Good day, and welcome to the Tyler Technologies Third Quarter 2016 Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask Please also note that this event is being recorded. I would now like to turn the conference over to John Maher, the President and CEO. Please go ahead, sir.
Thank you, and welcome to our Q3 2016 earnings call. With me on the call today is Brian Miller, our Chief Financial Officer. First, I'd like for Brian to give the Safe Harbor statement. Next, I'll have some preliminary comments. Brian will review the details of our Q3 results and the 2016 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 would 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 call today will relate to the corresponding period of last year unless we specify otherwise.
John?
Our 3rd quarter operating results were once again very strong and earnings exceeded our expectations. Total GAAP revenue growth was 29%, of which approximately 11% was organic. Our cloud based business continues to experience strong growth, Increases in SaaS revenues as well as e filing revenues from Quartz drove 27% growth in our recurring revenues from subscriptions, of which 23% was organic. Bookings for the quarter rose 43% to a new quarterly high of $266,000,000 and our backlog rose over 23% to reach a new high of $936,000,000 dollars During the quarter, we signed a 4 year extension with the Texas Office of Court Administration for our Odysee File and Serve platform for efile Texas. The initial contract runs through August 31, 2017, and this agreement, which is valued at approximately $72,000,000 extends that through August 31, 2021.
Also for our Audacy File and Serve platform, we signed an agreement with the administrative office of the Illinois courts to provide a statewide e filing system, which will service the Illinois Supreme Court, Illinois Appellate Court and 87 Circuit Courts throughout the state and is initially valued at approximately $8,000,000 The value of this contract is expected to grow as additional courts are added. Our largest license fee for the quarter was with Baton Rouge, Louisiana for our Munis ERP and Executime timekeeping solution valued at approximately $4,500,000 Other significant license agreements for our Munis ERP solution included the City of Goodyear, Arizona, Santa Margarita Water District in California the City of Ogden, Utah and the City of Lompoc, California, which also includes our Intergov Solutions. Significant SaaS agreements from Munis included the City of Chula Vista, California, the city of Oswego, Illinois and Bonneville County, Idaho. For our New World ERP solution, significant contracts included the city of Delray Beach, Florida, which also included our Inagov solution in Jefferson Parish, Louisiana. Other significant contracts for our Intergov solution included a license deal with the City of Alexandria, Virginia and a SaaS contract with Hawaii County, Hawaii.
For our IIS World Appraisal and Tax solutions, we signed notable contracts with Volusia County, Florida and Monroe County, Pennsylvania, which also included appraisal services valued at approximately $5,000,000 We also signed a deal for our AES tax solution with Ventura County, California. Our largest SaaS deal for the quarter was a 5 year multi suite arrangement with Amarillo, Texas for our Munis, EnerGov and Eagle Recorder solutions valued at approximately $3,500,000 For our Odyssey Courts and Justice solution, we signed notable SaaS deals with Tazewell County, Illinois and Calhoun County, Texas as well as a license deal with Multnomah County, Oregon. We also signed significant new license contracts for our New World Public Safety solution with Donahanna County, New Mexico, which also included our soft code solution Athens Clarke, Georgia Athens Clarke County, Georgia, which also included our Brazos solution and Deschutes County, Oregon. Now I'd like for Brian to provide more detail on the results for the quarter and update our annual guidance for 2016.
Thanks, John. Yesterday, Tyler Technologies reported its results for the Q3 ended September 30, 2016. I'm going to provide some additional data on the quarter's performance and update our guidance for 2016, and then John will have 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 Q3 were $194,500,000 up 28.9 percent with 10.8 percent organic growth. New World contributed GAAP revenues of $27,400,000 representing 18.1 percentage points of growth. On a non GAAP basis, revenues were $197,800,000 up 31.1%. New World contributed non GAAP revenues of $30,700,000 representing 20.3 percentage points of non GAAP revenue growth.
Non GAAP organic growth was 10.8%. Software license and royalty revenues increased 27%. On an organic basis, license revenues increased 2.9%. Subscription revenues increased 27% with 23.3 percent organic growth. We added 50 new subscription based arrangements and converted 18 existing on premises clients, representing approximately $22,700,000 in total contract value.
In Q3 of last year, we added 35 new subscription based arrangements value. SaaS clients represented approximately 28% of our new software clients in the quarter compared to 22% in the prior year quarter. SaaS contract value represented 29% of the total new contract value signed this quarter compared to 30% in Q3 last year. The value weighted average term of new SaaS contracts this quarter was 5.6 years compared to 5.8 years in last year's Q3. Transaction based revenues from e filing for courts and online payments, which are included in subscriptions, increased 14.2 percent to 12 point $11,000,000 last year.
That amount includes e filing revenue of $9,500,000 this quarter, up 11.9% over last year. Cash flow from operations grew approximately 22% to $67,100,000 Free cash flow, which is calculated as cash from operations less capital expenditures, was $59,500,000 compared to $52,700,000 in last year's Q3. Excluding real estate costs, free cash flow was 62,200,000 dollars Our CapEx for the quarter of $7,600,000 included $2,700,000 related to the expansion of our Yarmouth Main facility. We ended the quarter with a total of $57,300,000 in cash and investments and debt of $34,000,000 Days sales outstanding and accounts receivable was 87 days at September 30, 2016 compared to 77 days at September 30, 2015. Our backlog at the end of the quarter reached a new high at $935,600,000 up 23.5%.
Software related backlog, which excludes backlog from appraisal services contracts, was $892,100,000 a 26.1 percent increase. Backlog included $236,200,000 of maintenance compared to $171,900,000 a year ago. Subscription backlog was $337,500,000 compared to $236,900,000 last year and includes approximately $114,000,000 related to fixed fee e filing contracts. As John mentioned earlier, we signed the e file Texas extension this quarter, which added approximately $72,000,000 to backlog and also signed a new fixed fee e filing arrangement with the state of Illinois, which added approximately $8,000,000 to backlog. The state of Illinois is now our 3rd fixed fee filing arrangement along with Texas and Indiana.
Our bookings for the quarter, which are calculated from the change in backlog plus non GAAP revenues, were approximately $266,000,000 an increase of 43% from Q3 of 2015. Q3 bookings included $32,000,000 from New World. On an organic basis, bookings excluding New World grew 25.8%. For the trailing 12 months, bookings were approximately $847,000,000 a 31.7% increase over the prior period. 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 38 new contracts in the 3rd quarter that included software licenses greater than $100,000 and those contracts had an average license of $369,000 compared to 28 new contracts with an average license value of $579,000 in the Q3 of 2015. Last year's Q3 bookings included a $30,000,000 tax software contract with Cook County, Illinois. Our updated guidance for the full year of 2016 is as follows. We currently expect 2016 GAAP revenues will be between $755,000,000 $762,000,000 and non GAAP revenues will be between $770,000,000 $777,000,000 We lowered the high end of the revenue guidance by $3,000,000 This is primarily attributable to delays in awards and contract signings for certain courts and justice deals that were in our plan for the second half of the year, some of which have now been awarded or signed. These delays affected the timing of revenue recognition, particularly in professional services and to a lesser extent, licenses and maintenance.
This only affects the timing of revenues as we have not lost deals that we expected to win. We've also appropriately managed expenses and have raised our earnings guidance. We expect 2016 GAAP diluted EPS will be approximately $2.01 to $2.07 We expect 2016 non GAAP diluted EPS will be approximately $3.46 to $3.52 For the year, estimated pre tax non cash share based compensation expense is expected to be approximately $29,500,000 to $30,500,000 We expect R and D expense for the year will will be approximately $42,000,000 to $44,000,000 Fully diluted shares for the year are expected to be between $38,500,000 and 39,000,000 shares. The share count is impacted by both the timing and volume of stock option exercises and stock repurchases. We estimate the GAAP annual effective tax rate for 2016 will be between 38% 39%.
The non GAAP effective tax rate is expected to be in the range of 35.5% to 36 0.5%. The tax rate is affected by the timing and volume of stock option exercises. With the issuance of ASU number 20 16-nine, stock compensation Topic 718 on March 31, which will require us to recognize the income tax effects of stock option exercises in the income statement, both our GAAP and non GAAP effective tax rates could differ substantially from this guidance. While we will adopt this standard in the Q4 of 2016, we're currently unable to provide a reasonable estimate regarding the financial impact. We expect our total capital expenditures will be approximately $40,000,000 to $42,000,000 for the year, including approximately $21,000,000 related to real estate, including the purchase in Q1 of our previously leased office facility in Falmouth, Maine and the expansion of our owned office facility in Yarmouth, Maine.
Total depreciation and amortization is expected to be approximately $50,000,000 to $51,000,000 and including approximately $36,000,000 of amortization of acquired intangibles. I'd like to turn the call back over to John for his further comments.
Thanks, Brian. Activity in the local government software market remains strong and is consistent with the past several quarters. Our competitive strengths and win rates continue to be high across our product lines. As Brian detailed earlier, our performance in the Q3 exceeded our expectations, and we've raised our earnings guidance for the full year. New World's operations remain on track deliver the revenue and earnings contribution that we expected at the beginning of the year.
We continue to be pleased with our progress on the integration of New World's products and operations, and we continue to receive positive feedback from our clients and prospects regarding our strategy to bring more closely together Tyra's public safety and justice solutions. This was evident last week at the International Association of Chief of Police Conference in San Diego, where we saw an unprecedented level of interest from attendees in the Tyler Alliance vision for our integrated public safety and justice offerings. Yesterday, we also announced several executive transitions and promotions. Effective January 1, 2017, I will assume the role of Chairman of the Board in addition to my position as Chief Executive Officer, with John Yaman continuing his service as a Director until his current term ends in May of 2017 when he will retire. I'd like to thank John for his service over the last nearly 20 years, his leadership to the company.
I think the team that we have today and their ability to work together with little distractions and the intangibles it provides to our culture are attributable largely to John's leadership over the last 20 years. Lynn Moore has been named President of Tyler, also effective January 1, 2017. Lynn has served as a Tyler leader and a close executive advisor to me for many years and as President will work with me to continue the management and culture that have made us successful as a company. Lynn joined Tyler as General Counsel in September of 1998 and has also served as Executive Vice President since February of 2,008. Abby Diaz, currently Vice President and Associate General Counsel, is being promoted to the position of Chief Legal Officer, assuming leadership of Tyler's in house legal team.
Prior to joining Tyler in 2012, AbbVie practiced law with Kirkland and Ellis. These changes do not indicate that we are taking the company on a different course. We have seen significant growth in recent years and these changes are reflective of the way the company has developed. Tyler is fortunate to have strong leaders across our organization with tremendous depth in our group presidents and divisional leadership, and it's reassuring to know we have multiple people capable of making the right decisions for Tyler. Lynn and I look forward to continuing to work together with our entire team on the evolution of the business, building on the momentum Tyler has experienced.
Finally, last Thursday, we celebrated a major milestone, the 50th anniversary of the company's founding in 1966. Members of our management team rang the closing bell on the New York Stock Exchange to commemorate the event. On this occasion, we look back with a sense of pride in the company's successful evolution over the past half century. But more importantly, we look forward to realizing
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session.
As well as CMS if any new players have entered the market. And then related to that, can you update us on the Australian opportunity and how that competitive market differs?
Sure. No, we really haven't seen any new players enter that market. That's a market as you know where they're generally larger deals and a little lumpier. So it's been a little lighter through the 1st three quarters of the year, but it's certainly not reflective of the competitive position. We continue to win virtually all of the larger, more meaningful deals.
And we do expect, the pipeline shows that in the Q4 and into next year that things become more active again. Australia, there are 2 active deals on the street. We feel we're obviously, it's a new market to us and we're not as familiar with the processes, but we feel well positioned in both of those deals and those decisions should occur either in the Q4 or during the first half of next year.
Great. Thank you.
Thank you. The next question is from Pete Heckmann of Avondale Partners. Please go ahead.
Good morning. Thanks for taking my questions. I had a question on the Texas renewal. Were there any notable changes in terms or conditions, just in terms of the run rate that I was looking at? You'd like the prior renewals maybe just a little bit less than the current run rate?
Yes. I guess, notable is a relative term, Not very notable. It's substantially very much a similar arrangement. The run rate, as you observe, may be very, very modestly lighter. But we also believe that now with several years of experience and a very strong partnership, not only with the courts, but with the bar that there could also be other revenue opportunities that could more than offset the very modest haircut in the run rate.
Okay. That's fair. And then you mentioned that Illinois will be your 3rd fixed fee e filing deal. Just in terms of the relative economics, I assume fixed fee deals are for you more certainty, but less growth. Which way do you think the market may trend?
Do you think there's possibility of some of the states that allow transaction fees to convert to fixed? Well,
they're really not that different. We are committed to our e filing solution being a more of a SaaS type arrangement and not offering it as a license event with ongoing support. The courts like to have some certainty in what that's going to be. So in some cases, when they're absorbing those costs, it obviously makes sense for them to be able to quantify that and budget for it. But it really is looking at what are mature transaction levels, right?
There isn't tremendous fluctuation in those levels. And so looking at what those levels are and really backing into an annual fee that would be very similar to a transaction fee. So I think it's just really reflective of us obviously being a flexible partner in structuring the contract the way it works for them. But the revenue that's generated from the arrangement is very similar regardless of the way it's contracted.
That's fair. That's fair.
And then just one last question, I'll get back in the queue. Brian, I may have missed it. Did you provide royalties, Microsoft royalties for the period?
No. Microsoft royalties this quarter were $1,400,000
Great. Thanks
much. Thank you. Our next question is from Kirk Materne of Evercore ISI. Please go ahead.
Thanks very much. John, just in terms of the Courts and Justice deals that were pushed out, were those awarded deals and they're just not they're rolling them out slow more slowly or are they what was the actual awarding of the deal getting pushed out? I'm just trying to get a sense on if you guys have already been awarded the deal, it's just a matter of rev rec or are you seeing more of a pause and people actually being able to award deals as well?
It'd be both. There are Tyler Weid would mention this, would kind of rather not get into tracking it. But over the last year, there has been more awarded business that hasn't contracted at QNs than is typical. And that certainly has been the case with C&J. There are a couple of notable deals that have been awarded that have not yet been contracted, therefore, aren't in bookings and backlog.
But they're literally at the very, very end. And that has impacted the very marginal adjustment on revenues is somewhat attributable to that. These deals that we've had good visibility on for some time, In some cases, we thought would start a little bit earlier. We maybe lose a quarter of maintenance and a bunch of small things that add up to the few $1,000,000 adjustment in revenue. So that is the case.
As I indicated earlier though, the Q4 and into next year, the pipeline starts to become more active again.
Great. And then just Brian, obviously, 26% organic growth is really strong. Is there any way for us to think about it either on this quarter or on more of a trailing 12 month basis? What kind of annualized bookings growth looks like? I know a lot of people have questions about sort of what more of an ACV figure would be relative to kind of your guys' longer term growth outlook in sort of the low to mid teens?
Yes. On a trailing 12 month basis, our organic bookings growth is just shy of 12.5%. And so that smooths out some of these lumpier deals in there in the individual quarters. So it's in that low double digit range. Okay.
Is that fair to look at that as more of sort of an annualized figure too?
Yes, I
think. As you get to
the longer term deals. Okay. Yes. Okay, great. Thanks guys.
Appreciate the time.
Thank you. Our next question is from Jonathan Ho of William Blair and Company. Please go ahead.
Hey guys, congratulations on the strong quarter. I just wanted to start out, like you mentioned a number of deals that had EnerGov attached to them. And I'm just wondering if you're seeing more of a trend towards larger deals that maybe are incorporating multiple systems.
Yes, I think we are. And EnerGov would be the best example of it. And it's basically, if you look at Tyler and our win rates and our competitive positions have become very strong and you then look to, okay, how do we expand the addressable market space? EnerGov is a great example of it where you used to have a little more of a lightweight solution in that space that was part of a broader Tyler suite. You now have a heavier enterprise application that can be plugged into those lines basically in a proposal and drive incremental value in that engagement.
And there are several other opportunities like that we're focused on. Executime is a little bit of that to some extent, but there are others that can be acquired and there are others that can be built. And that is part of our strategy to basically add more and more value to the relationships we have and drive incremental revenue and expand the addressable market space as our competitive position is driving win rates that are hard to continue to drive much higher.
Got it. And then with the $8,000,000 Illinois deal that you referenced on the e file side, what is the potential for that opportunity? Is this sort of a 1 year deal? If you were to expand court types, what would be sort of the largest opportunity you could see come out of Illinois?
The Illinois contract starts out as a statewide arrangement, but the 15 of larger counties are not initially included in it. So they have the ability to opt in. We would expect that over time that and some of those starting relatively soon that some of those larger counties will opt in. So it starts out at an $8,000,000 total contract value. So a couple of $1,000,000 a year, but I think it has the ability to go up in the $5,000,000 a year range if everyone were fully included.
Great. Thank you.
Thank you. Next question is from Scott Berg of Needham and Company. Please go ahead.
Thanks a lot.
This is actually Peter Levine for Scott. Just a couple of quick ones here. So I know in the second half of last year, you talked about an increasing in ERP pipeline. So considering your typical sales cycle, are those RFPs starting to play out now and to what magnitude?
Yes. The ERP side of the business has performed very well this year and has gained some momentum in the second half of the year. It's actually one of our faster growing divisions in the company this year and probably will continue that momentum into at least the first half of next year. The win rates are significantly elevated from where they were traditionally, which is very encouraging. Obviously, the remaining segment of the market is being split by several other players.
So we're really pleased with that performance. They don't tend to be the statewide C and J type deals or the large multiyear e file deals. So we don't drive into them as much, but that has occurred. Again, the second half of the year has been strong, and we're pleased with their performance.
Question on the New World side. I believe the initial pipeline dynamics had deal signings that were going to be, I guess, somewhat back end loaded. Are you seeing evidence of that in the quarter? Just trying to better understand the seasonality of the bookings in New World.
Yes. Well, the back end is really all the way back to the Q4. So no, Q3 results were pretty much a continuation of the first half of the year. Obviously, their pipelines are newer to us, but they have expanded. The highly qualified pipeline has expanded actually about 23% since the beginning of the year and the broader pipeline has expanded around 35% since the beginning of the year.
So that pipe has built as we said before and was our expectation. So we're encouraged by that. We had a great show, as I mentioned, in San Diego a couple of weeks ago. We continue to be convinced that the opportunity that we saw when we did this acquisition remains and is a great opportunity for
us. Great.
Final one here. You had a nice earnings beat. I think it was $0.04 or $0.05 to the midpoint if I'm correct. So what cost items are driving that? Just trying to better understand if you're gaining better leverage or cost synergies related to New World?
Or is it coming from, I guess, other natural parts of the business?
Well, it's no one major driver. The biggest thing is headcount. So we approve heads in the plan and those the divisional and group leadership basically has the flexibility to bring those heads in as they go. But they exercise a lot of discipline. And if they're able to get the work done, we don't eliminate those heads out of the plan, but a lot of it's just timing that different divisions in the quarter, these are divisions with 100 and 100 of employees that in the quarter, 23 heads light or something.
And so that would be the biggest driver that company wide, we're able to manage the timing of headcount and that drives some savings. There are a number of other variables as well. And then the other contributor is basically the mix of revenues. So some of the lighter revenues really came directly out of the professional service side of the business, which obviously is the lightest margin side of the business. And you can see the recurrings being very strong, which is a strong margin part of the business.
So a combination of all those contributors.
Great. Thank you very much. Appreciate it.
I'd like to add a quick correction on the question about Illinois e filing. That contract would have revenues of about $7,000,000 a year, assuming all of the counties in the state were fully on board.
Thank you very much, sir. Our next question is from Alex Zukin of Piper Jaffray. Please go ahead.
Hey, guys. Thanks for taking my question and congratulations again. John, maybe can you talk a little bit more specifically about how New World has performed year to date on the revenue side versus your expectations? What have you been pleased with and disappointed with? And how are you thinking about New World's organic top line growth maybe next year as it compares to kind of that low double digit growth rate for Tyler?
Yes. As we said, the plan is very much in line with what we had in the overall plan from the beginning of the year, both revenues and expenses. They have some of that headcount management that we've that I talked about just a minute ago, especially on the financial side. On the public safety side, expenses are in line with our expectations, but they are elevated from where they were. We've made a very conscious decision to add heads to that side of the business.
It's a good business. It is a leader in the business, but it's not it doesn't have the market share that, say, Bodysi and Munis and some of our very strong products have, and that's our objective. So expenses are elevated from their historical run rates prior to the acquisition, but there's a conscious decision on our part to add heads to R and D, add heads to service on quality initiatives, raise the referenceability, improve the product competitively and ultimately elevate their win rates to what we experience in our real strong leadership products. Having said all that, because I know we talked about we did a big acquisition and there's a lot of interest in it, this can be a long term process. This is not we don't put the Tyler brand on it and add some heads and all of a sudden it's entirely different offering.
That can happen over a period of years. The competitive landscape there is a very healthy one. The competition in that marketplace is not something that you're just going to run over. There's some good competitors there. We'll be committed to it for the long term.
We believe we'll achieve that elevated leadership position over time, but I certainly wouldn't want people to have the expectation that it happens in a quarter or 2.
Got it. I mean, and then if you look at the organic growth rates for the quarter and for this year, how much do you think that some of these push outs at the end of the quarter is the shadow backlog, how do you think about what that shaved off of the top line growth rate for this year?
Yes. We pay a lot of attention on the organic growth rate much more than inorganic. And at around 11 percent, it's a little lighter. It's a fair amount lighter than the last couple of years. We were up in the 16% range.
I think over the long, long term, we talk to you folks about lowtomidoubledigitorganicgrowth. And we're in that range, but on the lower end of it. I see the awards and the market activity as we get toward the end of this year being healthy and strong. I see us with a broader breadth of applications, as I discussed with EnerGov and other opportunities. We mentioned the potential of a couple of deals in Australia, so beginning to do a little bit of international type business.
You have cycles. So as you know, we did a tremendous amount of business in California with courts. You have awards like Illinois. You have a lot of these different things that we've kind of been in a real strong execution mode this year, especially in courts. And then I think as those accounts go online and the e file comes in behind them and you get that second recurring revenue stream of e file on top of your maintenance, that all those things we would expect would contribute to higher level of organic growth.
So we would think this is a year that's a good solid year, little bit on the lower end of the range of organic growth that we've experienced. And yet, we think there's a tremendous number of catalysts allow us to drive that back up as we move forward.
And then John, just to hit one more time on New World. Do you expect to see start seeing any more meaningful revenue synergies as you cross sell New World's products more directly into your base and you can cross sell some of your products into the New World base. Is that something clearly we've seen some upside on the expense side this year. Should we expect to see some of that revenue synergy flow through next year? And I've got a couple of questions on for Brian on gross margins.
Well, until you said next year, my answer would be certainly. And I certainly won't be surprised to see those revenue synergies materialize next year, but I'm still cautious about keeping people having expectations quarter to quarter on that. But we mentioned this Chief of Police show and we've got SoftCode and Brazos and Odyssey and New World Public Safety and what we call Tyler Alliance and adding value across applications that no other companies can do. We have solid players in each of those spaces, but nobody that owns assets across the complete offering and has the ambition we have there. It was incredibly well received.
So we're very enthusiastic that people see the value in that and that long term, we're going to have something to offer that's hard to compete with. But I do want to be cautious and being back on this call in 90 days and not having three names or examples for you. So we're really enthusiastic about what we're doing there. We're very confident that over the long run, it's going to be an offering that's hard to compete with, but we'll be patient to see how it materializes.
Got it. And then Brian, on the gross margin side, you're clearly exceeding your goal for gross margin expansion year over year. You're up, I think, 400 basis points. Your goal is to deliver 100 basis points to 150 basis points of expansion. How should we think about continuing to see synergies on the expense side, on the margin side from New World as we get into next year?
Well, clearly New World has given us a big lift this year and we expected that we talked at the time of the acquisition about their margin profile being higher than our blended margin profile, not necessarily higher than some of the parts of Tyler that have similar characteristics to New World's business, but higher than ours as a whole with a revenue mix that has more maintenance revenues in it, a little bit lower level of professional services typically with mature products. So they've lifted our overall that 400 basis point margin improvement, just the effect of New World being in there has added roughly half of that increase. So, would expect that going forward with that now in our base that we'd be back more on that trajectory that we've talked about in that low double digit revenue increase, that we would be seeing again that sort of 100 to 150 basis points of margin improvement over time that would sort of be the annual average of that kind of growth rate.
Got it. And then last one for me guys, I promise. Can you remind people on your use of cash? You guys have clearly paid down a lot of debt this year. You like to use cash for M and A, but also stock repurchasing.
Can you frame kind of how you look at each of those cases right now and kind of what sways the decision tree for you guys over time?
Sure. I think our
Go ahead, Brian. No, you go ahead.
Okay. Our primary use of cash is always our priority is investing in the company and in Tyler Products and you've seen that with elevated investment this year both in R and D and in operating expenses related to Tyler Products and the infrastructure of the company. M and A would typically be next in our priority. So looking for good strategic fits and we would expect to continue to be active in the M and A market. As we've said, we don't see something of the size of New World on the near term horizon, but we would expect to continue to be active in evaluating and pursuing the kinds of acquisitions we've done in the past and certainly have the capability both from a management standpoint and from a financial standpoint of being able to execute those.
And then with respect to stock buybacks, we've certainly been opportunistic over a decade plus and have created significant value through those buybacks, and we would expect to continue to have that as a component of our uses of cash, but probably 3rd in priority, but certainly on an opportunistic look at those.
Thanks guys.
Thank you. Our next question is from Mark Schappel of Benchmark. Please go ahead.
Ahead. Hi, good morning. Thank you for taking my question here. Brian, I was wondering if you could just remind us what we can expect in the coming quarters here with respect to the e filing in California?
California e filing actually picks up reasonably strongly next year. When we look at right now, it's a pretty small contributions from California e filing as we're really just starting to see a number of counties go live on the system and then the e filing follows that. So for example, right now, our run rate in California this quarter was just less than $250,000 of e filing revenues. And that's expected to grow pretty meaningfully next year, I think, to the couple of $1,000,000 run rate. And over the next couple of years, build pretty significantly off of that.
If we so somewhere in the $2,500,000 to $3,000,000 range next year and then expanding really potentially exponentially from there to potentially somewhere in the $15,000,000 to $20,000,000 range as both with places that are committed to us or that already use our e filing system. But that would be over the next, say, 4 year time period.
Okay. And then finally, John, growth in the appraisal business has trailed the core software business here and increased this year. And I was just wondering if you could just run through where you think that growth should be, that growth rate should be in that business? And also maybe just kind of remind us some of the ties that it has to the broader software business?
Yes. So I think you're referring to Appraisal Services. Yes. The tax and appraisal software business has actually performed really well and that growth rate is higher than what we would have expected over the long term. Appraisal services are cyclical and they're predictable.
And we are in state by state kind of a slow period. And we would expect that they would continue to be a little bit lighter through next year and then they'll accelerate into 'eighteen. The long term growth there, we don't look to be at a high level. I think it's more of a 5% grower over the long term, which again could actually have negative growth 1 year and higher growth the next. And that's not a reflection of competitive position.
It's just a reflection of how the different state cycles run, which we track and know these guys have been doing this for decades. We do like the business even though it's a little different than our software business. The other part of your question is it's an essential service. And in the states where we have these relationships, it's another very sticky part of the relationship that supports our software relationships with these cities and counties that's important and hard for other people to compete with. So over the years, and there was a time years ago, those of you who've been around the story a long time, where actually Appraisal Services, I think 1 year was 27 percent of all Tyler revenues, which made us a little different kind of company.
And now it's obviously down in the low single digits. So it's a nice strategic touch point on relationships with these cities and counties. It's an appropriate percentage of our overall revenues and we'll remain committed to it.
Okay. Thank you. Thank you very much. Our next question is from Kevin Liu of B. Riley and Co.
Please go ahead.
Hi, good morning. Just in terms of the integration of your courts and justice products with New World Public Safety Systems, Can you update us on the timing for when you think that you could go to market within fully integrated suite? And then related to that, just in terms of the conversations you're having at the trade shows and the like, are you actually expecting RFPs to start to come out, say, in the next year or so for an integrated solution? Or is this something more that you guys are pioneering and you're just getting a favorable response to that?
Yes. So the first part of the question, it's a process. There won't be some major release where these products all of a sudden are seamlessly integrated and the user experiences and the workflow and all those things are Tylerized and as if one product. That's something we'll achieve over time and it may be 4 or 5 years, say, before most of the major elements of that have been achieved. But I think as we indicated even at this show a couple of weeks ago to be able to talk about and be a little bit specific about what we're doing now and when they can see these things emerge.
It will be the kind of thing that even smaller steps in delivering early indications of where we're going, validating the story we're telling should start to influence and we believe will start to influence decisions. We don't we wouldn't expect that all of a sudden we'll see a big shift and RFPs will come out for fully integrated criminal justice offerings rather we'll continue to see a case management RFP or a public safety RFP. And we think these are always very competitive situations. And when you're a finalist with 1 or 2 other players and people are really reaching to try to find which one of these solutions, which one of these companies do we want to go with that the Tyler story and what it offers down the road because they're entering into a very long term relationship, can actually affect a decision even in the next couple of years when the deliverables aren't that much different than they are today.
Got it. Makes a lot
of sense. Thanks for taking the question.
Thanks. Thank you. Next question is from Tim Cassel of Northland Securities. Please go ahead.
Yes. Hey, good morning. Two quick questions. First on the New World Software acquisition, seems like it's coming along nicely. And how do you feel about doing similar sized acquisitions going forward now that you've digested New World.
Do you consider that or is that should we consider that to be maybe a one off that we might only see every few years or several years?
Yes. It was not just a little outsized our historical acquisitions. It was by a factor of many the largest deal we've done certainly based on the value of the deal. There are very limited number of assets out there that would have that kind of value that we would see as a fitter, as attractive. And some of them we wouldn't have any interest in.
We don't see the real synergies and opportunities that we saw with New World. So I can't sit here today and say there's no likelihood at all that we'll do another deal at that size. But again, there are very limited assets that we'd be interested in at that level. So the probability is somewhat low, and yet we certainly wouldn't back off for 1, so that there is always the possibility something could occur. If you back down from New World, most of our deals are $50,000,000 or less, historically.
And I certainly see kind of a mid range there, the $30,000,000 $40,000,000 to $100,000,000 $120,000,000 where we do look at companies from time to time that we would be anxious to do a deal on. We'll be disciplined as well. Valuations are high. And you don't know the deals we don't do, right? So we've participated in a number of processes in that size range that in some cases we just are too disciplined to do the deal.
But I wouldn't consider it unlikely at all that you'd see deals in that range over the coming years.
Okay. Good. Good. And then, the awarded deals, but not signed, it seems like this has been a little bit of a pattern over the past year and I don't know if it's just happenstance of that growing. Is there something changing out there in the market?
Or is it again, is it just 0
point 5 dollars I don't think there's much changing in the market. I think we're doing more large deals. And when you get into large deals, just the process from award to contract is longer. It's a more deliberate and extensive negotiating process. So they remain in that category a little longer than a standard deal that we do many of.
And we send them the contract and there may literally be a couple of conference calls and it's signed 2 or 3 weeks later. So I think the large doing more large deals contributes to that. Obviously, those are big numbers. So to have a big number and awarded unsigned business, There could be 3, 4 names that are driving 70% of that in some cases. What we pay a lot of attention to is how long they stay in that category.
So probably 70% of that is from the current quarter. In other words, we were awarded it in the current quarter and it's going to slide into the next one. If they get 2 3 quarters old, then you start wondering whether this deal is a real deal, it's going to happen. And there isn't much of that. I'd say 70% of it's in the current quarter and another 15% or 20% is in the past quarter.
And very little of that is stale or old or has any risk to it. So it's good business. It's going to occur. Again, there's a number of larger deals that the process is just more extensive, there's more negotiating when you get to agreement, the contract literally works its way around the State House or the City Hall and has to get all the right signatures and it just takes a long time.
Okay, good enough. Thank you for taking my questions.
Thank you very much. Our next question is from Brent Breslin of Pacific Crest. Please go ahead.
Thank you. Most of my questions have been asked and answered, but maybe I'll ask one here on the technology side. You guys have been talking about this kind of federated foundation, common UI, common service bus, single sign on for the last year. Could you maybe just provide us an update on the federated strategy, where you're at from a technology standpoint, what you've accomplished in the last year And when should we start to expect you to expose some of these new technologies to our customers?
Yes. We're pleased with that. We have talked about taking some significant leadership from different areas of the company on the technology side. Jeff Green leads a big team, and they generate technology that's been used by the different divisions. They also coordinate with divisions that are leaders in different places.
You mentioned user experience. That would be a good example of that and then expose that to the other divisions. And so it's a process that's changed organizationally, but it's going very well. And there will be releases very late this year early next year that will reflect that. And I've seen demonstrations and screenshots of products from different divisions that previously you would clearly say those come from different companies.
And today, it would take a pretty experienced eye to recognize the differences.
Very good. That's all I have. Thank you.
Sure.
Thank you. Our last question is from Frank Felice of Serum Deputy Ventures. Please go ahead.
Thank you for taking my call. A lot of the technical questions have been addressed by the group, so I appreciate it. Congratulations on a great quarter. In addition to, I guess, going back a little bit, strong dominance in the court space, a lot of Odyssey acquisitions, really quick in the State of California, pretty much dominating most of the counties, very shortly, a couple of year timeframe. So congratulations on that and doing well and getting them moving.
Also commending you on the acquisition of New World from a technology stack perspective, in comparison to some recent Motorola consolidation in the public safety market space with Motorola purchasing Spillman recently. And then the Tri Tech consolidation that's occurred, which is seems a little bit more of more market share consolidation rather than a real strategic technology alignment, which I think was really smart from the New World perspective. You answered questions regarding New World and Tyler integration, so I appreciate that and the candor that it would take 4 to 5 years to do a lot of integration. But the one question and maybe it hasn't been addressed or maybe it will be addressed over time is with the acquisition of New World, there's a little bit of overlap between your product stacks, specifically ERP and public safety. Has any decisions been made at this point as far as what direction you'll go ERP and public safety as far as retaining both products, leading with 1 of the products over the others or continuing to push both.
I think that's my only question.
No, it was a good observations and appreciate the question. And maybe not being active in some of the other names you mentioned shows that we do we are careful about creating too much conflict in our channels and our product strategies, but you can't do a lot of big deals without some of that. And we do have a public Tyler public safety solution. It's certainly a fraction of the size of the New World public safety solution. Obviously, we've talked about investing heavily in the New World solution.
Obviously, Munis is one of our core products that drives highest revenues and operating profit in the company. And yet New World has a very strong offering there as well. I think you can look at Tyler historically. You look at the Infinite Vision products, you look at our Encode local government products, you look at a number of different products that had niches in the marketplace that are that while they may look somewhat conflicting with a munis or with New World Public Safety or some of our large products, there's a niche and there's a market space there that they can continue to be effective in. They have important customer bases and we have a history of continuing to invest in those products and having them continue to meet those customers' needs for a very long period of time and in those specific market segments continuing to be competitive.
I'm pleased to see obviously New World ERP isn't going to generate the number of deals that Munis does, but we mentioned a couple of really competitive important wins in the quarter that continue to reinforce their competitive position and the segments of the marketplace where I think they'll continue to be very, very competitive and provide incremental business to Tyler that we wouldn't have had before. And reversely, the same is true of Tyler's public safety solution where it had certain market spaces where it's strong and while it's a fraction of the size of New World's public safety system will continue to maintain that product, invest in it, make sure it serves those customers' needs. And in those segments of the market where they're strong, they'll continue to add customers.
Yes. Final item on that, and I appreciate the response. Being in the business myself for the last 15, 20 years, the tagline you guys stated most recently at IACP from dispatch to disposition is strong and it's absolutely can see how it resonated with the market. No other vendor that I can recall going back 15, even 30 years has been able to consolidate anything from dispatch to disposition. So, even I mean, I think even respectfully disagreeing, I think states like Texas and California, I think Tyler will be greatly benefited by that 4 to 5 year timeframe of integrating those products as thoughtfully and smartly as possible because those states typically Texas, California, Illinois have a strong history of integrated criminal justice and public safety software systems that really no other vendor is really going to be able to pull off as one vendor solution.
And that's what good majority of these counties, they really want. They want that single throat to choke essentially rather than a piecemeal solution. So I think it's going to benefit Tyler in that 4 to 5 year timeframe of putting thought into the integration. So that's it. That's all I really wanted to state, but I think that's a good message for the market because there's no one else out there that is really going to be able to get thought into the integration.
So that's it. That's all I really wanted to state, but I think that's a good message for the market because there's no one else out there that is really going to be able to pull that off in the next 4 to 5 years.
Thanks. We agree with you.
Thank you very much. Gentlemen, we have no further questions in the queue. Do you have any closing comments?
Well, thank you very much. Appreciate everybody joining us on the call today. Appreciate your interest. And if you do have any further questions, feel free to reach out to Brian and myself. Thanks again.
Have a great day.
Thank you very much, sir. Ladies and gentlemen, that concludes today's conference. Thank you for joining us and you may now disconnect your lines.