Strong Quarter for Tyler Shows Continued Signs of Improvement; FVE up to $575

Based on refinements to our DCF model after a strong third quarter and continued signs of an end market rebound, we are raising our fair value estimate to $575 per share from $500 for wide-moat Tyler and see modest upside to shares from here. Tyler’s robust results came in well ahead of our revenue and non-GAAP EPS expectations and included several large deals and an extension of coronavirus-related revenue for NIC that were originally thought to be winding down by the fourth quarter. The $2.3 billion NIC acquisition distorts results, but we see underlying trends that continue to point to a recovery. In fact, management noted that some areas, such as Munis, have returned to pre-coronavirus levels, and there are already a couple dozen deals benefiting from massive government stimulus efforts to support state and local governments. Forward-looking metrics, like bookings, were strong. We think the ongoing recovery, integration, and cross-selling efforts for NIC, and local governments’ use of pending stimulus funds over the next couple of years can drive performance over the next couple of years even while debt levels are reduced. Much as it did coming out of the 2008 financial crisis, we expect Tyler, especially after the acquisition of NIC, to emerge in an even stronger position to capture market share, as its portfolio is broader and it is increasingly exposed to multiple solution sales.