increased our resources on our public safety products, and really made our sales channel for financials more streamlined and efficient. We've had a combination of adding a few people that have school experience that -- some people that are IT directors in schools or people we've known, as well as shifted a number of very experienced -- some of our senior people in sales and marketing to the school channel, so that's an investment now as I indicated that for certainly a few quarters, we'll have a combination of new and existing people shifted over there. That will be a cost for a few quarters until those revenues come on line. But all in all, I mean to give you a number, I would say we are adding between six and nine new sales reps in a year like this.

Okay, good. Well you guys have done all the right things to grow the business. Thanks, congratulations.

Once again, [Caller Instructions]. Your next question comes from Brian Kinstlinger with Sidoti and Company.

Good afternoon, guys. Quick couple of questions. The first one is related to if you can just talk about a seasonality of cash flow, it seems your DSO went to the best level in the history of the Company I think. Other than one quarter, I think in the fourth quarter of '03 you had a 72 day. What should we expect normalized, Brian, and was there anything in the quarter that helped facilitate that better collections than normal for the company?

No, a lot of what driver the seasonality of that is the timing of maintenance revenues. The calculation is the quarter sales analyzed divided by receivables at the end of the quarter, and part of what -- at the end of -- typically, at the end of the fourth quarter and the end of the second quarter, we have heavy maintenance billing cycles on some of our products, so we typically see receivables spike at each of those periods, December 31 and then June 30. And then we have -- and those receivables tend to be collected more quickly than some of our other receivables. So we have a large inflow of cash from those maintenance billings in the first quarter and in the third quarter. So again those two periods, December and June, you tend to see DSO's spike up and you see large collections in the first and third tend to be our strongest cash flow quarters.

The other thing that's contributed, obviously, is growth in earnings and as we sign additional contracts with the deferred revenue increased somewhat ,as we receive payments up front in advance, generally of when we recognize the revenue. And those deferred revenues tend to grow faster than receivables, so that generates some cash flow. And I guess the other thing is, over time, as the appraisal services business has gotten to be a smaller piece of our business, in that business there are more billings that are typically held back until end of the contract, and so we've seen unbilled receivables come down, which also has a positive effect on DSO's.

Do you think gone are the days, relatively speaking, where you will see a 95 to 100 DSO given where appraisal is, or time-to-time, you might even see that during the quarterly spikes --

I think after Q2 it'll be up considerably because that's our largest maintenance billing. So that'll-- you'll have to obviously look at that on a year-over-year basis. Our objective would be it would be below previous years, but it'll certainly be higher than where it is now.

Thank you. If you look at the backlog, are you able to [inaudible] really have strong bookings in terms of license, how much of the actual stock backlog, maybe just a rough percentage, is actual license fees versus services? Are you able to break that out?

We really don't have that broken out.

A traditional contract, is there even a rough number of contract that is ex-percent is license versus ex-percent is services? Or is that not a --

I mean if you want to go with those rough -- at any point in time, our annual maintenance revenues now are, what, $70-$75 million. So, again, straight line math, and as Brian said, that's not the case.The end of the fourth quarter and the end of the second quarter were peaks for billing that, but in a normal environment, about half of that would be in backlog. So $35 to $40 million of maintenance at any point in time would be there be. And then we have, maybe, the same half of our annual ASPs, so another few million dollars. So this $40-ish million in recurring revenues in backlog at any point in time and the balance of that -- I guess the remaining $100, $110 million, if I picked a number I would say it might be a little heavier in services, maybe 60, 65% services and 35, 40% licenses. The contracts themselves are closer to an even split, but in financials and in certain areas we're going to recognize more license up front and earn the services over the life of the contract. So if that helps you, those would be broad guidelines.

I take it the acquisitions you made are pretty nominal to the backlog addition?

Right,

That's correct. They would have been a minimal impact both on revenues and backlog.

I would think le -- $1 million at the most.

Okay. Two other quick questions. First of all, if you look at your business today versus where it's been in the past, would you expect it to become more or less seasonal for any reason, and how do you view that going forward?

Well, I really have expected it to become less seasonal, as we have a broader geographical footprint, certain states have different fiscal years, and budget cycles and as we drive our revenues from broader set of applications, but that certainly isn't happening quickly. We saw some of that in the first quarter, as we have traditionally. So, yes, I do expect it but it seems to be happening very slowly.

The last question I have is, clearly for a couple of quarters, if not more than a year, at least you read about the states and local budgets doing better. Is there any particular market that you're serving right now that you expect, as money trickles, to do better? Obviously, you have a backlog in front of you, but -- or where you expect RFP's to pick up? Is it in financial services or judicial more -- is it one more than another where you think has been under served and under -- you know, the governments have paid less attention to you and it's time to upgrade.

Our experience right now is that there is some of that going on with courts and justice, and to a lesser extent, tax and appraisal, as I indicated. And I really think the financial market is very normal and very stable and I don't see anything different there than a year or two ago.

All right. Thank you, guys.

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

Thank you, Michael, and thank you for joining our call today. If there are any further questions, feel free to contact Brian or myself. Have a good day.

This concludes the Tyler Technologies first quarter fiscal 2006 earnings release conference call. You may now disconnect.