Welcome to today's Tyler Technologies Second Quarter 2017 Conference Call. Your host for today's call is John Marr, President and CEO of Tyler Technologies. At this time, all participants are in a 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, July 27, 2017.
I would now like to turn the call over to Mr. Marr. Please go ahead.
Thank you, Will, and welcome to our Q2 2017 earnings call. With me on the call today are Lynn Moore, our President 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 and Brian will review the details of our 2nd quarter results and 2017 guidance. Then I'll have some final comments and we'll take your questions.
Brian?
Thanks, 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'd refer you to our Form 10 ks and other SEC filings for more information on those risks. 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. Tyler performed at
a high level in many respects in the Q2 and earnings were in line with our expectations. Total GAAP revenue growth was nearly 11%, all of which was organic and non GAAP revenue growth was just over 8%. Subscriptions was our fastest growing revenue line, up 21%. Total recurring revenue from maintenance and subscriptions grew 16% and comprised more than 62% of total revenue. Bookings for the quarter were strong, increasing 14%.
For the first half of the year, bookings were up almost 18%. Our core end backlog reached a new milestone at 1,000,000,000 dollars up 17% over last year's. Our largest contract of the quarter was a multi suite deal with Cook County, Illinois for our Odyssey Court Case Manager and Brazos eCitation solutions valued at $36,000,000 Other significant multi suite arrangements during the quarter included SaaS contracts with Santa Fe, New Mexico for our Munis and EnerGov solutions and Nampa, Idaho for our Munis, EnerGov, Executime and Tyler Notify solutions, as well as a traditional license contract with Bartlesville, Oklahoma for our Munis and EnerGov solutions. We signed our 13th statewide Odysee course contract with the State of Vermont. The deal is valued at over $6,000,000 and includes e filing under a transaction based arrangement.
We also expanded our Odyssey footprint into 2 additional new states with a SaaS contract for court case management with St. Tammany Parish in Louisiana and our first e filing contract in the state of Alabama with Jefferson County. Notable new contracts for our New World Public Safety solution included license arrangements with Lehigh County, Pennsylvania Kendall County 911 in Illinois and Hamilton Township, New Jersey. We're pleased with the progress we've made with our competitive position in public safety. Through the 1st 6 months of 2017, we've added as many new clients for New World Public Safety as we did for the full year of 2016.
For our IAS World appraisal and tax solution, notable contracts included an $8,000,000 SaaS arrangement with Philadelphia, Pennsylvania as well as major SaaS contracts with Scott County, Minnesota and the Massachusetts Office of Information Technology as well as traditional license contract with Augusta, Georgia. For our Munis ERP solution, we signed notable license contracts with Berkeley, California Harnett County, North Carolina Kirkland, Washington and the Berkeley County School District in South Carolina. In addition, our Munis ERP solution signed notable SaaS arrangements with Glendale, Arizona and Milford, Connecticut. For our EnerGov solution, major contracts included a license deal with Fort Myers, Florida and a SaaS agreement with New Hanover County, North Carolina. Now I'd like for Brian to provide more detail on the results for the quarter and our updated annual guidance for 2017.
Thanks, Lynn. Yesterday, Tyler Technologies reported its results for the Q2 ended June 30, 2017. I'm going to provide some additional data on quarter's performance and update our guidance for 2017, 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 and amortization of acquired intangibles.
A reconciliation of GAAP to non GAAP measures is provided in our earnings release. GAAP revenues for the Q2 were $209,100,000 up 10.7%, all of which was organic. On a non GAAP basis, revenues were $209,400,000 up 8.1%. Software license and royalty revenues decreased 2.5% as we saw a high level of SaaS deals signed in the current quarter bookings mix. Subscription revenues increased 20.5%.
We added 105 new subscription based arrangements and converted 37 existing on premises clients, representing approximately $49,800,000 in total contract value. In Q2 of last year, we added 74 new subscription based arrangements and had 18 on premises conversions representing approximately $31,300,000 in total contract value. SaaS clients represented approximately 51% of our software contracts in the quarter compared to 34% in the prior year quarter. This is the first time the number of new SaaS deals was greater than the number of traditional license deals. SaaS contract value comprised 39% of the total new software contract value signed this quarter compared to 26% in Q2 last year.
The value weighted average term of new SaaS contracts this quarter was 5.2 years compared to 5.6 years in last year's Q2. Transaction based revenues from e filing and online payments, which are included in subscriptions, increased 18.6% to $14,000,000 from $11,800,000 last year. That amount includes e filing revenue of $10,600,000 this quarter, up 18.8% over last year. Cash flow from operations was $1,400,000 compared to $19,500,000 last year. The decline is primarily due to the timing of payroll and income tax payments.
This year, we had one more payday in Q2 than we did last year. Also last year, we had lower cash estimated tax payments in Q2 as we carried a large prepaid tax balance into 2016 from the prior year. Free cash flow, which is calculated as cash from operations less capital expenditures, was negative $8,900,000 compared to $14,300,000 in last year's Q2. Our CapEx for the quarter was $10,300,000 including $4,700,000 related to real estate compared to total CapEx of $5,200,000 in Q2 last year. We ended the quarter with a total of $92,600,000 in cash and investments and no outstanding debt.
Day sales outstanding in accounts receivables was 101 days at June 30, 2017 compared to 100 days at June 30, 2016. Our backlog at the end of the quarter was $1,000,000,000 up 17.3%. Software related backlog, which excludes backlog from appraisal services contracts, was $988,700,000 a 19.6 percent increase. Backlog included $266,700,000 of maintenance compared to $235,100,000 a year ago. Subscription backlog was $382,400,000 compared to $258,900,000 last year and includes approximately $101,000,000 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 $288,000,000 an increase of 13.8 percent from Q2 of 2016. For the trailing 12 months, bookings were approximately 952,000,000 dollars a 24.1 percent increase. Note that we have posted a spreadsheet detailing our quarterly bookings calculations on the Investor Relations section of our website at www.tylertech.com/investors under the Financials and Annual Report tab. We signed 25 new contracts in the 2nd quarter that included software licenses greater than $100,000 and those contracts had an average license of $842,000 compared to 38 new contracts with an average license value of 5 $73,000 in the Q2 of 2016. Our guidance for the full year of 2017 is unchanged from our previous guidance.
We currently expect 2017 GAAP revenues will be between $844,000,000 $854,000,000 and our non GAAP revenues will be between $845,000,000 $855,000,000 We expect 2017 GAAP diluted EPS will be approximately $3.26 to $3.34 and may vary significantly due to the impact of stock option exercises on the GAAP effective tax rate under ASU 20 sixteen-nine. We expect 2017 non GAAP diluted EPS will be approximately $3.83 to $3.91 We expect that as in most years earnings will be stronger in the second half of the year than in the first half with the greatest sequential increase in earnings coming from the Q2 to the Q3. For the year, estimated pre tax non cash share based compensation expense is expected to be approximately $37,000,000 We expect R and D expense for the year will be approximately $48,000,000 to $50,000,000 Fully diluted shares for the year are expected to be between $39,000,000 and 40,000,000 shares. GAAP earnings per share assumes an estimated annual effective tax rate of 20% after discrete tax items and includes approximately $29,000,000 of discrete tax benefits related to share based compensation. We estimate the non GAAP annual effective tax rate for 20 17 to be approximately 35.5%.
Beginning in 2017, Tyler is adjusting its non GAAP financial income using a tax rate equal to Tyler's annual estimated tax rate on non GAAP income. This rate is based on Tyler's estimated annual GAAP income tax rate forecast adjusted to account for items excluded from GAAP income in calculating Tyler's non GAAP income as well as significant non recurring tax adjustments. The non GAAP tax rate used in future periods will be reviewed annually to determine whether it remains appropriate in consideration of factors, including Tyler's periodic effective tax rate calculated in accordance with GAAP, changes resulting from tax legislation, changes in the geographic mix of revenues and expenses and other factors deemed significant. We expect our total CapEx will be approximately $53,000,000 to $55,000,000 for the year, including approximately $24,000,000 related to real estate. Approximately $16,000,000 of our 2017 CapEx is related to our cloud business, which includes hosted SaaS solutions and e filing, including assets to accommodate future growth.
Total depreciation and amortization is expected to be approximately $50,000,000 including approximately $35,000,000 of amortization of acquired intangibles. Now I'd like to turn the call back to John for his further comments.
Thanks, Brian. The strength in our bookings again this quarter reflects both in active local government software market and our competitive strength within that market. As we noted earlier, 2nd quarter bookings rose 14% over last year. Bookings included the $36,000,000 Odyssey contract with Cook County as well as one other license contract and 3 SaaS contracts that were each valued at over $5,000,000 As we noted earlier, the business mix included a historical high level of new SaaS contracts. The total contract value for new SaaS contracts of $45,000,000 was 45% greater than our previous high quarter.
The contract mix put pressure on our recognized revenues and margins, and we're gratified that we were still able to achieve earnings in line with our expectations and that our guidance for the full year is unchanged from that we issued in April. As we've discussed previously, we are investing at a high level in product development initiatives, including major projects that will enhance our public safety products and increase their addressable market. We're pleased with our progress on these projects. Some of the new features were included in releases this quarter and we believe that these initiatives are beginning to affect decisions in the
And our first questioner today is going to be Alex Zukin with Piper Jaffray. Please go ahead.
Thank you, guys. I wanted to ask the first question just can you talk about what drove some of that cloud deal strength in the quarter? And do you see this as a new trend that you feel you have to start taking into greater account when you do an annual guidance at the beginning of the year? And then I have one follow-up.
At this point, it's probably anecdotal and hard to know if it's a shift or a trend. It's certainly significantly elevated from our historical run rates. As we've said, about 50% of the names compared to historically or for a number of years now in the 30%, 35% range and about 40% of the dollar. So it's a significant jump. Looking at the pipeline, it's somewhat elevated, but that's probably not going to be sustainable.
We'll have to see over time. As you probably know, we don't really put a lot of bias in the way we market our products. So we offer most of our products hosted as well as traditionally deployed and on premise. And we're happy to capture the clients either way. So this is a market driven preference that we experienced in this quarter, but it's a little early to know if it's a big shift.
I guess, John, just a follow-up on that question. Given there could be a greater ROI for your customers as they are able to take some of their on prem spend away when they purchase a cloud solution from you, but you guys don't price it any differently. Is there then room for you guys to think about different pricing structures and dynamics if this trend does incrementally increase?
You could. And I know a lot of companies do. We really have chosen not to and don't have plans to change that. Again, we just think the long term value of a client, traditionally deployed or hosted is significant enough that we're very happy to capture the new clients either way. And by showing preference toward 1, you could be adding a little bit of a hurdle to the other.
You want to remember that a much higher percent than what we realized in terms of the mix go out to bid for traditional on premise solutions. A lot of our wins for hosted solutions are started with RFPs for traditionally deployed. And as they went through the process and learn more about our cloud offering, they actually switched. In fact, it's not at all uncommon for someone to select Tyler in the procurement process and yet not have decided if they're going to keep it at their site or put it in our facility and then make that decision subsequently. So again, our focus is on putting the software forward, our reference abilities forward, our presence in the marketplace, the Tyler brand, and we're happy to get the client either way.
And Alex, this is Brian. Just to be clear, while we don't have a particular bias in how we sell it, there is a difference in the pricing between a traditional on premises and the cloud model and the cloud model pricing does take into account the hosting component of that. So it is a different pricing model.
Got it. That's helpful. And then Brian, maybe just on that sticking on that same point, can you walk through maybe the implications to cash flow when a customer does go with a cloud product in terms of the way that you bill, collect and how you see that flowing through this year?
Sure. Well, with the traditional on premise license deal, we typically collect a or bill a significant portion of the license upfront and the rest of the license may be billed on various terms either milestone based or time based. But there is a significant upfront collection on the license and then the services are paid over the period that the services are provided. And then there's a maintenance stream that's typically annually in advance And the revenue recognition may be a little different there. In some cases, it's a percentage of completion accounting where that license revenue recognition is spread over an implementation period.
In most deals, the license revenue recognition follows the billing under the current rev rec rules. In a SaaS deal, typically, the payments are either annually or quarterly in advance. Most deals are the whole contract amount is recognized and billed pro rata over the term of the agreement. Some clients pay the services separately and those are over the implementation period. So generally the cash flow is much more front end loaded on the license deal and with a smaller recurring fee and the subscription deal is spread pro rata over a, what's on an average of about 5 years today, but can be anywhere from 4 to as much as some cases, 7 or 10 years.
I don't think I think the shift this quarter will affect cash flow a bit this year. It's not terribly dramatic, but it will have a few $1,000,000 impact on our free cash flow this year, but on cash flow in the $200,000,000 range, it's not going to be a sort of a game changing situation.
Okay. Thank you, guys.
And the next questioner today is going to be Brian Kinstlinger with The Maxim Group. Please go ahead.
Great. Thanks so much. On NWS, the increased number of customers, I think, is a clear evidence of the impact of the investments you're making. But I'm curious how long do you think it will be before NWS can move upstream and compete on larger deals effectively?
Yes, it's a good question. I'd say that we're very pleased that we're already impacting win rates and the difference between what they were and what they are significant enough to attribute that certainly to the investments we're making. So we're pleased with that, but it's a good observation that we're still focused on generally the same addressable market that they have been traditionally. And it would really be kind of Phase 2 of that, which is an important part of their growth strategy to broaden that addressable market, including moving upstream. The full impact of these investments is a 2, 2.5 year process that we're maybe approaching the 1st year of right now.
So again, it's probably another year to 18 months before we fully realize that. And that'll be a gradual ramp up, right? You win some deals, you'll install them. Some people want to see the product, some people want to be able to go to a number of sites that are up and running. And so there'll be early adopters and then there'll be a process before we're probably looked at as a regular contender in that marketplace.
So I suspect, again, it's a ramp up a year from now to 3 years
from now. Great. Follow-up kind of a numbers question, kind of longer term thinking. I think you're putting about $6,000,000 annually into the upgrades and you're almost entering your 2nd year of that. What happens once those 2 years are done, the $12,000,000 have been put in?
Are you going to reallocate those resources? Are you going to slow spending? Is it going to drop? I know we had a similar situation a while back with Dynamics where there was some confusion about what would happen after those investments were made as well.
Yes. Well, Dynamics would be an exception to my answer basically, which would be that historically, when this project was planned, there is the option to redeploy or reduce headcount. My expectation would be and my experience would tell me that that's probably not what will happen. Preferably, we'll get the impact that we're starting to see on win rates, broadening our market presence and we'll be a bigger, busier company and we'll choose to keep those heads where they are and continue to invest in our revenues. Will grow certainly at a much accelerated rate over our growth in our R and D spend.
So we'll effectively catch up with it. We'll see leverage in that and we'll benefit from that. But if we're successful and we're capturing significant wins in the marketplace, I doubt we'll reduce headcount. I think it will just grow at a significantly lower rate than overall revenue growth.
Great. Thanks so much.
And the next questioner is going to be Scott Berg with Needham and Company. Please go ahead with your question.
Hi, everyone. Congrats on a good quarter. I've got 2 quick ones. John, the first one is maybe for Brian. Just wanted to go back to the SaaS, the subscription mix in the quarter relative to your guidance 3 months ago.
Was the SaaS mix in the 2nd quarter in line with your expectation because you're maintaining guidance the full year might suggest that. Just want to kind of understand how
you viewed the Q2 a
few months ago? I'd say the mix was marginally more heavy this quarter towards SaaS than we would have probably included in our plan. Certainly, we make adjustments along the way. There are a lot of puts and takes. And as you see, we've historically done a pretty good job of managing costs to keep in line with the revenues.
But yes, I'd say this is a higher level than we would have expect. And as John said, a lot of times, even in the current quarter, we have deals that we've been awarded that we're not sure which model they'll go with. So that's why we set a range at the beginning of the year on the revenue side that's fairly broad and typically narrow that as we get later in the year where there's a little more certainty around it. But I'd say the mix was a little more heavily heavy towards them. And as a result, while we've kept the same revenue range for the year's guidance, I say as we sit here halfway through the year, I'd expect it would be challenging to hit the high end of that range that we're again, there's a lot of business to be won in the second half of the year, but I'd say it'd be a challenge to get to the top end of that range today.
Got it. Thank you. That's helpful. And then my follow-up would be around the public safety business in the quarter. Your win rates in Q1 were very high for that business relative to what they were last year.
Wanted to see what you guys are seeing trends in the 2nd quarter. Don't expect 71% win rates from the Q1 to be sustained in the second quarter necessarily, but any commentary on what that business looked like and maybe what your pipeline strength looks like going into
the second half of the year? Thanks.
They were very close in the Q2 to what they were in the Q1. So win rates are very elevated now over a 6 month period of time over what the previous run rates were. The pipeline is good. So those are definitely leading indicators. They don't convert to revenues overnight and certainly our investment in those products and in the organization in general is not a significant contributor to margin and revenue and earnings growth, but we certainly have confidence that that will accelerate as these sites come online, so probably next year.
And our next questioner today is going to be Tim Klasell with Northland Securities. Please go ahead.
Hey, guys. Congrats on the quarter. Just a quick follow-up on Scott's question. You mentioned that might be a little hard to or challenging to hit the high end of guidance for the year. Is that just solely because of some of the shift towards SaaS?
Or is there anything else out there we should be aware of that might be contributing to the challenges of hitting the high end of the guidance?
I don't think SaaS by itself, the mix is responsible for everything in our numbers. No question, it's a very elevated adoption rate and certainly affects revenues and margins in the quarter and we'll see how it goes forward. It's certainly a meaningful part of the story, but no, it's not the whole thing. I think in some of our businesses that experienced very high growth rates over the last 3 years, namely Courts and Justice, there's a little bit of a digestion period going on, executing on those contracts, addressing certainly the success of those sites and their customer satisfaction. So there's a little opportunity cost to digesting those sites, investing in our relationships with those in terms of opportunity cost, in terms of current revenues and earnings.
All of these divisions have strong outlooks. Their pipelines look good. Their competitive positions look good. And while there's a pause in some of the growth right now that isn't mix related, all of them have expectations for accelerated growth in the second half and into 'eighteen.
Okay, great, great. And then from both of you guys, maybe John, at your user conference, you dove a lot into creating sort of call it a common look and feel across as much of your product line as you can. And I certainly see how that can provide leverage over time. What sort of feedback are you getting from customers? Is that entering into the conversations yet of sort of the future where you're taking this and how you can leverage it or would it be a little bit too early to start hearing that feedback from the customers yet?
Probably a little early. It's a vision. It's a commitment and investment that's going on. There are some early deliverables that support and add credibility to this strategy and customers are excited about that. And if you're at the conference, you saw that it was very well received.
There's always a trick when you're in this process. What we have that's deliverable, referenceable, we can take people to sites and show them is winning. That's a leader in the marketplace. And so while we'll talk about this vision and the strategy and we're anxious to share the early deliverables to lend that credibility to it. You also want to remain focused on what you have that you can touch and feel and see today that wins.
So, it's a little of both, but it is early. And I think over the next couple of years as more and more of the evidence is deliverable, it will play a bigger role in the decision process.
Great. Thank you very much, guys.
And the next questioner is going to be Brent Bracelin with KeyBanc. Please go ahead.
Thank you for taking
the question. First for Brian here is really on the guidance for the second half. Guidance does imply that you're going to see acceleration in growth. I guess the question here is with not a lot of visibility into whether those awards are kind of perpetual or SaaS cloud. But what's the confidence you can see a growth?
What's baked into your assumption relative to the second half acceleration relative to the mix of kind of SaaS? Do you expect it to stay the same, decline? Help us understand in order to see an acceleration, what are you assuming on the mix side for subscription SaaS?
Well, I'd say the range of guidance is still fairly wide and that takes into account a wide range of SaaS, cloud versus traditional mix. We expect that that mix will fall within that range, but within the range on the margin is where there's a little less visibility. Certainly, we have a lot of visibility. There are a lot of deals in the pipeline that are very clearly going to be license deals or very clearly going to be SaaS deals. So I'd say we have a strong confidence as we the same level of confidence that we normally do going into the second half of the year in being within that range.
But we've chosen not to narrow the range at this point.
The visibility on the growth is pretty clear. So a majority of the growth comes from maintenance and subscriptions. So those are highly visible and under contract. You've got growth, we've had good license sales, we've got growth from new customers, We've got increases. Our biggest renewals are right now at the end of June, early July.
So we get increases in those. And then the good SaaS sales over the last several quarters support that. So that's highly visible growth. And I think the variance that could occur on new licenses is pretty narrow. So I think the visibility for the second half, we just sat through our quarterly meetings is pretty strong.
There's always some risk and there's always some upside, but I think we've got pretty good visibility on what will occur in the second half.
Very helpful. And then my second question is tied to just the composition of backlog. Clearly, backlog is growing faster than revenue and really wanted to understand is the mix of backlog by product changing much or is it relatively balanced across ERP, courts justice, public safety? Any color relative to as you look at the backlog versus the revenue mix today, is there a shift relative to those buckets?
I don't think there's any fundamental shifts going on there. Courts and Justice obviously signed, and to some extent, our appraisal and tax business on the software side typically signs larger contracts that are executed over a number of quarters, in some cases, a number of years. So their backlog as a percentage of our total backlog they make up typically is outsized related to their percentage of our revenues just because of the nature of their projects. And then Courts and Justice also has the e filing backlog and we have several significant fixed price e filing arrangements, including Texas and Illinois and Indiana that are in the backlog as well. So to the extent that C and J has the larger projects, they have a bigger percentage.
And then ERP, which is the biggest component of our revenues, has a similar sized backlog and their bookings have continued to grow at a nice pace and those 2 would be the pieces that make up the majority of the backlog.
Perfect. Very helpful. And my last question
is really around the Modere acquisition. Could you walk through kind of the logic there, kind of the hole that it fills? As you think about kind of when that could start to contribute to some new RFP award momentum?
Sure, Brent. This is Lynn Moore. As a management team, we're always kind of looking for ways to find areas for incremental growth. And I think this is one of the things one of the investments that we do. We make some internal investments.
We look at some acquisitions, some that are more mature than others, some that are a little more early stage. And I think the Modria sort of fits that bill more on the early stage. I think courts right now, they're very interested in a couple of things. They're interested in really streamlining their processes, particularly the smaller courts. There's a lot of clogs and log jams going on.
They're also very interested in expanding further their access to justice programs. So the online dispute resolution is something that we've gotten a lot of interest from our clients already. We have a number of courts who are interested in looking at some pilot programs. I'd say those things will be in the more, again, the smaller courts, traffic, family law, small claims is probably where that stuff will initially roll out. Those type of arrangements will eventually be similar to e filing and that they will either be transaction based or fixed fee.
But as of right now, I wouldn't count any meaningful revenues in the near term. It's again, it's something that we've made an investment in. We believe it will drive some incremental revenue growth and margin growth down the road, some early traction in the market, but it's still a bit unproven right now.
Great. Thank you.
And the next questioner is going to be Kirk Materne with Evercore ISI. Please go ahead.
Yes. Thanks very much. First question is for Brian. Brian, just on you mentioned $200,000,000 in operating cash flow this year, and I know that's not necessarily a hard target, but it obviously infers some pretty steep acceleration in the back half of the year. Can you just sort of help us bridge how you get there?
I know cash flow is always stronger in the second half of the year, maybe some of the working capital changes this quarter reversed back in your favor. Can you just kind of walk us through that or unpack that a little bit? Thanks.
Yes, sure. And typically what we see is our cash from operations, the vast majority of that in the second half last year, we had $192,000,000 of cash from operations and about $130,000,000 of that was in the second half of the year. And the biggest factor there is the timing of our maintenance billings. We have a particularly high maintenance renewal cycle that happens with customers on July 1, tied to a lot of customers' fiscal years. We build that in Q2 and collect that in Q3, which drives really outsized cash flow in Q3 and not into the Q4.
So, we expect that trend to continue this year and we don't give guidance on cash flow. But so that $200,000,000 plus of cash from operations is a just a directional number. But we also expect that a couple of the factors that I mentioned earlier in the second quarter, the timing of payroll that works its way out over the course of the year, as well as the timing of the cash tax payments, those will sort out over the year depending on how our stock option exercises fall and what extent we'll be able to take those credits against our future estimated tax payments. But we expect both of those will smooth out over the course of the second half.
Okay. And then my second question is for John. Just on the customers deciding to move or take on sort of a SaaS deal with you all, I'm just kind of curious if there's any commonalities on that front, meaning those are clients that had skill shortages or they needed to shift more towards an OpEx model versus a CapEx model. Was just wondering if there's any sort of commonality? And if so, do you think that's going to start to is that something that's sort of permanent in nature, meaning skill shortages across state and local governments are going to sort of help this trend accelerate potentially in the near term?
It sounds like you don't think there's anything sort of that's going to make this persist, but I was just kind of curious on your thoughts there.
Yes, I don't know that it will persist at this level, but it does appear there's a trend toward higher adoption of SaaS. So there's a few things. And I've said before, the catalyst to buy new software and the catalyst to go to the cloud, sometimes they're 2 different things and the timing of those aren't always aligned. So what you're pointing to kind of the brain drain, which is significant, a lot of long tenured people on the IT side and local government reaching retirement and as well as the capital investment and infrastructure. Those things drive conversion to the cloud.
And we did 37 flips this quarter, which are our traditional clients that move to the cloud. And so that's being driven by that typically. And there seems to be more alignment of those needs along with software needs at the same time, which drives higher adoption. And again, whether that persists at this level or is just marginally higher going forward, time will tell. The other thing that is driving certainly the number and not so much the dollar is a lot of our lower end solutions that maybe traditionally weren't offered in a SaaS mode are now.
So far more of our solutions are SaaS and maybe even have benefits by maturing in the cloud. And so that's driving higher adoption as well. And that's certainly why the number of accounts is higher. Obviously, the dollars are more attributable to munis deals and quartz deals and the higher ticket items that we sell.
Okay. That's helpful. Thanks a lot.
Yes. The next questioner is going to be Zach Cummins with B. Riley and Company. Please go ahead. Hi, good morning.
So I guess just kind of staying on the SaaS deals, are they still typically smaller municipalities that are choosing SaaS deployments or have you seen some of your larger counties begin to warm up to the idea of SaaS?
That's a mixture. On average, I'd say they're smaller than the average deal. And as John said, we have a number of our smaller clients that we're able to now with SaaS Solutions offer a cost effective model for them to acquire the same level of technologies that some of the larger customers have. So for example, in California, on courts, we have LA County as an on premise deployment, the largest county in the country, but the smallest county in the state, Alpine County, which I think has something like 1500 residents is a SaaS deployment. And so they're able to obtain the same basic technology under a cost effective and manageable model.
This quarter, our biggest SaaS deal was with the city of Philadelphia. So a large customer choosing our property and tax appraisal and tax solution on a SaaS model. But certainly, I think 60 of our new SaaS clients were less than $10,000 a year kind of clients. So we're seeing more of the larger ones, but on average it's still smaller than the average traditional client.
Okay, great. That was helpful. And about a week ago, you announced the statewide deployment of Odysee and e filing solutions in the state of Vermont. Do you have any other statewide deals that are currently in your pipeline?
Yes.
We don't typically talk about names of customers in the pipeline, but there are, I think at least 2 states that either formally have an RFP out or have done an RFI or kind of pre RFP activities for statewide court case management solutions.
Great. Thank you. Our next question is going to be Mark Schappel with Benchmark. Please go ahead.
Hi, thank you for taking my question. Just one question. John, I was wondering if you could just comment on the level and the quality of the RFPs that you're seeing out there in the marketplace. More specifically, I was just curious if the RFP activity is still high and if you're still seeing larger RFPs than you have in the past?
Yes, the volumes, very healthy. And so both the short term and the midterm, which would be through early next year and further out, those are all healthy numbers. So if our win rates continue, which we expect them to, then it certainly supports the guidance we have and the accelerated growth we're looking for in 2018 2019. Great. Thank you.
And the next questioner today is going to be Patrick Walravens with JMP Securities. Please go ahead. Great. Thanks. John, could I drill down just a little bit?
You mentioned spending some resources addressing success and customer satisfaction. Can you just tell us a little bit more about that?
Yes. When you have pretty high growth, certainly CoreTAD and very high growth over a 3 year period of time, there's always a digesting period following that. And some of those things are not necessarily part of the contract. And certainly Tyler's practice would always be to go back and work with those clients and then identify what's going well and what needs attention and work with those clients. And there's always there are always things that you just choose to do in the interest of customer sat and success and having the reference ability we're looking for to continue to win in those areas.
So some of that investment isn't billable and some of it has and comes at the expense of the opportunity cost of And so that's a piece of some of And so that's a piece of some of the slower growth or earnings at this point.
Okay, good. That's helpful. And then Brian, just sort of big picture for us here, right. So you had a strong bookings quarter, you guys feel good about the business, the RFPs are good. But now it's going to be harder to get to the high end of the range and the stock is down a little bit.
So what metrics do you think that investors should be focused on to help see through the impact of the shift to subscription?
Well, I think you need to look at a longer period of time than just 1 quarter. As we said, this isn't a higher level of subscriptions is a good thing. A higher level of bookings in any whichever method they come to us in is a good thing. And we've had 2 strong booking quarters in a row. Yes.
The trailing 12 months is strong. We do have more larger deals that where that revenue is recognized over multiple years. We've got, again, the subscriptions that are recognized more slowly, but will come out of that backlog number and help accelerate revenue growth going forward. So I think you just need to look at the same metrics, but it's hard to isolate on 1 quarter and put sort of undue emphasis on what happened there. Still, again, our look for the whole year really hasn't changed.
The range is like and I'm really talking more about revenues than earnings when I talk about being challenging to reach the high end of the range. As I've said, we have cost levers and typically do a pretty good job of managing the costs to fit the revenues. So the challenge is more on the revenue side this year. But again, looking at the big picture, I think we feel good about the ability to accelerate that above the current level as we move into the second half of the year and on into 2018.
Okay, good. Thank you. And our next question today is going to be a follow-up from Alex Zukin with Piper Jaffray. Please go ahead.
Hey, guys. So just some clarifying questions. John, I guess the first one for you. I'm trying to understand where did bookings land versus your expectations because your commentary about strong bookings seems a bit at odds with the commentary about the digestion period and the slower growth. So I'm trying to understand the cloud the customers deciding to go with cloud shouldn't really isn't it's not an outside of the mix shift question, where did the digestion period factor into your outlook at the beginning of the year or in the Q1?
Help us understand the puts and takes on that.
Yes. Some of it's in the model, and maybe there's a little more of it going on than was in the model. Bookings and backlog will be affected and be elevated as a result of higher SaaS adoption. Those are multi year arrangements. So more goes into backlog.
The contract value is simply higher than an on premise arrangement where really it's just the initial engagement that goes into backlog and multi year maintenance arrangements are not that they don't exist contractually, so they don't go in. So that will raise the bookings in the backlog a little bit.
And our guidance at the beginning of the year, which is unchanged, was for a range of revenue growth that was modestly below what we've historically done. So this sort of pause in growth, some of which maybe marginally is related to the SaaS shift this quarter, but was more a bigger picture in terms of as we make investments in things like public safety and position that for higher growth going forward, digest some of the growth the ultra high growth we've seen in areas like Courts and Justice over the last couple of years. So that was built into our model at the beginning of the year. So this 1 quarter sort of higher level of SaaS adoption is a relatively minor tweak to that.
Understood. And maybe Brian, just as another clarifying question, I realize you don't guide to cash flow, but when I think when I was asking my question, I was specifically asked about free cash flow. So I'm curious if that $200,000,000 number that you're referencing, is that a free cash flow number or an operating cash flow number?
Well, I mean, I was referring to cash from operations being north of 200,000,000 dollars I'm not any more specific than that. So we said what our CapEx would be in the low to mid $50,000,000 range. So it's a very general number of kind of north of $200,000,000 free cash flow is we'll leave it at that. But I was talking about cash from operations. I didn't say how much north of 200,000,000
dollars Got it. And then maybe just last follow-up. Given that pausing dynamic, does this give you more confidence at all? And I realize you're not you have a range for this year, so you're not going to guide the next year. But maybe just the confidence in the ability to accelerate growth given the incremental higher bookings and visibility that you guys might have?
Yes. I think the combination of the bookings and backlog accelerating as you'd expect they would ahead of revenues accelerating is encouraging. There have been some pipeline questions, pipeline is very healthy, win rates remain strong. We're broadening the breadth of the product organically and as well as some of the acquisitions we've done in recent years. And all of those things together contribute to an accelerated growth rate, which I think we'll begin to see in the second half of the year.
And I've said we have pretty good visibility on that. And I think that will continue into 2017 2018. So if you look at Tyler's growth rates, our current growth rate in this year is below our historical line and you could have years below it and years above it. And all indications are that this is simply a growth year that's a little bit on the lower end of the range, not a reset of the range and that we would expect it to accelerate in the second half of the year and into the next couple of years that we have some visibility on.
Perfect. Thanks, Mike.
At this time, there appear to be no more questions. Mr. Marr, I'll turn the call back over to you for your closing remarks.
Okay. Thank you, Will, and thank you all for participating on the call today. If you do have any further questions, feel free to reach out to Brian, Lynn and myself. Have a great day. Thank you.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.