TYLER TECHNOLOGIES, INC. CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical in nature and typically address future or anticipated events, trends, expectations or beliefs with respect to our financial condition, results of operations or business. Forward-looking statements often contain words such as "believes," "expects," "anticipates," "foresees," "forecasts," "estimates," "plans," "intends," "continues," "may," "will," "should," "projects," "might," "could" or other similar words or phrases. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. We believe there is a reasonable basis for our forward-looking statements, but they are inherently subject to risks and uncertainties and actual results could differ materially from the expectations and beliefs reflected in the forward-looking statements. We presently consider the following to be among the important factors that could cause actual results to differ materially from our expectations and beliefs: (1) the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic; (2) changes in the budgets or regulatory environments of our clients, primarily local and state governments, that could negatively impact information technology spending; (3) disruption to our business and harm to our competitive position resulting from cyber-attacks and security vulnerabilities (4) our ability to protect client information from security breaches and provide uninterrupted operations of data centers; (5) our ability to achieve growth or operational synergies through the integration of acquired businesses, while avoiding unanticipated costs and disruptions to existing operations; (6) material portions of our business require the Internet infrastructure to be adequately maintained; (7) our ability to achieve our financial forecasts due to various factors, including project delays by our clients, reductions in transaction size, fewer transactions, delays in delivery of new products or releases or a decline in our renewal rates for service agreements; (8) general economic, political and market conditions, including inflation and changes in interest rates; (9) technological and market risks associated with the development of new products or services or of new versions of existing or acquired products or services; (10) competition in the industry in which we conduct business and the impact of competition on pricing, client retention and pressure for new products or services; (11) the ability to attract and retain qualified personnel and dealing with the loss or retirement of key members of management or other key personnel; and (12) costs of compliance and any failure to comply with government and stock exchange regulations. A detailed discussion of these factors and other risks that affect our business are described in Item 1A, "Risk Factors". We expressly disclaim any obligation to publicly update or revise our forward-looking statements.
GENERAL
We provide integrated information management solutions and services for the
public sector. We develop and market a broad line of software products and
services to address the IT needs of public sector entities. In addition, we
provide professional IT services to our clients, including software and hardware
installation, data conversion, training, and for certain clients, product
modifications, along with continuing maintenance and support for clients using
our systems. We also provide subscription-based services such as software as a
service ("SaaS") and electronic document filing solutions ("e-filing"), which
simplify the filing and management of court related documents. Additionally, we
provide property appraisal outsourcing services for taxing jurisdictions.
Our products generally automate nine major functional areas: (1) financial
management and education, (2) courts and justice, (3) public safety,
(4) property appraisal and tax, (5) planning, regulatory and maintenance, (6)
land and vital records management, (7) data and insights, (8) development
platform technologies, and (9) NIC digital government and payments. We report
our results in two reportable segments. The ES reportable segment provides
public sector entities with software systems and services to meet their
information technology and automation needs for mission-critical "back-office"
functions such as: financial management and education, courts and justice,
public safety, planning, regulatory and maintenance, data and insights,
appraisal and tax software solutions, land and vital records management software
solutions, and property appraisal services. The Platform Technologies ("PT")
reportable segment provides public sector entities with software solutions to
perform transaction processing, streamline data processing, and improve
operations and workflows such as the NIC digital government and payments
solutions and development platform solutions.
As of January 1, 2022 , the appraisal and tax software solutions, land and vital
records management software solutions, and property appraisal service business
unit, which was previously reported in the Appraisal & Tax ("A&T") reportable
segment, was moved to the ES reportable segment and the NIC digital government
and payments solutions and development platform solutions moved to the PT
reportable segment to reflect changes in the way in which management makes
operating decisions, allocates resources, and manages the growth and
profitability of the Company. As the result of the changes in our reportable
segments, the former A&T and NIC reportable segments are no longer considered
separate segments. Prior year amounts for the ES and PT reportable segments have
been adjusted to reflect the segment change.
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Our total employee count increased to 7,143 at
OnFebruary 8, 2022 , we acquired US eDirect Inc. (US eDirect), a market-leading provider of technology solutions for campground and outdoor recreation management. The total purchase price, net of cash acquired of$6.4 million , was approximately$116.7 million , consisting of$117.6 million paid in cash, and approximately$5.5 million related to indemnity holdbacks, subject to certain post-closing adjustments. For the three and six months endedJune 30, 2022 , total revenues increased 16.0% and 32.3%, respectively, compared to the prior year period. Excluding the impact of 2021 and 2022 acquisitions, revenue increased 6.0% and 6.5% for the three and six months endedJune 30, 2022 , respectively, compared to the prior year period. Revenues from acquisitions completed in 2021 and 2022 accounted for 10.0% and 25.8% of the increase in revenues for the three and six months endedJune 30, 2022 , respectively. Subscriptions revenue grew 28.2% and 66.0% for the three and six months endedJune 30, 2022 , respectively, compared to the prior year period, primarily due the impact of the NIC acquisition, as well as an ongoing shift toward SaaS arrangements, along with growth in our transaction-based revenues such as e-filing and online payment services. Excluding the impact of 2021 and 2022 acquisitions, subscriptions revenue increased 10.0% and 12.3% for the three and six months endedJune 30, 2022 , respectively, compared to the prior year period. Subscription revenues from acquisitions completed in 2021 and 2022 contributed 18.2% and 53.7% for the three and six months period endedJune 30, 2022 , respectively.
Our backlog as of
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following the requirements of GAAP for the interim period and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, amortization and potential impairment of intangible assets and goodwill, and share-based compensation expense. As these are condensed financial statements, one should also read expanded information about our critical accounting policies and estimates provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our Form 10-K for the year endedDecember 31, 2021 . Except for the accounting policies for business combinations as a result of adopting Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASC 805)("ASU 2021-08"), there have been no material changes to our critical accounting policies and estimates from the information provided in our Form 10-K for the year endedDecember 31, 2021 . 28 --------------------------------------------------------------------------------
ANALYSIS OF RESULTS OF OPERATIONS
Percent of Total Revenues
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues:
Software licenses and royalties 3.2 % 4.4 % 3.4 % 4.7 %
Subscriptions 54.6 49.4 54.2 43.2
Software services 13.5 13.1 13.5 14.4
Maintenance 24.9 29.6 25.3 34.2
Appraisal services 1.9 1.6 1.9 1.8
Hardware and other 1.9 1.9 1.8 1.7
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses, royalties and acquired
software 3.6 3.3 3.5 3.2
Subscriptions, software services and
maintenance 52.1 49.4 52.0 47.8
Appraisal services 1.3 1.1 1.3 1.3
Hardware and other 1.7 1.1 1.4 1.0
Selling, general and administrative expenses 21.3 27.0 21.4 26.9
Research and development expense 5.0 5.8 5.1 6.5
Amortization of customer and trade name
intangibles 2.9 2.8 3.1 2.4
Operating income 12.1 9.5 12.2 10.9
Interest expense (1.3) (3.1) (1.2) (1.8)
Other income, net - 0.1 0.1 0.1
Income before income taxes 10.8 6.5 11.1 9.2
Income tax provision 2.3 0.1 2.4 0.3
Net income 8.5 % 6.4 % 8.7 % 8.9 %
Revenues
Acquisitions
On February 8, 2022 , we acquired US eDirect Inc. (US eDirect), a market-leading
provider of technology solutions for campground and outdoor recreation
management. The impact of the US eDirect acquisition on our operating results is
not considered material. US eDirect is operated as a part of the NIC division
and the results of NIC and US eDirect, from their respective dates of
acquisition, are included with the operating results of the PT segment.
On
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The following table details revenue for NIC for the three and six months ended
June 30, 2022 , which is presented in our condensed consolidated statements of
income from the date of acquisition and included in the operating results of the
PT reportable segment.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues:
Software licenses and royalties $ - $ - $ - $ -
Subscriptions 123,433 93,281 244,815 93,281
Software services 15,778 5,643 28,887 5,643
Maintenance 203 155 405 155
Appraisal services - - - -
Hardware and other - - - -
Total revenues $ 139,414 $ 99,079 $ 274,107 $ 99,079 Software licenses and royalties
The following table sets forth a comparison of our software licenses and
royalties revenue for the periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 14,623 $ 16,239 $ (1,616) (10) % $ 30,728 $ 30,611 $ 117 - %
PT 386 1,365 (979) (72) 787 1,926 (1,139) (59)
Total software
licenses and
royalties revenue $ 15,009 $ 17,604 $ (2,595) (15) % $ 31,515 $ 32,537 $ (1,022) (3) %
Software licenses and royalties revenue decreased 15% and 3% for the three and
six months ended June 30, 2022 , respectively, compared to the prior year
periods. The decrease in software licenses and royalties revenue for the three
months ended June 30, 2022 , is attributed to more clients choosing our SaaS
offering rather than purchasing the software under a traditional perpetual
software arrangement. Our total new client mix for the six months ended June 30,
2022 , was approximately 22% perpetual software license arrangements and
approximately 78% subscription-based arrangements, compared to total new client
mix for the six months ended June 30, 2021 , of approximately 36% perpetual
software license arrangements and approximately 64% subscription-based
arrangements.
Although the mix of new contracts between SaaS-based and perpetual license
arrangements may vary from quarter to quarter and year to year, we expect our
software license growth rate to continue to decline as a growing number of
clients choose our SaaS-based options, rather than purchasing the software under
a traditional perpetual software license arrangement and the Company begins
transitioning to cloud-based only offerings. SaaS-based arrangements generally
do not result in license revenue in the initial year as compared to perpetual
software license arrangements but generate higher overall revenue over the term
of the contract.
Subscriptions
The following table sets forth a comparison of our subscriptions revenue for the
periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 128,694 $ 102,617 $ 26,077 25 % $ 249,010 $ 201,946 $ 47,064 23 %
PT 127,122 96,941 30,181 31 252,249 100,091 152,158 152
Total subscriptions
revenue $ 255,816 $ 199,558 $ 56,258 28 % $ 501,259 $ 302,037 $ 199,222 66 %
30-------------------------------------------------------------------------------- Subscriptions revenue primarily consists of revenue derived from online payments and SaaS arrangements. Other sources of subscription-based services are derived from digital government services and e-filing arrangements that simplify the filing and management of court related documents for courts and law offices. E-filing revenue is derived from transaction fees and fixed fee arrangements. Subscriptions revenue grew 28% and 66% for the three and six months endingJune 30, 2022 , respectively, compared to the prior period, primarily due to the inclusion of NIC's revenues from the date of acquisition. Excluding the impact of revenue from 2021 and 2022 acquisitions of$36.4 million and$162.2 million for the three and six months endedJune 30, 2022 , respectively, subscriptions revenue increased 10.0% and 12.3% for the three and six months endedJune 30, 2022 , respectively. New SaaS clients as well as existing clients who converted to our SaaS model provided the majority of the subscriptions revenue increase. In the three and six months endingJune 30, 2022 , respectively, we added 167 and 316 new SaaS clients and 96 and 184 existing on-premises clients converted to our SaaS model. SinceJune 30, 2021 , we have added 595 new SaaS clients while 322 existing on-premises clients converted to our SaaS offerings. Also excluding the impact of revenue from 2021 and 2022 acquisitions, transaction-based fees contributed$4.6 million and$7.3 million to the increase in subscriptions revenue for the three and six months endedJune 30, 2022 , respectively, due to the increased volumes of online payments from e-filing and utility billings.
Software services
The following table sets forth a comparison of our software services revenue for
the periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 41,841 $ 42,478 $ (637) (1) % $ 84,490 $ 84,895 $ (405) - %
PT 21,284 10,859 10,425 96 40,132 16,082 24,050 150
Total software services
revenue $ 63,125 $ 53,337 $ 9,788 18 % $ 124,622 $ 100,977 $ 23,645 23 %
Software services revenue primarily consists of professional services delivered
in connection with implementing our software, converting client data, training
client personnel, custom development activities, and consulting. New clients who
acquire our software generally also contract with us to provide the related
software services. Existing clients also periodically purchase additional
training, consulting, and minor programming services. Software services revenue
increased 18% and 23% for the three and six months ended June 30, 2022 ,
respectively, compared to the prior year period. Excluding the impact of revenue
from 2021 and 2022 acquisitions of $3.7 million and $17.0 million for the three
and six months ended June 30, 2022 , respectively, software services increased
11.3% and 6.6% for the three and six months ended June 30, 2022 , respectively.
That increase for three months ended June 30, 2022 in software services revenue
is primarily attributed to higher revenues generated by the COVID
pandemic-related rent relief services, partially offset by more clients
selecting our cloud solutions instead of our on-premises license arrangements
which typically require more professional services.
Maintenance
The following table sets forth a comparison of our maintenance revenue for the
periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 110,760 $ 109,815 $ 945 1 % $ 221,455 $ 219,284 $ 2,171 1 %
PT 6,055 9,806 (3,751) (38) 12,389 19,449 (7,060) (36)
Total maintenance
revenue $ 116,815 $ 119,621 $ (2,806) (2) % $ 233,844 $ 238,733 $ (4,889) (2) %
We provide maintenance and support services for our software products and
certain third-party software. Maintenance revenue decreased 2% for both the
three and six months ended June 30, 2022 , compared to the prior year period. For
the three months ended June 30, 2022 , maintenance revenue decreased mainly due
to attrition related to a legacy case management solution and clients converting
from on-premises license arrangements to SaaS, partially offset by annual
maintenance rate increases and maintenance associated with new software license
sales.
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The following table sets forth a comparison of our appraisal services revenue
for the periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
ES $ 8,812 $ 6,265 $ 2,547 41 % $ 17,330 $ 12,730 $ 4,600 36 %
PT - - - - - - - -
Total appraisal services
revenue $ 8,812 $ 6,265 $ 2,547 41 % $ 17,330 $ 12,730 $ 4,600 36 %
Appraisal services revenue for the three and six months ended June 30, 2022 ,
increased by 41% and 36%, respectively, compared to the prior year primarily due
to the ramp-up of appraisal services for several new revaluation contracts which
started in recent quarters. The appraisal services business is somewhat cyclical
and driven in part by statutory revaluation cycles in various states.
Cost of Revenues and Gross Margins
The following table sets forth a comparison of the key components of our cost of
revenues for the periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Software licenses and
royalties $ 2,869 $ 1,368 $ 1,501 110 % $ 5,478 $ 2,604 $ 2,874 110 %
Acquired software 14,039 11,823 2,216 19 27,260 19,787 7,473 38
Subscriptions, software
services, and
maintenance 244,192 199,771 44,421 22 481,088 334,091 146,997 44
Appraisal services 5,976 4,429 1,547 35 11,912 9,046 2,866 32
Hardware and other 8,161 4,623 3,538 77 13,188 7,081 6,107 86
Total cost of revenues $ 275,237 $ 222,014 $ 53,223 24 % $ 538,926 $ 372,609 $ 166,317 45 %
The following table sets forth a comparison of gross margin percentage by
revenue type for the periods presented as of
Three Months Ended Six Months Ended
2022 2021 Change 2022 2021 Change
Software licenses, royalties and
acquired software (12.7) % 25.1 % (37.8) % (3.9) % 31.2 % (35.1) %
Subscriptions, software services and
maintenance 44.0 46.4 (2.4) 44.0 47.9 (3.9)
Appraisal services 32.2 29.3 2.9 31.3 28.9 2.4
Hardware and other 10.4 39.9 (29.5) 18.7 40.3 (21.6)
Overall gross margin 41.3 % 45.1 % (3.8) % 41.7 % 46.7 % (5.0) %
Software licenses, royalties and acquired software. Amortization expense for
acquired software comprises the majority of costs of software licenses,
royalties, and acquired software. We do not have any direct costs associated
with royalties. The gross margin for software licenses, royalties and acquired
software is negative 12.7% and negative 3.9% for the three and six months ended
June 30, 2022 , respectively, and 25.1% and 31.2% for three and six months ended
June 30, 2021 , respectively. Excluding the impact of amortization expense of
acquired software, the margin is 80.9% and 82.6% for the three and six months
ended June 30, 2022 , respectively, and 92.2% and 92.0% for three and six months
ended June 30, 2021 , respectively. The decline in software licenses, royalties
and acquired software gross margin compared to prior year periods is due to
lower revenue from software licenses and increased amortization expense related
to acquired software from recent acquisitions.
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Subscriptions, software services and maintenance. Cost of subscriptions,
software services and maintenance primarily consists of personnel costs related
to installation of our software, conversion of client data, training client
personnel and support activities, and various other services such as custom
client development and ongoing operation of SaaS and e-filing arrangements. The
subscriptions, software services, and maintenance gross margin in the three and
six months ended June 30, 2022 , decreased 2.4% and 3.9%, respectively, from the
comparable prior year period, primarily due to the inclusion of NIC's revenues,
which historically have lower margins than Tyler. Excluding the impact from 2021
and 2022 acquisitions, the gross margins were 44.6% and 46.2% for the three and
six months ended June 30, 2022 , respectively. The decrease of 1.8% and 1.7% for
the three and six months ended June 30, 2022 , respectively, from the comparable
prior periods is due to several factors, including lower maintenance revenue
resulting from attrition related to a legacy case management solution; a
post-COVID return of low-margin revenues such as billable travel; higher
personnel costs related to inflation, as well as an increase in professional
services employees to enable delivery of our growing backlog and anticipated
growth who are not yet billable; and higher hosting costs related to our
accelerated shift to the cloud. Excluding employees added through acquisitions,
our implementation and support staff has grown by 239 employees since June 30,
2021 .
Appraisal services. Appraisal services revenue was approximately 1.9% of total
revenue for the three and six months ended June 30, 2022 , respectively. The
appraisal services gross margin for the three and six months ended June 30,
2022 , increased 2.9% and 2.4%, respectively, compared to the same period in
2021. The increase in margin is primarily due to cost savings attributed to
lower travel expenses associated with appraisal projects. The appraisal services
business is somewhat cyclical and driven in part by statutory revaluation cycles
in various states.
Overall Gross Margin. For the three and six months ended June 30, 2022 , our
overall gross margin decreased 3.8% and 5.0%, respectively, compared to the
prior year period, primarily due to the inclusion of NIC's revenues, which
historically have lower margins than Tyler. Excluding the impact from 2021 and
2022 acquisitions, overall gross margins were 42.3% and 44.2% for the three and
six months ended June 30, 2022 , respectively. For the three months ended June
30, 2022 , the decrease in overall gross margin compared to the prior year period
is due to lower revenue from software licenses and maintenance, higher personnel
costs related to inflation, and "bubble costs" related to the transition from
our proprietary data centers to Amazon Web Services ("AWS").
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of salaries, employee benefits, travel, share-based compensation expense, commissions, and related overhead costs for administrative and sales and marketing employees, as well as professional fees, trade show activities, advertising costs, and other marketing related costs.
The following table sets forth a comparison of our SG&A expenses for the periods presented as ofJune 30 : Three Months Ended Change Six Months Ended Change 2022 2021 $ % 2022 2021 $ % Selling, general and administrative expenses$ 99,701 $ 108,922 $ (9,221) (8) %$ 197,596 $ 187,696 $ 9,900 5 % SG&A as a percentage of revenues was 21.3% and 21.4% for the three and six months endedJune 30, 2022 , respectively, compared to 27.0% and 26.9% for the three and six months endedJune 30, 2021 , respectively. Excluding the impact of SG&A expense from 2021 and 2022 acquisitions of$6.1 million and$23.8 million for the three and six months endedJune 30, 2022 , respectively, SG&A decreased 14.1% and 7.4% for the three and six months endingJune 30, 2022 , respectively, compared to the prior year period. The decrease in SG&A as a percentage of revenues is primarily attributed to lower transaction expense related to acquisitions completed in 2022 compared to those completed in 2021 and the decline in stock compensation expense due to the lower fair value of each share-based award issued in connection with our stock compensation plan. The decline in SG&A is partially offset by increased staff levels and other administrative expenses compared to prior periods.
Research and Development Expense
The following table sets forth a comparison of our research and development
expense for the periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Research and development
expense $ 23,386 $ 23,428 $ (42) - % $ 47,327 $ 45,241 $ 2,086 5 %
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Research and development ("R&D") expense consists mainly of costs associated
with development of new products and technologies from which we do not currently
generate significant revenue. R&D expense in the three and six months ended
June 30, 2022 , remained flat and increased 5%, respectively, compared to the
prior period. Excluding the impact of R&D expense from 2021 and 2022
acquisitions of $224,000 and $1.1 million for the three and six months ended
June 30, 2022 , respectively, R&D expense decreased 1.1% and increased 2.2% for
the three and six months ending June 30, 2022 , respectively, compared to prior
year period. The decline in R&D expense for the three months ended June 30 .
2022, is mainly attributed to a shift of some development resources to certain
projects which meet the criteria for capitalization. The increase in R&D expense
for the six months ended June 30, 2022 , is mainly due to a number of new Tyler
product development initiatives across our product suites somewhat offset by a
shift of some development resources to certain projects which meet the criteria
for capitalization.
Amortization of Other Intangibles
The following table sets forth a comparison of amortization of customer and
trade name intangibles for the periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Amortization of other
intangibles $ 13,604 $ 11,420 $ 2,184 19 % $ 28,318 $ 16,832 $ 11,486 68 %
Acquisition intangibles are comprised of the excess of the purchase price over
the fair value of net tangible assets acquired that are allocated to acquired
software and customer and trade name intangibles. The remaining excess purchase
price is allocated to goodwill that is not subject to amortization. Amortization
expense related to acquired software is included with cost of revenues while
amortization expense of customer and trade name intangibles is recorded as
operating expense. For the three and six months ended June 30, 2022 ,
amortization expense increased compared to the prior period due to acquisitions
completed in 2021 and 2022.
Interest Expense
The following table sets forth a comparison of our interest expense for the
periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Interest expense
Interest expense is primarily comprised of interest expense and non-usage and other fees associated with our borrowings. The change in interest expense in the three and six months endedJune 30, 2022 , compared to the prior period is attributable to the prior year period including$6.4 million of expense related to the senior unsecured bridge loan facility commitment fee paid in 2021 and lower levels of borrowings in the current year related to the 2021 Credit Agreement, offset by an increase in interest rates compared to prior year periods.
Other Income, Net
The following table sets forth a comparison of our other income, net, for the
periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Other income, net $ 216 $ 238 $ (22) (9) % $ 581 $ 804 $ (223) (28) %
Other income, net, is primarily comprised of interest income from invested cash.
The change in other income, net, in the three and six months ended June 30,
2022 , compared to the prior period is attributed to lower levels of invested
cash.
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--------------------------------------------------------------------------------Income Tax Provision
The following table sets forth a comparison of our income tax provision for the
periods presented as of
Three Months Ended Change Six Months Ended Change
2022 2021 $ % 2022 2021 $ %
Income tax provision $ 10,813 $ 562 $ 10,251 1,824% $ 22,258 $ 1,882 $ 20,376 1,083
Effective income tax
rate 21.3 % 2.2 % 21.8 % 2.9 %
The increase in effective tax rate for the three and six months ended June 30,
2022 , as compared to the same period in 2021, was principally driven by a
decrease in excess tax benefits related to stock incentive awards. The effective
income tax rates for the three and six months ended June 30, 2022 and 2021, were
different from the statutory United States federal income tax rate of 21%
primarily due to excess tax benefits related to stock incentive awards and the
tax benefit of research tax credits, offset by state income taxes,
non-deductible business expenses, and reserves for unrecognized state income tax
benefits. The excess tax benefits related to stock incentive awards realized
were $1.7 million and $4.7 million for the three and six months ended June 30,
2022 , respectively, compared to $6.4 million and $15.2 million for the three and
six months ended June 30, 2021 , respectively. Excluding the excess tax benefits,
the effective tax rate was 24.6% and 26.4% for the three and six months ended
June 30, 2022 , respectively, compared to 26.7% and 26.5% for the three and six
months ended June 30, 2021 , respectively.
FINANCIAL CONDITION AND LIQUIDITY
As ofJune 30, 2022 , we had cash and cash equivalents of$253.1 million compared to$309.2 million atDecember 31, 2021 . We also had$60.9 million invested in investment grade corporate and municipal bonds as ofJune 30, 2022 . These investments have varying maturity dates through 2027 and are held as available-for-sale. As ofJune 30, 2022 , we believe our cash from operating activities, revolving credit facility, cash on hand, and access to the capital markets provides us with sufficient flexibility to meet our long-term financial needs.
The following table sets forth a summary of cash flows for the six months ended
2022 2021
Cash flows provided (used) by:
Operating activities $ 130,220 $ 51,356
Investing activities (110,378) (1,998,692)
Financing activities (75,951) 1,560,486
Net decrease in cash and cash equivalents
Net cash provided by operating activities continues to be our primary source of funds to finance operating needs and capital expenditures. Other potential capital resources include cash on hand, public and private issuances of debt or equity securities, and bank borrowings. It is possible that our ability to access the capital and credit markets in the future may be limited by economic conditions or other factors. For the six months endedJune 30, 2022 , operating activities provided cash of$130.2 million . Operating activities that provided cash were primarily comprised of net income of$79.9 million , non-cash depreciation and amortization charges of$75.9 million , non-cash share-based compensation expense of$51.1 million and a non-cash decrease in operating lease right-of-use assets of$5.1 million . Working capital, excluding cash, increased approximately$81.7 million mainly due to higher accounts receivable because of an increase in unbilled receivables attributed to revenues recognized prior to billings and our maintenance billing cycle peaking in June, the timing of bonuses payments, the timing of payments of payroll related taxes, and deferred taxes associated with stock option activity during the period. These increases were offset by an increase in deferred revenue during the period, the timing of payments to and receipts from our government partners and end-user consumers, and the timing of income tax payments. In general, changes in deferred revenue are cyclical and primarily driven by the timing of our maintenance renewal billings. Our renewal dates occur throughout the year, but our largest renewal billing cycles occur in the second and fourth quarters. In addition, subscription renewals are billed throughout the year. 35 -------------------------------------------------------------------------------- Our days sales outstanding ("DSO") was 115 days atJune 30, 2022 , compared to 108 days atDecember 31, 2021 , and 131 days atJune 30, 2021 . The increase in DSO compared toDecember 31, 2021 , is primarily attributed to our maintenance billing cycle, which typically peaks at its highest level in June and second highest level in December of each year, followed by collections in the subsequent quarter. DSO is calculated based on quarter-end accounts receivable divided by the quotient of annualized quarterly revenues divided by 360 days. The decrease in DSO compared toJune 30, 2021 , is attributed to improved collection efforts. Investing activities used cash of$110.4 million in the six months endingJune 30, 2022 . OnFebruary 8, 2022 , we acquired US eDirect Inc. (US eDirect), a market-leading provider of technology solutions for campground and outdoor recreation management. The total purchase price, net of cash acquired of$6.4 million , was approximately$116.7 million , consisting of$117.6 million paid in cash, and approximately$5.5 million related to indemnity holdbacks, subject to certain post-closing adjustments. In addition, approximately$16.5 million of software development costs were capitalized. The remaining additions were for computer equipment and furniture and fixtures in support of internal growth, particularly with respect to data centers supporting growth in our cloud-based offerings. Financing activities used cash of$76.0 million in the six months endedJune 30, 2022 , primarily attributable to repayment of$80.0 million of the unsecured term loans and offset by payments received from stock option exercises and employee stock purchase plan activity, net of withheld shares for taxes upon equity award. InFebruary 2019 , our board of directors authorized the repurchase of an additional 1.5 million shares of our common stock. The repurchase program, which was approved by our board of directors, was originally announced inOctober 2002 and was amended at various times from 2003 through 2019. As ofJune 30, 2022 , we have authorization from our board of directors to repurchase up to 2.4 million additional shares of our common stock. Our share repurchase program allows us to repurchase shares at our discretion. Market conditions influence the timing of the buybacks and the number of shares repurchased, as well as the volume of employee stock option exercises. Share repurchases are generally funded using our existing cash balances and borrowings under our credit facility and may occur through open market purchases and transactions structured through investment banking institutions, privately negotiated transactions and/or other mechanisms. There is no expiration date specified for the authorization, and we intend to repurchase stock under the plan from time to time.
We made tax payments of
As ofJune 30, 2022 , we had$600 million in outstanding principal for the Convertible Senior Notes due 2026. Under our 2021 Credit Agreement, we had$675 million in outstanding principal for the unsecured term loans, no outstanding borrowings under the 2021 Revolving Credit Facility, and an available borrowing capacity of$500 million as ofJune 30, 2022 . As ofJune 30, 2022 , we had one outstanding standalone letter of credit totaling$2.0 million . The letter of credit, which guarantees our performance under a client contract, renews automatically annually unless canceled in writing, and expires in the third quarter of 2026. For the six months endedJune 30, 2022 , we repaid$80.0 million of the unsecured term loans under 2021 Credit Agreement.
Subsequent to
In the six months endedJune 30, 2022 , and 2021, respectively, we made interest payments of$5.7 million and$9.4 million , associated with the 2021 Credit Agreement and the Convertible Senior Notes, including payment of a$6.4 million commitment fee related to the senior unsecured bridge loan facility paid in 2021.
See Note 4, "Debt", to the Condensed Consolidated Financial Statements for discussions of the 2021 Credit Agreement and Convertible Senior Notes.
From time to time we engage in discussions with potential acquisition candidates. In order to pursue such opportunities, which could require significant commitments of capital, we may be required to incur debt or to issue additional potentially dilutive securities in the future. No assurance can be given as to our future acquisition opportunities and how such opportunities will be financed. We anticipate that 2022 capital spending will be between$58 million and$62 million , including approximately$34 million of capitalized software development. We expect the majority of the other capital spending will consist of computer equipment and software for infrastructure replacements and expansion. Capital spending is expected to be funded from existing cash balances and cash flows from operations. We lease office facilities, as well as transportation and other equipment used in our operations under non-cancelable operating lease agreements expiring at various dates through 2027. 36
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