Analyst Note| Dan Romanoff, CPA |
Wide-moat Tyler Technologies has digested the NIC acquisition enough to provide a guidance update, as it indicated it would do on its April earnings call. The $2.3 billion deal closed on April 21, and management said on its quarterly update a week later that it was too soon to provide a meaningful outlook. We have generally raised our near-term revenue outlook while lowering our profitability assumptions to account for this guidance, and we suspect there is some level of conservatism built in. Management is bullish on cross selling opportunities and believes there is still room to squeeze some synergies out the combined entity, which we concur with. We also agree with Tyler’s assessment that it has created a powerful leadership position in public payments. We expect cash flow to focus on debt reduction over the next couple years. Much as it did coming out of the 2008 financial crisis, we expect Tyler will emerge in an even stronger position to capture market share, as its portfolio is broader and it is increasingly exposed to multiple solution sales. Indeed, management is already positive on the building pipeline. We are maintaining our fair value estimate of $475 per share and view shares as undervalued.