Solid Quarter for Tyler; More Rapid SaaS Transition to Pressure Margins Near-Term; FVE Cut to $500

Tyler reported solid third-quarter results, including upside to our model on revenue and non-GAAP operating margin. The demand environment remains healthy and momentum continues with solid normalized bookings, software subscriptions, and transactional revenue. We also see the acquisition of Rapid Financial as expanding the market opportunity for Tyler’s payments business. Based on more rapid software as a service, or SaaS, growth and a more rapid license contraction, which will pressure both growth and margins, we have fine-tuned our estimates for the next couple years and we are accordingly lowering our fair value estimate to $500 per share, from $530 previously. We continue to see federal stimulus funds as supporting the market and see consistent growth and margin expansion over time, and therefore view shares as attractive.