Tyler’s End Markets Are Rebounding; NIC Cross-Selling Already Making a Splash; Raising FVE to $500

Wide-moat Tyler Technologies reported solid second-quarter results, including upside to FactSet consensus estimates on both the top and bottom lines. The $2.3 billion NIC acquisition closed on April 21, distorting results and rendering comparisons to consensus somewhat less relevant. Recently issued guidance for the year was raised, but not by as much as upside in the quarter, which we view as prudent given an uneven recovery for Tyler’s customers. Management continues to see signs of a recovery, including parts of the business that have already returned to pre-COVID levels. We think the ongoing recovery, integration and cross-selling efforts for NIC, and local governments’ use of pending stimulus funds over the next couple of years can drive better results than we currently model. We expect the company to continue to focus on debt reduction over the next two years. Based on modest refinements to our model, we are raising our fair value estimate to $500 per share from $475 and view shares as fairly valued. Much as it did coming out of the 2008 financial crisis, we expect Tyler, especially after acquiring NIC, to emerge in an even stronger position to capture market share, as its portfolio is broader and it is increasingly exposed to multiple solution sales.