Hello, and welcome to today's Tyler Technologies First Quarter 2019 Conference Call. Your host for today's call is John Marr, Chairman 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. And as a reminder, this conference is being recorded today, May 2, 2019.
I'd now like to turn the conference over to Mr. Marr. Please go ahead, sir.
Thank you, Keith, and welcome to our Q1 2019 earnings call. With me on the call today are Lynn Moore, our President and Chief Executive Officer and Brian Miller, our Chief Financial Officer. First, I'd like for Brian to give the Safe Harbor statement. Next, Lynn will have some preliminary comments. Then Brian will review the details of our Q1 results and update our 2019 guidance.
Then I'll have some final comments and we'll take your questions. Brian?
Thank you, 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 would refer you to
our Form 10 ks and other SEC filings for more information on those risks. Effective January 1, 2019, we adopted the requirements of ASU No. 20 sixteen-two, Topic 842, Leases, utilizing the modified retrospective method of transition. Our balance sheet now includes both operating lease assets and operating lease liabilities. Previous consolidated financial statements were not restated under the modified retrospective method.
Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify
otherwise. Lynn? Thanks, Brian. Our first quarter results provided a solid start to 2019. This was our 30th consecutive quarter of double digit revenue growth as total GAAP revenues grew 11.7% and non GAAP revenues grew 12.4%.
Our core software revenues from licenses and subscriptions grew 25% on a non GAAP basis, with approximately 13% organic growth. Software license and royalties revenues in the Q1 declined 4.3% as the mix of new business was more heavily weighted towards subscription arrangements. Approximately 54% of the value of new software deals came from subscription arrangements and 46% from on premise licenses arrangements. GAAP subscription revenues grew 37.2% and non GAAP subscription revenues grew 38.5%. Total recurring revenues from maintenance and subscriptions grew 17.1% and comprised 68% of total revenue.
As mentioned earlier, our mix of new business was more heavily weighted towards subscriptions, which put pressure on short term organic growth, but is a long term positive for Tyler. Our largest deal in the quarter was a contract with the Bahamas for appraisal services valued at over $7,000,000 For our IAS World Property Tax Software solution, we signed a SaaS arrangement with Lackawanna County, Pennsylvania valued at approximately $4,000,000 as well as a license agreement with Berks County, Pennsylvania and a SaaS deal with Chesterfield County, Virginia, each valued at approximately $3,000,000 It was also a very robust new business quarter for our ERP solutions. The largest deals of the quarter were SaaS arrangements for Munis with Guilford County, North Carolina valued at approximately $5,000,000 New Castle County, Delaware valued at approximately $4,000,000 and the Richardson Independent School District in Texas valued at approximately $3,000,000 We also signed SaaS contracts for Munis valued at over $1,000,000 each with Los Vergennes Water District in California, Otsego County, New York and Albany, Georgia. Notable license deals for MENA signed during the quarter included contracts with the Micronesian Island Nation of the Republic of Palau, the Hall County Schools in Georgia and Flagler County, Florida.
We also had a very strong quarter for new contracts with our New World Public Safety solutions. Contracts included notable on premises license deals with Monroe County, New York and Paulding County, Georgia and a subscription agreement with Mount Vernon, New York. For Odyssey Courts and Justice solution, we signed on premises license contracts with the Cleveland Ohio Municipal Court and the State of Maine District Attorney's Office, as well as SaaS arrangements with Liberty County, Texas and the City of Shreveport, Louisiana, which also included our recent acquisition Caseload Pro. In addition, we signed an amendment with the State of Illinois to add criminal ethiling valued at approximately $2,000,000 For our Socrata data insight solution, significant new signings included the Nature Conservancy, the U. S.
Department of Justice, the City of Everett, Washington and Baltimore County, Maryland. Finally, for our recently acquired MicroPact solution, we signed a notable federal deal for IntelliTrac with the Merit Systems Protection Board. As mentioned on our previous earnings call, on February 1, we acquired MyCivic and on February 28, we closed the acquisition of MicroPact. We're excited about the addition of the solutions as well as the team members from both of these companies and believe that both acquisitions will benefit Tyler by providing avenues into new markets and across our current client base. Now I'd like for Brian to provide more detail on the results for the quarter and update our annual guidance for 2019.
Thanks, Lynn.
Yesterday, Tyler Technologies reported its results for the Q1 ended March 31, 2019. I'm going to provide some additional data on the quarter's performance and update our annual guidance for 2019 and then John will have some additional comments. In our earnings release, we have included non GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. These measures exclude write downs of acquisition related deferred revenue and acquired leases, share based compensation expense, the employer portion of payroll taxes on employee stock transactions, amortization of acquired intangibles and acquisition related expenses. A reconciliation of GAAP to non GAAP measures is provided in our earnings release.
We've also posted on the Investor Relations section of our website under the Financial Reports tab schedules with supplemental information provided on this call, including information about quarterly bookings, backlog and recurring revenues. GAAP revenues for the quarter were $247,100,000 up 11.7%. On a non GAAP basis, revenues were $248,800,000 up 12.4%. Organic revenue growth was 5.5% on a GAAP basis and 5.4% on a non GAAP basis. As Len mentioned earlier, the mix of new software business was weighted towards subscription arrangements, which dampened our organic growth rate for the Q1.
Our core software license and subscription revenues combined grew organically approximately 13%. Subscription revenues for the quarter increased 37.2%. We added 128 new subscription based arrangements and converted 13 existing on premises clients, representing representing approximately $49,000,000 in total contract value. In Q1 of last year, we added 122 new subscription based arrangements and had 26 on premises conversions, representing approximately $25,000,000 in total contract value. Subscription contract value comprised 54% of the total new software contract value signed this quarter compared to 40% in Q1 last year.
The value weighted average term of new SaaS contracts this quarter was 4.1 years compared to 4.7 years in Q1 of last year. Transaction based revenues from e filing and online payments, which are included in subscriptions, increased 15.6 percent to $19,200,000 from $16,600,000 last year. That amount includes e filing revenue of $14,600,000 up 17.3% over last year. Annualized total non GAAP recurring revenues for Q1 were approximately $676,000,000 up 18.1%. Our backlog at the end of the quarter was $1,300,000,000 up 4.9%.
Backlog included 350 $3,000,000 of maintenance compared to $335,000,000 a year ago. Subscription backlog was $489,000,000 compared to $468,000,000 last year and includes approximately $110,000,000 related to fixed fee e filing contracts. Our bookings for the quarter, which are calculated from the change in backlog plus non GAAP revenues, were approximately $228,000,000 an increase of 17% from Q1 of last year. For the trailing 12 months, bookings were approximately $994,000,000 down 4.1%. As we noted earlier, the weighted average term of new software subscription agreements this quarter was 4.1 years, compared to 4.7 years last year as we continue
to move to
standardize on shorter initial subscription terms for most of our software offerings to provide greater pricing flexibility. If the term of subscription agreements had been the same as in Q1 of last year, bookings growth this quarter would have been 2.6 points higher. Our subscription software subscription bookings in the quarter added $11,400,000 in new annual recurring revenue, up 148% over last year's $4,600,000 For comparison, if all of our new subscription contracts this quarter had been under license arrangements, we estimate that they would have represented additional license bookings of approximately $12,000,000 We signed 35 new contracts in the quarter that included software licenses greater than $100,000 and those contracts had an average license of $376,000 compared to 33 new contracts with an average license value of 387,000 dollars in the Q1 of 2018. We ended the quarter with $120,000,000 in cash and investments and $85,000,000 of debt under our revolving credit facility. During the Q1, we repurchased approximately 72,000 shares of our stock for a total of $14,300,000 Days sales outstanding in accounts receivable was 104 days at March 31, 2019, compared to 88 days at March 31, 2018.
The increase in DSOs is primarily related to the timing of milestone billings under several large percentage of completion contracts, resulting in a $25,000,000 year over year increase in unbilled receivables. Excluding unbilled receivables, DSOs were 73 days at March 31, 2019 compared to 61 days at March 31, 2018. Our guidance for the full year of 2019 is as follows. We expect 2019 GAAP revenues will be between $1,080,000,000 and 1 point $10,000,000,000 and non GAAP revenues will be between $1,090,000,000 and 1,110,000,000 dollars We expect 2019 GAAP diluted EPS will be between $3.45 $3.60 and may vary significantly due to the impact of stock option exercises on the GAAP effective tax rate as well as the final valuation of acquired intangibles. We expect 2019 non GAAP diluted EPS will be between $5.20 $5.35 For the year, estimated pre tax non cash share based compensation expense is expected to be approximately $62,000,000 We expect R and D expense for the year will be between $82,000,000 $84,000,000 Fully diluted shares for the year are expected to be between $40,041,000,000 shares.
GAAP earnings per share assumes an estimated annual effective tax rate of 10% after discrete tax items and includes approximately $27,000,000 of estimated discrete tax benefits related to share based compensation, which may vary significantly based on the timing and volume of stock option exercises. Our estimated non GAAP annual effective tax rate for 2019 is 24%. We expect our total capital expenditures will be between $48,000,000 $50,000,000 for the year, including approximately $22,000,000 related to real estate and approximately $6,000,000 of capitalized software at MicroPact. Total depreciation and amortization is expected to be approximately $77,000,000 including approximately $51,000,000 of amortization of acquired intangibles. Now I'd like to turn the call back over to John for his comments.
Thanks, Brian. We're pleased with our Q1 results and our outlook for the rest of the year. We again achieved double digit revenue growth even if subscriptions made up more than 50% of new software contracts. We've now achieved subscription revenue growth of greater than 20% in 48 of our last 53 quarters. Bookings growth was strong and our new business pipeline remains active.
We're also pleased to have completed 2 strategic acquisitions during the quarter. ICivic will elevate Tyler's current citizen facing applications by enabling clients to provide a single app for citizens to interact with their local governments in multiple ways. MicroPact is the 2nd largest acquisition in the company's history and augments our product solutions, positions practices such as health and human services and presents opportunities to expand our business across new and complementary markets, including the federal market. Finally, we want to thank the nearly 6,000 clients and 1,000 Tyler associates and partners who participated in Connect 2019, our annual user conference held in Dallas last month. This was our largest Connect ever by a wide margin.
We welcome clients from all 50 states, Guam, Canada, Spain and the Netherlands, who took part in 1100 training classes across 66 different educational tracks featuring 18 different Tyler product groups. As we continue to share progress with our vision on Connected Communities, we were especially honored to welcome former President George W. Bush as the featured speaker at Connect and we were all inspired by President Bush and his appreciation of the challenges faced by those working in the public sector. We also hosted investor and analyst at Connect and the presentations and replay of our Investor Day are available in the Investor Relations section of our website. Now Keith will take questions.
Yes. Thank you. We will now begin the question and answer And this morning's first question comes from Rick Bracelin with KeyBanc Capital Markets.
Thanks for taking the question. Lynn, perhaps I'll start with you and this is more of a kind of strategy question, particularly on the heels of coming off this user conference. But as we think about software model transitions, lots of we've seen lots of software companies transition to kind of a subscription first approach, while still giving some customer flexibility in the licensing side. You're starting to see large customers go to this and choosing kind of subscription. At what point do you start to incentivize the sales team to lead with subscription?
And just wanted to understand kind of the philosophy behind a subscription first approach going forward just given the changing customer preferences that we're seeing show up here in the quarter?
Yes, sure, Brent. No question, we're continuing to see an evolution in the market. I think if you look sort of at subscription rates 5 years ago versus today, it's significantly different. I'd anticipate that 5 years from now it will continue to be different. Historically, as you know, we've taken the approach of a little bit of agnostic.
There's still a good chunk of the market out there that is looking for on premises. But at the same time, we are making plans internally as the markets continue to shift to the cloud. We had not got to the point where we're actually trying to lead the market in that direction. We are being responsive. But we do have a number cloud initiatives going on within Tyler from a product standpoint, in other words, in other areas.
And it is a focus for us as we look out over the next couple of years.
Got it. Certainly helpful color there. And then just as a technology kind of focus, would you want Is there a kind of governor relative to moving to subscription first around technology, I. E, would you want a multi tenant kind of SaaS offering before you kind of pushed it? Or is that less tied to the decision tree around moving towards a subscription first approach?
Well, as you know, each of our product lines, our leading products have, gosh, 25, 30 years of functional deep functionality that's been put in them. We've taken the approach that we're evolving those products. As we look to move to the cloud and as we look to even potentially move to the public cloud more as opposed to the Tyler cloud, we are doing product assessments right now. There's different ways of sort of addressing the multi tenancy. In some areas, it's more practical than others.
Some areas, you may have a more of a multi tenant front end, but they have a single instance back end. There's certain areas where you would get a multi tenant all the way through. We're actually doing some sort of long term product analysis in that to that regard right now. I wouldn't expect anything in the near term to come out with that, but that is part of our long range planning from a strategic basis.
Got it. Super helpful color there. Appreciate the transparency. And then last one for me, just Brian, as you think about that e filing business, a nice step back in growth there. I know it dipped below double digits.
Now we're back healthy in double digit growth territory there. Can you just remind us the visibility you have into that business, the timing of the rebound here and if that's sustainable? Thanks.
Sure. Visibility varies there. We have a fair number of commitments for new e filing customers already signed up and some of these are customers where we're in the process of implementing a court system and they'll start e filing once that court system goes live. Others are currently engaged in e filing, but on an optional basis and at some point, depending on their own internal schedules, we'll move to mandatory e filing. So we have some visibility over that, but the visibility over the timing isn't perfect.
We also certainly have a pipeline of new customers that we're pursuing on the e filing basis, some of which are existing Tyler Courts customers and some of which are not. So I'd say visibility over new business is fairly good, but the timing can certainly vary. I'd expect to see growth kind of in this mid teens range throughout this year. And beyond that, we do believe that both e filing as well as some of the other e services like Research and Modria Online Dispute Resolution will continue to be drivers that grow above Tyler's core organic growth rate.
Got it. Helpful color there. I'll leave the floor. Thanks.
Thank you. And the next question comes from Peter Heckmann with D. A. Davidson.
Good morning. Thanks for taking my questions. Could you Brian, could you remind us in terms of your annual guidance, what is your assumption for mix to subscription? And how might those organic growth calculations change if the mix for the rest of the year look like the mix in the Q1?
Yes. The range of our guidance, which is still relatively wide on the revenue side, encompasses what we believe is the reasonable range that that mix might fall in. And I'd say this quarter would be on the high end of that in terms of the subscription mix at 54%. So I think it ranges broadly between kind of 45% 55% subscription mix. If it stay that north of say 55% for the full year, that would be challenging to achieve the revenue.
But we do have visibility into a lot of the mix in the pipeline, which and based on that, we believe that the actual mix for the full year will fall within the range that our guidance encompasses. Got it. That's helpful.
And then now that you've owned MicroPact for a couple of months, any updated thoughts? Have you been able to initiate any early cross selling discussions? Has there been any notable bookings since close? And can you talk about what you think the top line growth rate might look like as MicroPact falls in the organic calculation next year? Yes, Pete, let me take some of that and Brian may get to the growth rate question.
MicroPact, we have only owned it. It was only 1 month in this year's financials. We have owned it a couple of months. There's a lot of excitement both from their team and our team about it. The initial transition is going well.
We're encouraged by the amount of federal activity that they experienced in Q1. It was coming off a couple of years of a little bit of muted activity. I think we described that on the last call with the change in administration. But even with the strong I mean, even with the government shutdown in Q1, they had a good strong license quarter. We had a couple of nice wins in the Q1.
I mentioned one in my opening comments, the U. S. Merit Systems Protection Board, which is really a federal administrative law judges agency that conducts employee appeals and merit system studies. What's interesting about that is there are multiple ALJ, and that is Administrative Law Judge Agencies, both at the federal and state level. So getting one of those is strategic.
We had a nice win with the Tennessee Officer Inspector General, which is something that looks at civil and criminal fraud abuse in the TennCare programs, Tennessee Care programs. Again, strategic because it was our 1st state level Inspector General deal. And again, there's a lot of Inspector General offices throughout the both the federal government as well as the state and local agencies. So some encouraging signs. But again, we've had it now 2 months, but we're happy with the team.
We're happy we've done the acquisition. I think you also mentioned some cross selling. Right now, I'd say we've introduced the Socrata platform there. We're very early in the stages of doing that analysis, but we believe Socrata will play well in their federal agencies.
And so with that, Brian, do you want
Yes. In terms of their growth rate, I'd say this year we'd be have expectations around growth sort of in line with Tyler's overall growth, kind of that high single digits. Certainly some opportunities to outperform that, but at this point, I think we're comfortable with growth in MicroPact in line with Tyler's overall growth.
Great. That's helpful. Thank you.
Thank you. And the next question comes from Kirk Materne with Evercore ISI.
Yes. Thanks very much. I guess just maybe the first one is for Brian. Brian, just in terms of the subscription mix this quarter, and you mentioned going forward in the year, you feel pretty comfortable about how the sort of the composition of the pipeline sets up. When you came in this quarter, were a lot of those deals that ended up going subscription?
Are these decisions that customers are making at the last minute, so it's just getting front. It's a mix and it varies from quarter to quarter. Certainly, there are deals in the pipeline
that only want on premises from the start. There are deals that and typically a smaller group of deals that only want subscription, although that number is over time increasing. And some that don't know that we give proposals for both a subscription arrangement and a license arrangement and some of those select Tyler and even up until very close to when they execute a contract, they haven't decided yet. So we certainly going into the last month of the quarter, we have deals that we've been awarded that don't know which way they're going to go in terms of subscription or license. So there's a variety and it's different each quarter.
And so it does make it a little less predictable than just knowing if we're going to win the deal or not. And over time, we probably get a little better at that, but it does create some uncertainty and that's one reason we keep the guidance range on the revenue side a bit wide, maybe a bit farther into the year.
Right. And just as a customer does go subscription, can you just remind, I guess, me of the rev rec around that? Do you start to get to recognize that once it's invoiced? Or do you have to wait until they've actually implemented the technology? Meaning, think all of us understand the benefit of the long term benefit of bookings versus maybe upfront.
But I guess just when do the bookings start to come in onto the income statement for you?
Yes. When we sign in a subscription arrangement, generally we start recognizing revenue when they have access to the software, which is pretty close to the signing. So we'll generally start recognizing those and those generally recognized on a pro rata basis over the term of the agreement. And most of those agreements have a fixed fee over that initial term of the agreement, but we do start recognizing pretty quickly.
Okay, good. So some of those deferred this quarter will start showing up in this fiscal year, not have to wait 12 months or whatever.
Yes. That's the extent. To the extent that mix is higher on subscription, it's better for us if that's early in the year when we get more benefit in the current year.
And last one and maybe for Lynn. Just I mean, clearly, the subscription mix keeps going up. It seems that your customer base is slowly getting more comfortable with your cloud based technology. What's the opportunity for you all to sort of partner up with one of the bigger public cloud vendors to allow them to focus more on the infrastructure and you all simply you continue to focus more on the application side. Is it still too early on that front?
It seems like an opportunity maybe longer term. Just any thoughts you might have on that would be helpful.
I think that's I think you've stated a good point. It's certainly an opportunity. As I mentioned earlier, we're looking at the move to the cloud from a sort of a company wide long term strategic perspective. And doing something like that is certainly something that's on the list of that we're looking into.
Okay, great. I'll leave it there. I'll turn it over to others. Thank you.
Thank you. And the next question comes from Alex Zukin with Piper Jaffray.
Guys. Thanks for taking my question. Just maybe a couple, maybe staying on the same topic. Lynn, can you remind us just of the unit economics when a customer goes with a subscription arrangement versus a license arrangement? Clearly, you're getting more pricing flexibility because of the contract duration being smaller.
But why not have why not charge more for subscription? And why not incentivize the sales organization around selling subscription in a more meaningful way to kind of drive this cloud transition given the customers are a bit more open to historically adopting
it? Sure. As we said, it does seem the market is moving. It does still vary from quarter to quarter. We had a pretty strong SaaS quarter this quarter.
But I think overall, if you step back, it is moving. Again, historically, we have not done that in part because at the end of the day, the value to Tyler is capturing the customer, the long term value, whether it's on prem or subscription. And so we want to make sure we get that customer. And there's still a fair amount of business out there that if we went 100 percent one way, we would start missing out on. We think that we can evolve over time and help lead that a little bit.
But again, we're about trying to capture the customer. You asked about the model. Generally speaking, it's about 3 years before when you take the original license and the maintenance versus the subscription to where it sort of
I think those lines intersect. Then when
you start looking at long term, 10 years, we believe it's sort of in the 1.8 percent times revenue.
Got it. And then maybe for Brian, how should we think about the Public Safety business this year with respect to kind of core Tyler growth? And how do the pipelines look at the moment? It seems like you closed some of the deals that slipped out of Q4. What's the curve look like?
Do you feel like there's going to be more linearity now that you've had it under your belt for longer? You understand that business a little bit better? Just help us frame that a bit.
Well, that business is still heavily weighted towards the second half of the year and particularly in the Q4, and we expect that to be the case this year. Having said that, this was a really strong Q1. I think their bookings were up in Q1 38% over last year's Q1 and this may have been the best Q1 for bookings they've ever had. Now as you noted, part of that is due to some deals that we had originally expected would have been back in Q4 that and I think all of those deals that we had expected to close in Q1 did close this quarter. But we still expect it will be a heavily 4th quarter weighted business this year, but the key signs of really good growth.
The investments we've made in the products over the last 3 years since we acquired New World are really starting to manifest themselves in these higher win rates, in bigger opportunities and starting to affect deals in the market. We do think that also this year that we're now positioned to start to pursue some deals that are larger than those that New World's typically focused on in the past with the investments we've made over the last couple of years, now at the point where we can respond to RFPs for bigger deals. That we wouldn't expect to have an impact on this year. Those are long sales processes and to the extent we start to pursue some of those larger deals this year, they're probably decisions that are made well into next year or beyond and see revenues beyond that. But we feel like the foundation we've laid there for growth that starts to catch up with Tyler's overall growth and starts to contribute to higher growth in Tyler's core in the public safety area are starting to pay off.
Got it. And then just one final one on cash flow. Was there any anything unusual on collections in the quarter? I think cash flow number was a bit light of our expectations. And maybe can you just give an update on where we should be thinking about for free cash flow for the year?
Sure. We don't guide to free cash flow, but we've talked about cash flow growth in excess of our non GAAP earnings growth and I think we probably expect to see that this year. We this quarter, cash flow really, I think the biggest factor there in terms of that being below last year's is increase in unbilled and that's coming from a couple of places. 1, we have a number of relatively large percentage of completion contracts, some on the tax side, places like New York City, where we have a very large project underway, New York State, where we also have a large tax project underway, British Columbia. And those all have milestone billing arrangements.
And those milestones lag when we recognize revenue. New York City is one of those where we went live this quarter with their new property tax system. And so we expect to see a significant billing here in Q2 following that milestone. But we have a number of those large projects that have unbilled. So it's just the timing of those billing arrangements until they turn around.
We do expect to see some of those this year. The other impact is from the adoption of 606, where we recognize revenue at a faster rate on licenses. We used to recognize revenue just to the extent we could bill it. So we didn't have unbilled receivables on licenses. Now under 606, we recognize that upfront and it creates an unbilled receivable, so it drives DSOs up.
But I think we'd expect to see free cash flow growth in the probably the low double digits over last year.
Perfect. Thank you, guys.
Thank you. And the next question comes from Rob Oliver with Baird.
Hi, guys. Thanks for taking my question.
I just wanted to follow-up
on the public safety commentary. If we could get a little bit more color on some of the deals, some of the wins that you had this quarter. I know there were some carryover wins from or some deals that were pushed out from last quarter. But in particular, relative to the competitive landscape, does Tyler incumbency on the ERP side play a role here? How much is cross selling playing into the strength?
And then Brian, I know you mentioned that you guys are now set up for some larger deals exiting this year, and I wanted to just drill down on that a little bit. And then I had one follow-up. Thanks.
I'll start with that, Rob. In terms of the competitive the deals of Q1, yes, we are becoming more competitive. The investments are starting to pay off. You talked about cross selling. I think we talked about on the last earnings call.
You see more of that through our Tyler Lyon story and where we've got a strong C and J presence. We talked last quarter about our C and J presence here, Odyssey presence in the State of Texas has opened up the State of Texas somewhat to public safety and we started to win some business in a state where really they had been shut out historically. If you look in the Q1, talking again about how our investments are starting to pay off, Public Safety got its first win in California in a little over 3 years. And the California pipeline looks strong. Again, that's a result of the investments we've made in the product.
Our RFP response rate, which is our rate in which we're actually responding to RFPs, has increased substantially year over year, primarily because of the investments and we're now able to check off the functionality. Whereas before, if we had a low ability to respond, you may not go through that process. So we're responding to more FPs, as Brian mentioned, larger RFPs. So overall, I think we're pleased with the investments. I think some of the investments we've made in some acquisitions like Singdock and Socrata, they're expanding that portfolio.
We're seeing leverage there both within the public safety base, as well as helping us competitively in new deals.
Great. And when you guys also called out on the quarter, by the way, great quarter for the tropical island sales team of Tyler with Bahamas and Palau. But you also and we noticed as well there was a pretty good international attendance at Connect. And so just wanted to just get an update on are you signaling something to us there or just calling them out? And is international a kind of a burgeoning area there?
Thanks.
I think a little bit was a shout out to them. It was in particular, when we talked about the Netherlands, those were some of our new MicroPact customers. MicroPact does have some international business. We've got a little bit of international business. It's part of our long range growth roadmap.
I wouldn't say there's any more emphasis now than there's been in the last couple of quarters. We have a lot of I think we've got a lot of still green space here, but it's certainly part of our long term growth plans.
Thanks, guys.
Thank you. The next question comes from Scott Berg with Needham.
Hi, John, Lynn and Brian. Thanks for taking my question and congrats on a good quarter. I guess the two questions I have is, first of all, on the subscription side in the quarter, are any products in particular seeing a heavier set of demand moving towards subscription than maybe what we've seen in the past?
Scott, I don't have the specific numbers by product line. It was a pretty heavy quarter on our ERP side. We're starting to see actually a little more subscriptions in our C and J, both in some awards and some deals. I think I mentioned in my comments, there was 1 or 2 fairly significant A and T that went subscription. So it's been a little bit across the board.
The volume of contracts on ERP that seems to sway these numbers a lot and it was certainly a high quarter on the ERP side.
Got it. That's helpful. And sorry, go ahead, Marty.
I'd just add, Courts and Justice, I think you're seeing with Odyssey greater adoption there as well. But really this quarter, the ERP side and the appraisal and tax side had the highest mixes of subscription relative to the other product groups. And of course, some of those data and insights, the Socrata business is 100% subscription. So as that business grows, that helps push that mix more towards subscription as well.
Helpful. And then on the you mentioned Socrata, you've had the asset now for a year now, I believe. I guess looking back over the last year, thoughts on progress you're making with the products in the pipeline? I guess, are you more excited in terms of the opportunities that are out there? I know the use cases are more than abundant, but how's the reception maybe been today versus your expectations a year ago?
I'd say it's meeting our expectations, Scott. I mean, when we did that acquisition, it was really part of our long term strategic roadmap, both from a Connected Communities vision as well as opening up new markets. The prospect for governments going to be becoming more data driven, I think that's a trend that we're going to see and it's good that we're on the forefront of it. It's performing about where we'd like. We do have a lot of initiatives going inside, Tyler, as you mentioned, across a lot of different products.
We've done some things. As you know, when we acquired Socrata, they were already sort of SCGC. I'd say we're focusing a little bit more. Pre Tyler, they were focused more on GOV 500. That's something that I think is still important, but we're really now focusing on leveraging those solutions and creating solutions rather than just a platform that will push down through our channels across our base.
So I'd say we're still pleased. We're still optimistic what it's going to do for us in the future. And again, it's part of our overall long term roadmap for Connected Communities and again, the whole concept of data driven decisions in governments.
Great. That's all I have. Thanks for taking my questions.
Thank you. And the next question comes from Charlie Strauzer with CJS Securities.
Hi, good morning. Most of
my questions have been answered. Just a couple of quick ones, but on the just to continue the SaaS discussion, but as SaaS continues to show very robust growth here and if that continues throughout the year, I would suspect that will have an impact on hardware sales, is that correct?
Sorry, on hardware sales?
Yes. Meaning less more SaaS means probably less hardware sales, is that correct?
Really, we don't do I guess maybe marginally, but we don't do a lot of hardware sales on around the core products. Most of the hardware sales come from either really small clients who want to buy everything from one place. But most of it is around products like our Brazos mobile citation device product, which carries hardware with it. Our newer probation software acquisition has some hardware that goes with that. So I guess marginally it could reduce the hardware, but most of our hardware today is around those public safety and probation products.
Excellent. Thanks for the help there. And then just as we look at the progression of the year in terms of seasonality back half of the year versus front half of the year versus for revenue. And also thinking about Q2, how should we think about the progression there?
Yes, I think much more heavy towards the back half of the year. We expect to see a progression, pretty significant progression in Q2 because of getting a full quarter of MicroPact. And then expect again growth from the last 2 quarters fairly significantly above where we are in Q2. So I'd expect to see increasing growth both from an organic perspective and total growth perspective sequentially each quarter in the year. Also organic growth will benefit from the acquisitions in 2018, particularly Socrata and Sage becoming part of organic growth after this quarter.
So again, sequential growth, but pretty strong growth from Q1 to Q2 in terms of overall revenues and then solid growth from there to Q3 and Q4.
And anything funky in terms of weird comps or bookings from Q2 that we should be aware of from last year?
I think Q2 was pretty standard. I don't recall anything jumping out as being an unusually large contract last year in Q2. Let's see, our biggest deal last year, Last year was certainly a year where we didn't have any of the mega deals throughout the year. But I'll take a look, but
I don't
recall anything unusual in the Q2 bookings last year.
Thank you very much.
Thank you. And the next question comes from Keith Hossen with Northcoast Research.
Good morning. Just two quick questions for you.
Can you help me out
with the competitive wins, the win rate this quarter versus what it was in the Q1 last year?
I'm sorry, can you repeat that, Keith? I didn't quite catch all that.
Yes. Just going back to
the Public Safety segment, just looking for
the win rates this year versus last year, trying to understand the progression there.
It's pretty consistent where it was last year. We've made pretty big strides. As you know, we talked about on the calls last couple of years. I've made the comment a few times that we didn't have enough data points to call it a trend. I'd like to think we're now in that trend.
So it's pretty consistent. And again, it's consistent with a larger pipeline and a larger, more RFP responses. So those are all positives.
Got you. And Brian, can
you just remind me or provide some color on the profitability of
the subscription business versus the license? What impact to
the bottom line did it have in the
quarter for the movement to more subscription this quarter?
Well, in the short term, it's a negative to profitability because you're not getting that upfront license. We have a conversion factor and we said that if all of the subscription deals had been license deals, it would have been an additional approximately $12,000,000 of licenses, which would have generally gone directly to the bottom line. And you can sort of extrapolate that if 10% of them had been license deals. So in the short term, it puts pressure on both revenue growth and earnings growth because those licenses would have gone for the most part directly to income. Over the long term and as Lynn said, the breakeven point say for a 3 year subscription agreement is somewhere around that the end of that 3rd year, early in the 4th year in terms of revenues breaking even.
And after that 1st year, the margins are higher and the earnings are higher on the subscription arrangement over the life of the subscription agreement. Certainly, revenues might be double and even with the double what it would have been under a license arrangement. And even with the hosting costs factored in, the earnings on that subscription arrangement will still be fairly a good amount higher than the long term earnings on a licensed customer.
Great. Thank you.
Thank you. And the next question comes from Jonathan Ho with William Blair and Company.
Hi, good morning. I just wanted to maybe start out with a few higher level questions. If clients are more willing to look at SaaS solutions, does this potentially change the type of competitor you'll see with maybe some of the commercial SaaS ERP vendors that haven't competed as much in the space and maybe trying to get more of a foothold in the market?
John, we're not seeing a lot of that right now. They certainly come into our space from time to time. The difference still is, the decision is not while SaaS or cloud may be a big part of the decision, at the end of the day, it's the features and functionality that we've got that maybe the commercial based vendors don't have and that deep domain expertise. Certainly, it's you see a little bit more, it would be but I don't see it just yet as a trend in the market.
Got it. And then just in terms of the investments that you've made across the broader product suite, are you starting to see opportunities to become more of a strategic partner for agencies as opposed to just selling sort of point solutions on a contract by contract basis? Just trying to understand as these agencies go through digital transformation, whether you've got an opportunity to influence that a little bit more.
Well, I think that's part of our long term strategy and goal. That's kind of what Connected Communities is all about. We talked about it last quarter with the City of Lubbock deal, where we sold a whole host of solutions. I think that's an opportunity down the road and it's something that I think we're uniquely positioned to do, which is part of our overall growth strategy.
Great. Thank you.
Thank And the next question comes from Tim Klasell with Northland Securities.
Yes. Hi, guys. Just a nice queue. Just a couple of quick questions. 1, on their conference call, ServiceNow mentioned that they saw a nice uptick in the federal government for various reasons.
We offer a somewhat similar platform as MicroPact. And now that you've had it for a couple of months, any changes in your thinking of how that will affect, obviously, the federal business and how much of that will be sold into your core state and local? Thank you.
I don't know that our, Tim, that our thoughts have changed a lot. Like I mentioned a few minutes ago, as you said, we've had MicroPact for a couple of months. We're very excited about it. They had a very strong Q1, relatively speaking. They had some nice strategic wins.
There are some big competitors in that space, but we're faring well. We've had some nice wins, not yet contracts over some significant name competitors, which we're excited about. But overall, we're excited about the opportunity.
Okay. Okay, good. And then jumping over to the subscription side. I think Brian, you mentioned you had 3 buckets of the guys who are thinking on prem, guys who are sort of maybe in the middle and guys who are thinking like SaaS. And I understand that the guys in the middle, that is pretty variable.
But in your results, is there how much of it is due to, gee, you just had a stronger quarter or maybe a higher hit rate in the bucket of maybe on prem versus maybe a little bit lower in the SaaS or vice versa. How much of the variability is just randomness in the deals coming in versus the middle bucket just being hard to call?
I think a lot of
it is just randomness. It just varies based on and you've seen those percentages, although the trend over a long period of time has been towards more subscription, you've seen those percentages in the mix bounce around a lot from quarter to quarter. And frankly, just a lot of it is randomness to customers that happen to make decisions in this quarter, which one of those buckets they fall in. I do think that today that a lot of the customers still are in one of the camps or the other and that often we have somewhat limited ability to drive them more towards subscription. But generally, to the extent that we do believe we have the ability to influence someone, and it could be because they're open to either model or it could be that as we go through the process that we find that maybe due to their infrastructure or challenges they have internally that they're a better candidate for a SaaS arrangement and we are able to move them more towards that.
But in many cases, we have a pretty limited ability to change which way they want to go. But there's a lot of randomness in there. And I think you'll continue to see that bounce around from quarter to quarter.
Okay, good. And then one final one. I think in the past case, you guys mentioned you're awarded but not signed sort of your off balance sheet backlog, if you will. Has that changed appreciably this last quarter? Or was it still sort of within your normal sort of band, if you will?
Pretty normal. We talked about an active pipeline. We certainly got we like to have a number of deals that are awarded. Sometimes it's hard to predict exactly how long that contracting cycle will be, particularly with larger deals that take longer, more complex processes to get to a signature on a contract. But I'd say the volume of those is pretty normal right now.
Okay.
Thank you very much.
Thank you. And at this time, there appear to be no more questions. Mr. Marr, I'll turn the call back over to you for closing comments.
Okay. Thank you, Brian. Thank you for joining us today. If you have any further questions, feel free to call Lynn, Brian or myself. Have a great day.
Thank
you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.