泰勒科技 (TYL) 2009 Q3 法說會逐字稿

Hello, welcome to today's Tyler Technologies third quarter 2009 earnings conference call.

Today's call is being recorded.

Your host for today's call is John Marr, President and CEO of Tyler Technologies.

Mr.

Marr, please begin your call.

Thank you, Cynthia.

And welcome to our third quarter 2009 earnings call.

With me on the call today is Brian Miller, our Chief Financial Officer.

First I would like for Brian to give the Safe Harbor statement, then I will have some preliminary comments, and Brian will review the details of our operating results, then I will have some final comments, and we will 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, that 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 more information on those risks.

John?

Thanks, Brian.

This quarter marks Tyler's 34th consecutive profitable quarter.

We are especially pleased to report strong earnings and record revenues and margins in a difficult economic environment.

Total quarterly revenues exceeded $74 million for the first time, even though our new license sales were relatively flat this quarter.

We posted 15% growth in our maintenance revenues and an increase of 29% in subscription based revenues.

Our recurring subscriptions and maintenance revenues for the quarter comprised over 50% of total revenues for the first time.

We expanded gross margins and operating profit compared to the 2008 third quarter even while increasing our R&D spend by 110%.

Our results are a reflection of our talented and hardworking employees and unique and focused products that provide a strong value proposition empowering people who serve the public.

Now I would like for Brian to provide more detail on the results for the quarter.

Thanks, John.

Yesterday Tyler Technologies reported its results for the third quarter ended September 30th, 2009.

You all have access to the press release, and our Form 10-Q was filed this morning, so I am going to limit my comments and focus on providing an analysis of the key factors contributing to our results this quarter, then move on to John's comments on the current quarter and our outlook for the rest of 2009.

In addition, as you know, our third quarter of 2008 results included the effect of a non-cash legal settlement pertaining to warrants.

In the third quarter of last year, Tyler reported a charge of $9 million which was not tax deductible and the results are reflected in operating income, net income, and net income per diluted shares for the nine months ended September 30th, 2008.

Also, because the settlement was not tax deductible, the tax rate was affected for the quarter ended September 30, 2008.

For comparability purposes, my comments regarding comparisons between periods reflect non-GAAP numbers for 2008 that exclude the impact of this settlement.

Our press release includes a reconciliation of our GAAP results to the non-GAAP results in 2008.

Revenues for the third quarter were $74.3 million, up 8.3% from the third quarter of 2008.

And for this quarter Tyler once again set a new record for quarterly revenue.

Our organic growth for the quarter was approximately 6.3%, and about 2 percentage points of our growth was the result of acquisitions we made over the past 12 months.

Our software-related revenues, consisting of software licenses, subscriptions, software services, and maintenance, increased 9.7% from the third quarter of 2008.

Software licenses decreased 10.6% from last year's third quarter.

There are several factors that contributed to the decrease.

With respect to our financial management products, over the past few quarters, our sales cycle from request for proposal through contract negotiations and closing, has in many cases lengthened.

For most of our financial management and education solution contracts, we generally recognize a significant portion of the license revenue relatively quickly after signing, so the delays in the timing of customers' decisions has impacted our results in the short term.

In addition, a few contracts have included requirements to construct interfaces to existing systems or other essential functionality that results in recognizing revenue over a longer period of time.

We've also entered into a few contract arrangements with extended payment terms which negatively impacted the amount of software license revenue that we could recognize this quarter.

In addition, software license revenue related to our Courts and Justice Software Solutions in last year's third quarter included $1.7 million from one contract that had previously been deferred in accordance with the terms of the contract, making the license revenue comparison more difficult.

We currently expect software license revenues for the three months ended December 31, 2009 to be comparable to the prior year period and to see a modest increase in software license revenues for the full year.

Tyler's recurring revenues continue to grow at a double digit pace and for the first time subscription and maintenance revenues comprised just over 50% of our total revenues.

Maintenance revenue growth was 15.5% and comprised 44.1% of our total revenues for the third quarter.

Subscription revenues grew 29.3% over last year's third quarter reflecting revenues from new customers as well as existing customers that have converted to our ASP model.

During the quarter we signed two new ASP customers and converted nine existing customers who previously had our software installed in house.

Software services revenue grew 9.6% with increases driven in part by additions to our implementation staff as well as leverage from improved utilization of our personnel.

In addition, our revenue mix included more contracts with larger customers than the prior year period.

Contracts with large customers generally require more project management and consulting services.

Finally, appraisal services revenue decreased 11.3% in the third quarter as we substantially completed several large appraisal projects in mid 2009.

However, we began implementing several new revaluation contracts in the three months ended September 30, 2009 which will contribute to future revenues.

For the third quarter of 2009, our blended gross margin increased 110 basis points to 44.7%, compared to 43.6% in last year's third quarter, with gross margins for each revenue category except appraisal services increasing over last year.

Sequentially gross margins increased 40 basis points, from 44.3% in the second quarter of 2009.

This improvement from last year is primarily attributable to certain of our capitalized software products becoming fully amortized in the fourth quarter of 2008 and the second quarter of 2009, resulting in a decrease of quarterly software amortization of approximately $1 million, as well as increased leverage in incremental maintenance and subscription revenues.

SG&A expense as a percentage of revenue was 23.0%, compared to 23.3% in last year's third quarter.

The change in total SG&A expense from the third quarter of 2008 was primarily due to increases in stock option expense, commission costs, and marketing expenses.

SG&A expense as a percentage of revenue declined 70 basis points sequentially from the second quarter of this year.

Net research and development expense was $3 million for the third quarter 2009, compared to $1.4 million for the same period last year, representing a 110% increase over last year.

It was primarily driven by increased headcount and related costs associated with the Microsoft Dynamics development efforts.

Research and development expense for the third quarter of 2009 and 2008 was offset by $857,000 of cost reimbursement in each of those quarters recognized under the amended R&D agreement with Microsoft.

We currently expect that net R&D expense will be at or slightly above the current quarter level for the fourth quarter of 2009 and we expect reimbursements of approximately $850,000 each quarter through the end of 2010.

Operating income was our highest ever at $12.5 million, of 16.8% of revenues versus $11.9 million last year.

Net income for the quarter was $7.5 million, or $0.20 per diluted share, compared to net income of $7.8 million, or $0.20 per diluted share in the third quarter of 2008.

Free cash flow for the third quarter was $22.4 million, excluding real estate capital expenditures of $3.6 million, versus $26.6 million excluding real estate capital expenditures of $13 million for the same period in 2008.

Days sales outstanding at September 30th, 2009 was 104 days, versus 87 days at the end of September 2008.

Our maintenance billing cycle typically peaks at its highest levels in December and June of each year and is followed by significant cash receipts from collections in the subsequent quarters.

As a result, our days sales outstanding usually declines in the third quarter compared to the second quarter.

However, our total receivables and DSOs remained higher than June at September 30th due to several large milestone billings in the third quarter for which the revenue will be recognized in future periods as well as a change in our maintenance billing cycle for some customers which shifted some maintenance billings from the second quarter this year to the third quarter.

Cash receipts to date in October are running well ahead of the same period last year.

During the third quarter, we repurchased 519,948 shares of our stock at an average cost of $15.49 per share.

We now have about 35 million basic shares outstanding, down 1.4 million shares from a year ago.

At September 30, 2009 we have approximately 2.3 million shares remaining under our existing repurchase authorization.

During the quarter, we also completed the acquisition of substantially all of the assets of KPL, Inc., a provider of land and records software to customers located in the state of North Carolina, for $700,000 in cash.

Our backlog at September 30th was $231.5 million, compared to $245.3 million at September 30th, 2008, and $235.3 million at June 30, 2009.

Backlog related to our software business which excludes backlog from appraisal services contracts was $209.2 million, compared to $219.6 million as of September 30, 2008, and basically flat with $209.4 million at June 30, 2009.

Appraisal services backlog was $22.3 million at September 30, 2009, compared to $25.7 million at September 30, 2008, and $25.9 million as of June 30, 2009.

On the balance sheet we ended the third quarter of 2009 with $10 million in cash and investments, outstanding borrowings on our line of credit of $2.1 million, and availability on the line of $21.6 million.

Subject to quarter end, we have repaid our outstanding borrowings and currently have no debt.

During October we also amended our line of credit which now matures on October 18, 2010.

Now I would like to turn the call back to John for his comments.

Thanks, Brian.

Our results for the quarter demonstrate the strength of our business model as we posted new highs for revenues sustained by solid growth and consistency in our recurring revenues.

We continue to improve our gross margins and our operating margins, achieving a new high this quarter, while investing aggressively in our products and organization to continue to improve our competitive position.

We increased our investment in new and existing products including doubling our R&D spend compared to the last year's third quarter at a time when some competitors have been cutting staff and development activities.

We believe this continued investment in our current and future products demonstrates our long term commitment to our customers in their current title of products, as well as our commitment to bring new leading technologies to the marketplace.

We believe Tyler's strong results, dedicated employees, unique competitive position, and substantial recurring revenues provide significant opportunity for long term revenue growth and exceptional financial performance.

In fact this year our strengths were once again recognized by Forbes Magazine, naming Tyler to its list of America's 200 Best Small Companies for the third consecutive year.

Our market remains reasonably active with request for proposal activity at similar levels to last year.

Significant wins announced in the third quarter include for our ERP and School Solutions Division five agencies and cities in California, including Mojave Water Agency, Valley County Water District, North Coast County Water District, City of Escalon, and the City of Albany.

We also entered arrangements with Clermont County, Ohio and Woodland, California.

In Courts and Justice, Collin County, Texas signed a new arrangement for $2.5 million expanding its relationship with Tyler.

In addition, as part of Tyler's broad range of software solutions, we completed the successful implementation of our transportation management solution to the Denver Public Schools enabling the school system to simplify bus scheduling, routing, and planning to reduce its overall bus fleet operating costs.

Also, to further strengthen our transportation management solutions, Tyler has completed the integration of this solution with our financial general ledger and budget applications and successfully implemented the solution for the Ft.

Worth, Texas Independent School District.

Although we continue to win new business and our new sales pipelines are generally healthy at a similar level to last year, we have continued to see longer sales cycles and delayed decisions in some situations.

However, our pipeline of opportunities is at a historically high level and we have seen a general increase in market activity since Labor Day.

We expect that a number of these opportunities will result in wins for Tyler in the next few months.

Considering our performance for the first nine months of the year, combined with our outlook for new business based on market activity and a review of our pipelines, we have again revised slightly upward our earnings guidance for 2009.

We currently expect 2009 revenues to be in the range of $290 million to $293 million.

We forecast 2009 diluted earnings per share to be approximately $0.70 to $0.74.

Fully diluted shares for the year are expected to be approximately 36.5 million to 37 million.

For the year, estimated pre-tax expense related to stock options in the employee stock purchase plan is expected to be $5.1 million, or approximately $0.11 per diluted share after taxes.

We estimate an effective tax rate for 2009 of approximately 39.6%.

We expect free cash flow for the year to be within a range of $25 million to $30 million with total CapEx of approximately $14 million to $15 million for the year, and total depreciation and amortization of approximately $9.5 million.

Excluding capital expenditures for real estate of approximately $11 million, we expect free cash flow to be between $36 million and $41 million.

Now Cynthia, we will take questions.

Thank you, Mr.

Marr.

(Operator Instructions).

Kirk Materne, Rafferty Capital Markets.

Thanks very much.

I guess maybe my first question is for Brian.

I guess in your guidance when I sort of run it through my numbers, it appears that sort of based on the midpoints, the fourth quarter guidance looks like sort of the margin outlook is perhaps a little bit lower than the third quarter.

Are there any sort of one-time charges in there?

I don't know if your conference, things like that, sort of push margins down a little bit in the fourth quarter relative to the third quarter that I should be thinking about?

There's not anything particularly unusual in the fourth quarter.

Again, we do have the user conference, there's some costs associated with that.

But that's not a particularly material event.

It's more that the range just reflects the range that we could be within on the license side that causes that range to be a little broader.

I got it, so it's more of a mix among the revenue components?

That's correct, how the revenue mix falls out has the biggest impact on where that margin comes up.

And John, just in terms of some of the longer deal cycles that you guys are seeing, I guess is there much you all can do really around that?

Or have you tried doing anything different in terms of some of the sales cycles to get people closer to the finish line in terms of doing more staged deals or breaking deals up into various components?

I'm just trying to get a sense on have you seen that get any better?

I guess since Labor Day you made some mention that the environment has improved somewhat.

But is there much you can do or is that just something that the macro environment is going to be really dictating it?

Well, I think the macro environment and then the processes really on the other side.

These are essential projects.

Most of them end up being supported by the local governments as essential, but they're challenged more as compared to other projects the city or county school may be evaluating.

And again, ultimately these projects seem to get supported.

But there's just a few additional steps that they ordinarily may not go through.

We certainly do review what we can do to move things along.

We're flexible in our arrangements.

We don't want to obviously revert to being too generous on terms or conditions or costs to push them through.

So we will be patient when we have to choose between those two alternatives.

But we are flexible on a number of different fronts and all the VPs of sales that manage the channels are familiar with what those options are and they come to us when they need some flexibility.

And my last question would just be around your ASP offering.

I guess as you look out into the fourth quarter and into 2010, can you talk a little bit about just how you see that evolving?

Have you seen any real inflection in demand from customers around that offering?

Or do you think it's good to sort of be more steady as she goes sort of growth for that?

There's definitely been more interest.

More of the new clients that ordinarily look at it at a very high level and just stick with the traditional model, more of those have asked more questions and asked for better developed alternative proposal.

But interestingly, the adoption rate hasn't been much different.

So the interest is up but the actual adoption in terms of the new business market hasn't been much different.

So whether that's an indication that the mix is about to change a little bit, we'll see.

But that's kind of a view of the new business markets.

The installed customer base I think there has been an uptick.

We had nine what we call flips, traditionally deployed sites flip to the ASP model in the quarter.

And that's a pretty robust rate.

It that were to continue, we'd be pretty pleased about that.

Okay, great.

Thanks very much.

Corey Tobin, William Blair & Co.

Hi, congratulations on a nice quarter.

A couple of quick ones if I could.

John, in your comments, both in the call here today and in the press release as well relating to activity pickup since Labor Day, can you give us a little bit of color as to exactly what you're referring to there?

And if possible maybe somewhat quantify the uptick of activity?

Yes, I mean I think -- I appreciate you guys on the outside, it's just all of a sudden a deal kind of happens.

And obviously for us, that's a long process.

And we don't submit a proposal and then six months later learn if we win the business.

There's obviously a very defined process and a lot of steps in between.

And I think in the summer months and through the middle of the year, it's probably a combination of summer and vacations and the economic environment and additional steps in the process, additional challenges from the budget groups in terms of improving these.

The deals were moving very slowly.

So again, they're long processes, but we're evaluating them as they go and what kind of time and steps are there between RFP submission and when we actually learn if we're going to do a demonstration and if we did that, did we make the short list, and do they go on a site visit and when do they actually pick the preferred vendor and start exchanging contract language.

Those are all very detailed steps along the way.

So when I say it's picked up, sites that had stalled, say between an RFP and site visits, all of a sudden we're going on site visits and getting back to us and asking for revisions and so forth.

And exchanging contract language if we've been selected.

So we can't get real specific about those names obviously until we know, but I don't want to keep you entirely in the dark.

So what we're telling you is we've been selected as the preferred vendor in a number of those processes, we're working on certainly a reasonable number of contracts, and we've got reasonable reason to believe that we're going to sign more business in the coming months than we have in the last six months.

So there's definitely a little bit of a change in the pace that those are accelerating through the process.

Just in terms of volume, I expect whether it all happens by, this uptick, by the end of the year, hard to say, but I certainly think the next three or four months will be a fair amount healthier in terms of bookings than the last four to six months.

Great, just to hit this from one more side, when you say you saw this uptick since Labor Day, is that normal?

I would assume given a summer slowdown that's sort of a normal phenomenon in the business.

One, is that correct?

And two, is the uptick that you're seeing this year maybe more than what you saw in previous years?

Both of those observations are probably accurate.

Normally you would certainly see people get a little more serious when they get back to work in the fall.

But I think the difference in the rate things were moving and the rate they're moving now is more pronounced than in previous years.

Great.

One other topic if I could.

Coming to the revenue mix between recurring and nonrecurring revenue, given the comments that you might see increasing licensing here over the next three to six months or so, should we expect to see that recurring piece of revenue drop back below 50%?

Or do you believe given the pipeline and the visibility in the mainstream and the other recurring revenue segments, that there's enough growth coming from there to sort of maintain this 50% level and even move higher over the next year?

I would think it would stay in the 50% range and slowly move modestly higher.

If you can do the math, we'd need a pretty significant increase in license revenues to reverse that.

And the recurring revenues are growing what 15% on maintenance and 29% on subscription, so a blended rate maintenance obviously being significant higher at what 16%, 17%.

And new license revenues look to be relatively flat, maybe modestly higher this year.

So I think they'll recover to a higher level as we go forward, but probably not enough to move it back below 50%.

It would be okay with us if it went below 50% for that reason though.

Understood.

Thanks again.

Brian Kinstlinger; Sidoti & Co

Hi, thanks.

I'm curious if the slower software license which we've seen three now quarters probably if I include December of flat to down comps.

How do we read into that as we look to next year?

Does that mean that services and maintenance growth starts to slow as well afterwards?

That's certainly an operational issue we have to manage aggressively.

If we don't get some of these bookings I'm talking about, then it would begin to put pressure on service revenues.

Currently around the company we have a few areas that are off a few heads, a few other areas that are up a few heads and relatively flat.

And you're right, the levels over the last couple of quarters eventually did start to burn through their business.

But we do forecast right now with what we expect for business that that won't happen.

And I don't want to take up a question here, but the last questioner, did he ask when you expected the trend of software license to reverse?

Did you answer that question, when you expect to start to see positive comparisons?

Well it is was kind of asked is it going to increase, not when but is it going to increase to a level that will move recurring back below 50%.

And I said I probably thought that wouldn't happen.

Brian, I think that we expect -- what I've been saying is that we expect the awards and the contracts and the bookings to pick up somewhat here in the next several months.

But the actual recognition of licenses is a little bit of a trailing indicator and I think that will slowly pick up as we go into next year.

The first thing you'll see obviously will be the bookings pick up.

Okay, and last --

At this point, Brian, we do expect to see license growth year over year increase in licenses in the fourth quarter.

Last year's fourth quarter licenses were at a lower level than third quarter.

I thought you said in line with last year on the guidance?

I think what I meant in the guidance was that we expect that in the fourth quarter licenses from financials would be similar to last year, licenses overall in total would be above last year 's level in the fourth quarter.

And so for the full year we're -- our expectation is for a modest growth in licenses.

Got it.

And the last question I had is related to the cash flow, Brian.

You mentioned something I didn't fully understand.

Can you go over the whole milestone thing you were talking about?

Because this isn't normally one of your stronger cash flow quarters.

So take me through an example of what you're talking about and how that impacts the cash flows.

Well we had some contracts, particularly some of the earlier Odyssey contracts, may have terms in them that would cause us to defer revenue recognition until later in the project.

So we've had some revenue recognition that the cash was received in a previous period.

So last year we had more of those milestone based recognitions, so we had some cash received during the quarter last year that didn't have revenue with it and we don't have those this year as much.

So that really kind of pushed last year's cash flow above what you'd see in a normal situation.

And then I mentioned that we've had some shift in maintenance billings which is a timing issue, but some things that would have fallen into the second -- billed in the second quarter of last year and then collected it in the third quarter, shifted into a third quarter billing and so that shifted some of that cash collection back a little bit.

So what would normally -- some of the cash that we would normally collect into the third quarter is being pushed into the fourth quarter this year.

And when will this collect itself do you think?

Over time it won't?

You'll continue to have a little bit higher DSL?

No, I'd expect that we would, that it would correct itself and by the fourth quarter we would expect to be back closer to kind of a more normal year over year comparison.

Okay, thank you.

Raghavan Sarathy, Dougherty & Co

Good morning, thanks for taking my question.

This is for John.

The economy seems to be on the mend and I would imagine (inaudible).

Given this backdrop, how should we think about the (inaudible)?

I'm afraid I haven't been able to hear the question well enough to answer it.

Rag, your phone seems to be cutting out.

We were just getting about every other word.

All right, so I guess my question is about sort of the economy and how we should think about new software sales.

So it seems likes the economy is under recovery, so I'm wondering should we expect software sales to sort of rebound coincidentally or is it going to lag?

I think it will lag somewhat.

As Brian indicated, we think the fourth quarter will be better than, should be better year over year and modestly better than this quarter.

And we would hope that it would build slowly as we go into next year.

But I don't expect a big, significant turnaround in the next couple of quarters.

I would hope that what we would see would be some bookings, we'd see the backlog growing a little bit, and we would gradually start seeing higher license revenues.

Okay, and then just a couple of questions for Brian.

Brian, how should we -- the software backlog has been relatively flat through first three quarters, so how should we think about that number as we finish the year?

Again, in line with what John just said, we'd expect again the timing, based on the pipeline at this point we'd expect software backlog to grow.

But the timing at least over the next few quarters, the timing in one quarter specifically is still a little hard to nail down.

And certainly the backlog would grow before the -- ahead of the revenues being recognized.

So we'd expect to see backlog growth a little bit ahead of the pickup in the license growth.

And then just one final question -- you said about 2% of the growth came through acquisition.

Is it all on the maintenance line?

The maintenance is a little heavier, so I think the growth from acquisitions in the maintenance was about 2.4%.

But the -- yes, so growth in maintenance that came from acquisitions was about 2.4%.

And subscriptions was about 2.4%.

About 1.5% from services and licenses.

Okay, thank you.

David Yuschak, SMH Capital.

Great quarter, guys.

As far as your R&D spending, how should we think of that longer term as you get closer to bringing to market your Microsoft initiative?

And will we see more support coming out of there for internal initiatives of more to support other things you might what to do with Microsoft?

Help just give us a thought as to how you may be thinking about that on a longer term basis.

The way the project is currently organized, as you know historically David, it's evolved a little bit, there was no set number in terms of headcount.

As we staffed up, the scope of the project itself was obviously being kind of defined in terms of what we actually had to develop as we went.

So we were running a little bit blind early on in the project and then the idea of reimbursement came online and additional things we were doing.

At this point we think the scope is well defined.

We think the headcount is largely fixed and we know the reimbursement now is fixed for awhile.

So through the end of next year, if nothing else changes, we think those numbers are basically what they are.

In terms of other R&D spend, there is some going on.

As you know we invest very heavily in our existing products.

We have an evergreen strategy where we're always refreshing the technology and the functionality.

But because it is development related to an existing product that's widely sold and implemented, we charge most of that to the custom maintenance, so it doesn't appear in the R&D line.

However, there is some new product development that will find it's way down there.

Okay, so what we should think about R&D more is new initiatives rather than -- and anything that's supporting an existing product should be in your maintenance support?

That's correct.

Okay, that helps a lot.

And then as far as you indicated in your press release about your increased, or your implementation capacity, has that been something that's been relatively new so much you may have expanded it?

Can you help us out on that?

Because it does sound like maybe that has been increased in anticipation of some of these new awards coming.

No, that depends where you're looking at in the Company.

The increased capacity has largely been in Courts and Justice where we're seeing higher growth levels.

And as you know, we had a pretty significant backlog there to the point you wanted it to come down.

You want to deliver on that business.

So that's where most of the headcount expansion has taken place.

The rest of the Company combined would be relatively flat in terms of headcount.

There's a few places where it's off a little and a few places where it's up, and as somebody already asked, eventually that wouldn't sustain itself.

But we do expect that the timing of the business we see on the horizon will support the distribution group we have now.

And that increase in capacity is really over a fairly -- we're talking about over a fairly long period of time, over the last several quarters.

Just in the most recent couple of quarters, the implementation staff has really been pretty stable.

We're really fairly fully staffed.

But part of that really has to do with that increase in capacity or the hiring that we did several quarters ago.

Those people, as they've been here longer, are more productive and utilization is higher.

So with the same headcount from the capacity that we increased over the last few quarters, we're getting more revenue generation out of those same people.

So you're thinking at this point in time any new business that comes on, particularly if you get a better government environment, that there won't be need to do a lot more headcount increase?

That's right.

Okay, thanks

(Operator Instructions) Torin Eastburn, CJS Securities

How will the holidays affect the timing of signing deals?

We basically pretty much consider the end of the year December 15th.

Not because we're not willing to work through the holidays, but on their side it would be difficult.

They've got outside counsel working on these things.

So if it's not done by the middle of December, it probably won't get done.

And that's why I said, I don't know exactly how much of this will be bookings by the end of the year, but there's certainly a fair amount going on that we would hope to sign before then.

Obviously our call, actually our release and call at the end of the year is a little later.

And if there are significant contracts that happen to slip into the year, we'll be able to tell you that even though they won't be in the numbers.

All right.

And then you mentioned in your press release and on the call that you're continuing to invest in your Company while some of your competitors are cutting back.

What's the difference between you and them, I guess either practically or philosophically that explains that?

Well for one thing I think we have performed probably better.

Some of these companies, and you follow some of them, haven't had good results with that.

And so we've been able to increase our R&D spend as well as we just discussed with David, the money we're spending that gets charged to services as recurring maintenance is up 15% and we've had steady licenses and so we've been able to do that and still get margins and earnings growth in the year.

So we're fortunate in having the ability to do that.

Others have had to have headcount reductions and reorganizations to maintain reasonable levels of earnings and cash flow.

So I think one thing is we are, as we've said, the only somewhat meaningful sized company that's exclusively focused no local government.

And sometimes people consider that a risk if you only have one spot, but in this market, local government has generally held up better than those that are exposed to the commercial markets.

So our business combination of the recurring revenue and the large customer base and the stability of those revenues as well as being in a vertical where we've been able to generate the same licenses this year and maybe marginally higher as last year, allowed us to have reasonable financial performance with an increased investment.

And you asked philosophically, yes, that's a choice.

I mean could we have delivered higher earnings this year and higher cash flow and been less ambitions?

We could have.

But we've said we think this is unique opportunity when others are maybe having to pull back a little bit to support our strategic initiatives and to make a move competitively as well as financially during this environment.

That was a good answer.

Thank you.

At this time there appear to be no more questions.

Mr.

Marr, I will turn the call back over to you for closing remarks.

Okay, well thank you, and thank all of you for joining us on the call today and your continued interest in Tyler.

Should you have any further questions, feel free to contact Brian or myself.

Have a great day.

Ladies and gentlemen, this will conclude today's conference call.

We thank you for your participation.