Morningstar | Tyler Technologies: Helping Federal, State, and Local Governments Run More Efficiently
We view Tyler Technologies as the clear leader in a slow-moving and underserved niche market of government operational software. We believe there is a decadelong runway for 10%-plus growth at Tyler, given the need to modernize local governments’ legacy enterprise resource planning systems and the firm’s strong position in this market. The company’s two core products are Munis, which is the core ERP system, and Odyssey, which is the court management system. These systems enable normal operations of governmental units, including financial management, human resources, revenue management, tax billing, and asset management. Tyler addresses the needs of cities, counties, schools, courts, and other local government entities. Per management, existing core systems at customer sites are at least 20 years old and running on ancient software code where there is no next wave of incoming, fluent programmers to keep these systems running. We believe extending the life of these legacy systems is no longer tenable. While the company used to fight for every $100,000 deal, it now has established enough of a reputation in the government market that it is called upon in most relevant government system searches. The potential clients have certainly grown larger, as evidenced by statewide e-filing deals in Texas and statewide court management system deals that can be worth tens of millions of dollars annually. Further, Tyler benefits from a fragmented market that includes no companies at anywhere near its size or scale that are focused on the local public institution market. We also believe that while upselling may not be as critical for the company as it is for other software stories, Tyler’s product depth and leadership should ultimately drive upselling on a larger scale. For example, once a large city adopts a Munis ERP, over time this should ultimately drive the central school district, court system, police system, jail system, and property tax appraisal to select Tyler as well. The 2018 Socrata acquisition for data and analytics has introduced federal customers to Tyler and is an obvious upselling opportunity across the entire portfolio.Tyler Technologies provides information management solutions and services for the public sector. The company has two segments: Enterprise Software, which provides public sector entities with software systems and services to meet their information technology and automation needs for back-office functions such as financial management and education, courts and justice, planning, regulatory and maintenance, data and insights and case management and business management processes; and Appraisal and Tax, which provides systems and software that automate the appraisal and assessment of real and personal property as well as property appraisal outsourcing services for governments and taxing authorities.
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