泰勒科技 (TYL) 2012 Q1 法說會逐字稿

Hello and welcome to today's Tyler Technologies' First Quarter 2012 Conference Call. Your host for today's call is John Marr, President and CEO of Tyler Technologies. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded today, April 26th, 2012.

I would like to turn the call over to Mr. John Marr. Please go ahead.

Thank you, Amy, and welcome to our First Quarter 2012 Earnings Call. With me on the call today is Brian Miller, our Chief Financial Officer.

First, I'd like for Brian to give the Safe Harbor statement. Then I'll have some preliminary comments, and Brian will review the details of our operating results. Then I'll have some final comments and we'll take your questions. Brian?

Thanks, 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 refer you to our Form 10-K and other SEC filings for more information on those risks.

John?

Our first quarter financial performance builds on a solid performance of 2011 as the marketplace began to show signs of modest improvement. Total revenues for the quarter were $82.7 million or an increase of 13% of which 8% was organic and 5% was due to the acquisitions made in the fourth quarter of last year and the first quarter of 2012.

We continued to see strong growth in our recurring revenues from subscriptions and maintenance, which together grew over 17%. In addition, although we continued to see a gradual shift toward our SaaS model, our software license revenue grew by over 9% over the first quarter of 2011, representing the second consecutive quarter of year-over-year licensed revenue growth.

Gross margin for the first quarter rose 80 basis points to 45.2% for the first quarter compared to 2012 of 44.4%. However, our gross margin improvement was mostly offset by increases in SG&A costs related to facilities, increases in headcount for sales, and certain internal support functions to support growth as well as increased stock compensation expense. Increases in research and development expense also offset our gross margin improvement. This increase is primarily because there was no expense reimbursement offset from Microsoft during the first quarter.

We had another strong quarter for bookings. Significant contracts for the first quarter included a multi-suite school agreement with the Socorro Independent School District in El Paso, Texas, to provide our Munis ERP, Tyler Student Information System, Tyler Pulse and Tyler Content Management solutions. Socorro is one of the fastest-growing school districts in Texas with more than 42,000 students and 7,000 staff.

We signed a contract for our Munis ERP solution with the city of Des Moines, Iowa's largest city and the capital of the state. With our Odyssey courts and justice solution, we signed a contract with Peoria County, Illinois for an integrated justice system including case management and jail management. Peoria is our first Odyssey client in Illinois.

We also announced an agreement for our Tyler SIS Special Education, Tyler Pulse Solution with Kansas City, Missouri school district.

Among our SaaS agreements announced in the quarter were a ten-year contract with the town and school district of Ledyard, Connecticut to provide our Munis ERP solution and a seven-year contract with Missouri City, Texas, to provide our Munis ERP and Incode municipal court solutions.

We also announced agreements for our appraisal services with Fairfield County, Ohio, and the town of Farmington, Connecticut.

During the first quarter, we announced the acquisition of Akanda Innovation Inc. of Toronto, Canada. Akanda has been a partner of our appraisal and tax group since 1997. They develop complementary modules to Tyler's iasWorld appraisal and tax software. The Akanda team will continue to provide expertise from a variety of technical disciplines including GIS, browser-based and workflow technologies. Because virtually all of Akanda's revenue already passed through Tyler as a third-party software provider, the acquisition will not have a material effect on revenues.

Also during the first quarter we acquired UniFund LLC, which provides ERP solutions to schools and local governments. UniFund, located in Nashua, New Hampshire, is a retailer of Tyler's Infinite Visions school enterprise solution. UniFund's more than 250 clients located throughout the northeast are now Tyler customers and its approximately 30 employees joined Tyler as well. UniFund had total revenues of approximately $5.5 million in 2011.

Subsequent to the end of the first quarter, we announced the acquisition of Computer Software Associates, CSA, effective April 2nd. CSA, founded in 1982, is based in Billings, Montana, is a reseller of Tyler's Infinite Visions school enterprise solution in the northwest. In addition, CSA builds and maintains a robust line of proprietary software for county governments. This software includes solutions for land and vital records indexing for county recorders and tax solutions for county treasurers. Both products are highly competitive and complement Tyler's existing application suites while further increasing Tyler's market share nationwide and in the county recorder and tax business. CSA had approximately $8.2 million in total revenues during 2011 and has more than 200 installations in 10 states. The CSA transaction complements two other recent Tyler acquisitions, Windsor Management Group and UniFund. Of the $13.7 million combined revenues in 2011 for UniFund and CSA, approximately $2.4 million is already passed through to Windsor.

Now I'd like for Brian to provide some more detail on the operating results.

Thanks, John. Yesterday afternoon, Tyler Technologies reported its results for the first quarter ended March 31st. You've seen the press release and our 10-Q has also been filed. So I'm going to comment on some of the key factors in the quarter and then move on to John's comments on the current quarter and update our outlook for the remainder of 2012.

Revenues for the first quarter were $82.7 million, a new quarterly high and up 12.7% compared to $73.4 million for the first quarter of 2011. Organic revenue growth was 8.3% this quarter, led by increases in our recurring revenues for maintenance and subscriptions as well as growth in our software license revenue for the second consecutive quarter.

Our acquisitions of Windsor Management Group in the fourth quarter of 2011 and UniFund in early March accounted for revenues of $3.3 million in the first quarter or 4.4 percentage points of growth.

Software license revenues grew 9.1% from last year's first quarter of which organic growth accounted for 4.1% of the increase.

Subscriptions continue to be our fastest-growing revenue line and grew 43.1%. Organic growth was 38.2% in the quarter and the impact of acquisitions was 4.9%.

In the first quarter, we added 11 new subscription-based arrangements and converted 17 existing installed clients compared to a total 13 new subscription arrangements and 1 conversion in the first quarter of 2011.

During the first quarter, approximately 19% of our new software customers choose a SaaS arrangement while 81% bought our software with a deployed solution and perpetual license.

The subscriptions line also includes a growing revenue stream from transaction-based revenues such as e-filing in the courts and online payments. In the first quarter of 2012, these revenues totaled $2.2 million, up from $1.4 million in the first quarter of last year.

Software services revenues increased 10.5%, of which 6.8% was organic and 3.7% resulted from acquisitions. Organic growth was primarily driven by higher software license revenue arrangements and services associated with recent large court system contracts.

Maintenance revenue growth was 12.2%, of which 6.7% was from organic growth due to a combination of new revenues associated with licensed sales in the past year and annual rate increases for existing clients. Our maintenance revenue growth rate continues to be reduced somewhat by the offset -- by the effect of existing installed clients converting to our hosted offerings, which results in a loss of maintenance revenue offset by a larger increase in subscription revenue. The acquisitions of Windsor and UniFund contributed 5.5% of the maintenance growth in the first quarter.

Together recurring revenues from subscriptions and maintenance comprised approximately 60% of our total revenues for the first quarter and grew 17.3% year over year.

Appraisal services revenue decreased 8.3% in the first quarter primarily due to the completion of a major reevaluation project in Allegheny County, Pennsylvania. We are in the startup stages of several smaller new projects including several in Ohio.

Other revenue for the first quarter includes $121,000 of royalties on sales of Microsoft Dynamics AX 2012 by other Microsoft partners. These royalties were paid in the quarter for sales in the fourth quarter of 2011.

For the first quarter of 2011, our blended gross margin was 45.2% compared to 44.4% from the year-ago quarter. Gross margin for our software licenses increased 290 basis points with a higher level of licensed revenues and a mix with less third-party software. The blended software services maintenance and subscriptions margin increased 110 basis points reflecting the leverage and the incremental recurring revenues.

Also the hardware and other margin increased 210 basis points from the year-ago quarter. These were offset by a decrease in our appraisal services margin from 38.3% last year to 33.2% this year, reflecting the lower level of appraisal services revenue combined with a shift towards projects that have generally at normal margins compared to the higher margins we achieved on certain larger projects in the last two years.

SG&A expense was 25.8% of total revenue compared to 23.6% in last year's first quarter. The increase in SG&A expense is attributable to a variety of factors, some of which are non-recurring.

First quarter 2012 SG&A reflects increased headcounts in sales and some internal support functions as well as costs associated with new office facilities. One-time costs included increased payroll taxes associated with higher incentive compensation payments in the quarter and expenses associated with acquisitions. We also recorded higher stock compensation expense, which reflects the increase in our stock price and higher commissions related to the increase in sales over last year. In addition, the newly-acquired companies added approximately $620,000 of SG&A expense for the quarter.

Non-cash stock compensation expense was $1.8 million in the first quarter of 2012 compared to $1.4 million in the first quarter of 2011. $248,000 was included in cost of revenues and $1.6 million was included in SG&A expense for the current quarter.

Net research and development expense increased 12% to $5.1 million for the first quarter of 2012 compared to $4.5 million for the same period last year. We did not have any R&D expense reimbursement recognized under our agreement with Microsoft in the first quarter of 2012, while R&D expense was offset by $415,000 in the first quarter of 2011. We currently expect additional R&D reimbursement offsets of approximately $1 million in 2012. However, the timing of the reimbursement is subject to change, we currently expect it to all be recorded in the third quarter of 2012.

Operating income for the first quarter was $10 million and was flat with the first quarter of 2011. Net income for the quarter was $5.7 million or $0.17 per diluted share compared to net income of $5.7 million or $0.17 per diluted share in the first quarter of 2011. The fully diluted share count declined in the first quarter by approximately 1.2 million shares compared to last year's first quarter, primarily as the result of our stock repurchases in 2011.

Our effective tax rate for the first quarter was 39.2%.

We did not repurchase any shares during the first quarter. As of March 31st, 2012, we had approximately 30 million common stock shares outstanding and authorizations to repurchase up to a total of 1.7 million additional shares.

Free cash flow for the first quarter was $17.0 million compared to $9.7 million for the same period in 2011. Excluding real estate CapEx, our free cash flow was $17.1 million versus $16.3 million for the year-ago quarter.

Receivables continued to perform well. Days sales outstanding and accounts receivable was 64 days at March 31st, 2012, an improvement of 17 days compared to 81 days at March 31st, 2011. We collected a significant receivable which has been outstanding for an extended period of time in connection with the wind down of the large contract.

Our backlog at March 31st, 2012, was $332.1 million, up 26.7% compared to $262.1 million at March 31st, 2011. Backlog related to our software business, which excludes backlog from appraisal services contracts, was $307.8 million in the current quarter, a 32% increase compared to $233.2 million a year ago. Appraisal services backlog was $24.3 million at March 31st, 2012, compared to $29.0 million at March 31st, 2011. Backlog at March 31st, 2012, included approximately $98.5 million of maintenance, compared to about $81.6 million a year ago.

Our first quarter bookings, which are calculated from the change in backlog plus revenues, were up almost 39% over the first quarter of 2011. Excluding acquired backlog, bookings were up approximately 35%. For the 12 months ended March 31st, bookings were up approximately 16% over the prior 12-month period. Excluding the effect of acquisitions, bookings rose approximately 14% in the last 12 months.

During the first quarter of 2012, we signed 12 new contracts that included software licenses greater than $100,000. Those contracts had an average license of $503,000. In the first quarter of 2011, we signed 15 contracts with software licenses greater than $100,000 and those contracts had an average license of $232,000.

With more of our backlog comprised of multiyear subscription agreements as well as certain software contracts that will be multiyear implementations, the timing of the recognition of backlog has lengthened.

On the balance sheet, we ended the first quarter of 2012 with $11.9 million in cash and investments and $56 million in outstanding borrowings under our $150 million revolving credit facility. At March 31st, we had $88.1 million of availability under the agreement.

The average interest rate on our borrowings in the quarter was 3.3%.

During the first quarter, we completed the acquisitions of Akanda and UniFund for a total of $5.8 million in cash. The purchase price of Akanda, excluding liabilities assumed, was $2.1 million, of which $900,000 was paid in prior periods and the net cash purchase price of UniFund was $4.6 million. We do not expect these acquisitions to have a material impact on earnings for 2012.

Also, subsequent to the end of the first quarter, we completed the acquisition of CSA for a cash purchase price of $9.8 million.

Our total headcount grew by 21 to 2,112 employees at the end of the quarter compared to 2,091 at the end of the fourth quarter. The quarter end headcount includes 44 people added with the 2 acquisitions.

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

Thank you, Brian. Our results for the quarter reflect the continued gradual improvement in the marketplace and the stability and steady growth of our recurring revenues, which were approximately 60% of total revenues as well as our ability to continue to improve our gross margins and to make what we believe are well-timed investments in our existing and future products.

We continued to see modest improvement in the marketplace. Certainly it is not all the way back to pre-current environment levels. But governments are addressing essential needs that have been deferred over the past few years. You can see in our numbers that bookings and backlogs have grown ahead of actual revenues recognized. We see these along with RFP activity as leading indicators that we are returning to a modestly higher level of growth.

During the past few years, with lower than normal growth for Tyler, we have exercised aggressive expense management. In the first quarter, you can see that we have made some important investments in sales, professional services, facilities and general support. It's important we do this to realize the opportunity in the marketplace as well as to insure we can deliver on the higher levels of business in a high-quality fashion. This said, we continue to be convinced that there remains a strong opportunity for margin expansion as revenues grow, although it may be lumpy at times.

With the new business market slowly improving, the story is positive with respect to our recurring revenues. We continued to add clients in our SaaS and hosted offerings, including those that are new to Tyler and existing clients who convert to a hosted solution from an in-house Tyler system. As our industry transitions from a license on-premise model to a hosted SaaS model, it is critical that Tyler has a credible offering to make that conversion. I'm pleased that we are successfully making that conversion. Tyler now has 325 SaaS customers. Our subscription-based business has grown more than 30% each of the past 2 years and we expect it to grow as much as 40% this year on what is becoming a more meaningful base.

We are also continuing to build revenues from our transaction-based revenue models, including our e-filing solution, our Odyssey file and serve solutions for courts. We're providing a solution to clients in many cases under a model in which we share in the filing fees collected by the courts. This model enables courts to implement e-filing and realize the efficiencies of eliminating paper from the system with a little upfront cost while funding the solution out of fees generated from the filings. We have approximately 1.2 million in quarterly e-filing revenues and have a very active sales effort for e-filing with both new and existing courts.

Both Tyler and Microsoft partners are now actively selling Microsoft Dynamics AX and are starting to build direct pipeline. We have very little visibility into the pipeline for Microsoft partner channel and most -- in most of the early opportunities that Tyler is pursuing with Dynamics solutions have not yet reached the point of selection.

In Q1 we received royalties of about $121,000 related to the sales of Dynamics by other Microsoft partners. These sales were made in the fourth quarter of last year. There were around 12 sales to the public sector in 6 different countries. These customers will also contribute approximately $180,000 in annual royalties on support agreements. These revenues are for the first full quarter the product was available, not really enough time for a normal sales process.

Given our limited short-term visibility, our current expectation for 2012 is still that we will have sufficient revenues to offset the reduction in R&D reimbursement compared to 2011 and it's a net expense related to Dynamics for us will be similar to 2011. We do not expect that Dynamics will generate meaningful revenues before 2013.

Our 2012 annual guidance is generally consistent with our initial guidance for the year provided in February. We revised upward our revenue guidance to reflect the UniFund and CSA acquisitions and have slightly increased both the lower and upper end of our earnings guidance. Our current guidance is as follows. We currently expect 2012 revenues to be in the range of $360 million to $366 million. We forecast 2012 diluted earnings per share to be approximately $0.95 to $1.02. We expect that approximately 60% of our earnings will come in the second half of this year. Fully diluted shares for the year are expected to be approximately 32.5 million to 33 million.

Every year our estimated pretax expense related to stock options and employee stock purchase plan is expected to be $7.4 million or approximately $0.18 per diluted share after taxes. We estimate an effective tax rate for 2012 of approximately 39.2%. We expect our total capital expenditures will be approximately $15 million to $16 million for the year. Total depreciation and amortization will be between $13.2 million and $13.7 million.

Our board of directors has approved our plans to build a new office facility for our courts and justice division and corporate staff on the land we purchased in Plano last year. We expect that the cost of the construction will be $16.7 million, of which approximately $9 million will be spent in 2012.

Now we'll take your questions.

(Operator Instructions) Nate Schneiderman at Roth Capital.

Hey, John, just to clarify, the modest improvement in the market that you're seeing, have you seen any sort of step function up from the levels you were seeing in Q4? If so, what specifically would you point to there that you're seeing?

No, not really. I would characterize the market as having remained in a much lower activity range through the middle of last year. As we started to see and report, the second half of last year our bookings and experience were improving. I would just say that that's continued. That did continue through the first quarter and we're still experiencing that in the second quarter. So I would not want to characterize it as some significant step up, but there certainly is some improvement and I think it's mostly attributable to these deferred projects that really do need to be addressed at this point.

Then just a follow-up question then. Kind of a clarification on the Microsoft situation. So $120 million of royalties and you're expecting $100 -- I'm sorry, $120,000 of royalties, $180,000 of support. So that's $300,000 or so, $300,000 on 12 deals? It just -- I was under the impression that these Microsoft partner deals were larger than deals that you were typically seeing. So can you explain what's going on there? Then Brian, just related to the Microsoft, can you explain how the rev rec is going to work in general when a Microsoft partner sells it? Will you tend to recognize all that revenue one quarter later period of time then when the partner books the deal? Thanks so much.

Yes, it's a good observation. Obviously the maintenance we report is not -- that revenue is not included in the quarter. But we'll be very conscious as we have been with our own business that while there's a new business market in licensing associated with that, we'll be anxious to build our recovering revenue underneath that and look forward to where that supports our investment in the product and the licenses can be incremental and much higher margin. So the fundamentals of building that business are very similar to our own proprietary business.

Obviously, we're just getting our royalty of that so that the sales to the customer were much higher. The reseller or channel partner kept their share of that and then we share in the royalty that Microsoft gets after that. But we do have an arrangement with Microsoft where both Tyler customers as well as their proprietary customers of all of their Dynamics products have a low-cost transition if they choose to from their existing Microsoft or Tyler solution to AX. I think that's important and it will help us build that support base etc. So a number of these were transitional clients or licenses were artificially low but again they'll have -- they'll help us build more in the way of the recurring support maintenance.

Nate, on the revenue recognition, at this point, we'll generally recognize all of our royalty upfront. We earn it without a further obligation in a quarter following the quarter in which the sale is made. We get that reporting typically 30 days after the end of the quarter, so after we've already reported our earnings. At this point, we don't have a basis to estimate that. So, we'll record that in the quarter following the quarter that the sales were actually made in.

So what was reported in this quarter was for the fourth quarter of 2011. The product was released in August. So it's very early. You know the normal sales cycle wouldn't allow a normal process to be executed and the decision to be made. So obviously these were people that were waiting for the product and purchased it almost on its release. I think in another couple of quarters, what we'll see is more of the normal sales process resulting in those sales. So we're -- I'd be looking for what happens a year after it was released. So what happens in the third quarter will be reported in our earnings in the fourth quarter of this year. That's when we'll start to see numbers that have been through the normal sales process.

Brian Kinstlinger at Sidoti.

Maybe can you give us, John, an update. We talked at the user conference/investor piece about a handful of states that are looking at court RFPs. We obviously talked about California as well and the counties there. So, maybe give us a sense of the different stages of which -- in the procurement process of where they are and then what you need to hire given the robust pipeline and could that temporarily lead to lower EPS?

Are you talking specifically about courts?

Specifically about courts, thanks.

Okay, what's Brian referring to is -- I think the market in general is behaving normally and what we've expected. It's healthy. We know the states and the counties that are in the process or about to and I don't think there's any surprises there. The significant change in the court marketplace recently was that the state of California that had a build going on with really IT services partners, very significant partnership, $1.9 billion project actually. That they effectively pulled the plug on that project. So the 83 counties in California, they really have been on hold for some time. A lot -- there probably have been very few purchases or transitions in the last ten years in California. Many of those counties are using systems that are 15 or 20 years old. They now all have to come up with their own independent strategies and no longer can just sit on the sidelines and wait for the state system to come out. So obviously California is a very, very significant sized state. As I said, there's 83 different counties of all different sizes. So, all of a sudden there certainly is a new market opportunity that wasn't there previously.

We would hire if the kind of people that could be helpful to us were available. But it's a highly specialized skill to really know the courts, have the relationships and they're not just strict sales people. These are people that need to be a resource to the courts in making their plans. So probably there may be a couple of new bodies, if we're able to find people that can be effective. But for the most part, we're going to have to lean on the people we have because building those skills is -- would only be a distraction really at this point. We'll use the people we have for the most part.

Just to follow up on that question, just the various stages may be of the five states that are in procurement and then are you going to hire more developers, not necessarily the sales people but how soon ahead of these RFPs do you have to start hiring on the development side given your win rate has been 80% on the state level?

I don't know that I want to comment on the individual processes. As I indicated there are a number of states that are in the process. We don't expect back-to-back quarters with deals like Oregon and Maryland as we did last year. But there certainly remain a number of significant opportunities out there and we do expect that division to have -- continue to have higher growth than Tyler experiences Tyler wide. There will be marginal growth in both sales and development but I think we've been staffed there for a higher level of business and that there will be leverage between the relationship between development, growth and cost and sales growth and cost and our ability to grow the division as whole. So we would expect that those would have some leverage and support margin expansion over time.

Where we will see the biggest headcount growth will be in the professional services side of implementing these systems. That is -- that has less leverage in that model. So you're seeing some of that in the first quarter in courts, but really Tyler wide where we have to grow and bring in some resources and there's some period of time while we're training those people and getting them up to speed before we can deploy them and generate revenues. So we saw some of that with courts and again Tyler wide in the first quarter. We'll see some of that throughout the year.

Tim Quillin at Stephens Inc.

So it's my sense that Wiznet has been a great acquisition for you in terms of generating incremental e-filing business. You clearly had a strategy with the last three acquisitions around Infinite Visions and I'm just wondering is that more of access to the markets or is that a product that you think could be much bigger across your existing client base?

Well, it's a blend of that. Clearly, they bring some access to geography in a marketplace that we weren't as strong in as we are in other places. But the product also has a very competitive position. Even in the few months that we've had the product, it's been successful in the marketplace and we're very, very pleased with that. I think the transactions would have stood on more of a consolidation play as a positive acquisition for us. But again our hope was and what our current experience is, is that product is competitive. It's competitive in some sub niches that we're not, that we don't have a strong a presence in with our other products. So it's a bit of a blend. We will certainly continue to sell that product, invest in it, and support it going forward. I don't see it as a product necessarily though that gets leveraged over our other sales channel. So somewhere in between.

No buybacks during the quarter, which I think it's the first quarter in a long time where that's been the case. Making some acquisitions or have made some acquisitions but what do you see over the rest of the year as uses for cash? If I can sneak one additional, I'll have the easy one in for Brian, is where do the royalties get booked? Is that in the software licenses line? Thanks.

I'll answer that part quickly. The royalties are in other revenues.

Yes, obviously we've had what we've felt was a great opportunity in our stock over the last two years. I think bought just under 20% of the outstanding stock in 2010, 2011. So we don't really have a sense of urgency to have to buy more of it at this point. Obviously we're pleased that the stock has appreciated very nicely through acquisitions, the previous stock buybacks, investments in our own facilities. We've deployed a lot of capital and actually have $50 million just off the line of credit at this point. So, I think we're in a position where we don't need to be overly aggressive and we can be somewhat patient. But certainly if there were an opportunity in the stock as in the past we'd be aggressive again.

Charlie Strauzer at CJS Securities.

A couple quick questions. For Brian, the $620,000 of SG&A from the acquisition, you talked about, is that a good number to use kind of for our models going forward?

Yes, that's the incremental over last year's first quarter. It'll be a little bit higher than that because the UniFund acquisition really was only in there for a month and CSA, the latest one, was not in this quarter at all. It was in April. So I think on a quarterly basis between the 3 acquisitions, there's probably going to be closer to about $1 million a quarter. So it'll be a little bit higher than where we are right now.

Then John, when you look at the -- to the success of SaaS and you kind of got into over 40% growth this year versus kind of where it's been. What do you think the main drivers there has been? Has it been more of the -- is it more of a combination of economics or is more of the aging populace of the IT professionals at the local level?

It's different for -- what's interesting and what we're pleased with is that somewhere around an even split of those customers have come from the new business market and the other side coming from existing long-term customers really. I think the catalyst of those decisions are different. So, when somebody comes to us in the first place or buys a system in the first place, the catalyst generally is as we've discussed that they've got these deferred pent-up demands. They have a system that really is reaching a point that it isn't reliable. Still 80% of those purchase on premise because they have the infrastructure and they have the people, the IT resources to support that system, although 20% adoption is a growing percentage of that business for us.

What we're finding in the base is what you indicated as the latter, which is generally after they've had the system some time and after they've had a relationship with us that they've become comfortable with, would become a real partner of theirs, then when they have a point where they need to reinvest in their infrastructure or they have -- their IT professionals exiting the workforce then the people that they've been comfortable with supporting their system no longer available to them, that becomes the catalyst to say, hey, instead of making a significant investment or instead of trying to find new IT specialists that don't know our specific needs the way the people that have been here 20, 30 years now, they go and take a look at the SaaS offering and partnering with us on that. Obviously, our inside sales channel looks for those symptoms and offers that transition as that approaches. So again, the catalyst for new clients versus transitional clients are a little bit different. We're pleased that that keeps moving along very nicely.

Jonathan Ho at William Blair.

Can you talk a little bit about what you're seeing in the competitive environment today and maybe talk a little bit about your win rate by segment?

Yes, a little bit. Although and too much into the competitive nitty gritty, but I think in the courts area, especially in the higher end deals, we probably have one of our strongest positions. We lost a couple of deals we would have liked a few years ago, but I think in the last two years or so we've pretty much won all the important deals that we were involved in. So we're very strong there. The product has always been strong there. But I think at this point, our record on executing on the projects in a risk adverse environment is very valuable to us as well. Obviously it's a broader market when you move to the financial systems and our biggest market there with a lot of different players. We've improved our win rates from in real round numbers from around a third to around a half, which is a significant move in a modestly better market. So we are seeing a higher level of business there. I think pricing pressure has become a little more of an issue. So I think the reasons for losses have been more cost oriented over the last year or so than the quality of the software or reference ability of the traditional decision points.

Tax and appraisal, we've probably improved modestly as well. We've had a kind of a relook or improved user experience there that has definitely had some traction and done well in recent decisions as well.

Can you talk a little bit about sort of the -- your expectations around the e-filing revenue? I mean you gave some metrics in terms of the growth but it seems like there are probably are some systems that are going to kick in later on this year. So how should we think about growth in that business for the rest of 2012?

Well that was -- our -- we talked about broadly this kind of north of 40% growth rate on our subscriptions. That's certainly a component and I think that we'll grow much in line with our overall subscription growth. There are a number of clients that are in various stages of ramp-ups. With new e-filing customers there typically is a fairly long ramp-up period, particularly between the time the system is implemented and the time that the jurisdiction may make use of its mandatory and certainly the adoption rates go up significantly when it becomes mandatory. So we have clients like the state of New Mexico that are moving towards that mandatory status. We've got clients, some like sort of our clients in the state of Minnesota that are in pilot project situations. So we do have projects or customers in the pipeline that are moving towards that higher level of business. So I think that we would expect to grow in that 30% to 40% range this year.

Raghavan Sarathy at Dougherty and Co.

Two questions. First one is for John. John you talked about modest increment in the market conditions. Customers are looking at some of the different projects. Can you give us some sense about how this is translated into RFPs? Perhaps if you can quantify what you're seeing in terms of RFPs in the market, in the current conditions?

Yes, RFP activity the last couple of years, we've been off about 30% from the environment before the recession if you will. It's probably up in the, between 10% and 15% range from that level. So it's recovered somewhat but not back to where it was before.

Then question for Brian. So you included $10 million of additional revenue from acquisition. Can you give us some sense for where that might fall among license services and maintenance? Is it mostly maintenance? Or these guys do sell new licenses?

There is some new license business and we did give the breakdown in the call in terms of how much of the new -- of each revenue line in the quarter came from acquisitions. But these businesses are primarily maintenance oriented. They're similar to the rest of our business. The -- just a second and I'll give you a little bit more of a split. In total, those businesses, UniFund, CSA, and Windsor, generate about in the range of $15 million in maintenance out of say $24 million in total revenues. We're not sure exactly how that will fall out this year because of the maintenance haircut we take in the first year with purchased accounting, but in the range of $15 million of maintenance out of $24 million of revenues. The balance of the revenues are fairly evenly split between new licenses and professional services.

Brian Kinstlinger at Sidoti.

First, let me -- John can you give us a ballpark. You mentioned about a $1.5 million from e-filing revenue a quarter. If you were -- I tried to ask this once before I think but if you were to put all of your customers in courts on e-filing what is that general market opportunity? Is that in the $50 million to $100 million range? Or is it significantly smaller than that?

Well it's $1.5 million in the quarter so our annual run rate is around $5 million now. If all of them are on it would certainly be a multiple of that. I don't think it would be $50 million, maybe in the $20 million range. But I don't really have that number. As Brian indicated, a big thing is whether or not it's mandatory. But to simply implement e-filing and just see what the adoption is, you're going to have relatively low adoption or it's going to take a very, very long time to ramp that up. So what's critical is not just to get the clients to adopt it, but to pass some legislation where it's mandatory, at least for certain types of filings. Then obviously the adoption is very high and the ramp up happens very quickly. So it's kind of a two tier process to get the courts to want to do it and agree to do it but have them also lobby for the legislation that makes it mandatory.

Then how many of your eight states are going to any mandatory legislation process? Then the last question, organic sales -- organic growth in software license was 4%. You won a lot of large deals at the end of last year. Do you expect that will accelerate throughout the year?

I don't know how many are going through the legislation? Do you, Brian, have any information on that?

I don't know. I know New Mexico is currently mandatory or has made it mandatory but there's a phase-in period. A couple of the states we currently have and I think North and South Dakota are on -- have e-filing but they've purchased it on a license basis. I don't believe we're doing e-filing in New Hampshire, Indiana. Minnesota is working towards a pilot project now. So I think it's really right now only -- and then we have an agreement with Maryland that obviously isn't implemented yet. So I think there's only one of our states that's really fully on mandatory and I'm not sure what the status on the rest of them are.

On licenses, we would expect higher growth in that throughout the year, although it's always the hardest number to project. You know some of it's in backlog and some of it's -- has better visibility but there's always a component of it that is more sell and deliver and recognize. Then obviously it's hard to project new business in terms of what's going to be SaaS versus traditional. Obviously if it's SaaS, we're fine with that but that could put some -- it could keep the growth to a lower level. But our current expectation is that the growth for the year would be at a higher level than what we saw in the first quarter.

(Operator Instructions) Charlie Strauzer at CJS Securities.

Just a quick follow up on SaaS, just what percent of revenue in the quarter was SaaS?

In terms of actual SaaS hosted clients?

Yes, in terms of the revenue you got from SaaS, what percent of revenue do you think it was in the quarter roughly?

It's about 10%, about 12% of revenue in the quarter I think was SaaS with total subscription and of that it's about -- when you take out e-filing and online payments, the real SaaS type arrangements was just shy of $7 million in the quarter.

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, Amy, and thank you for joining us on the call today. If you do have any further questions, feel free to call Brian or myself. Have a great day.

The conference is now concluded. Thank you for attending. You may now disconnect.