Hello and welcome to today's Tyler Technologies First Quarter 2021 Conference Call. Your host for today's call is Lynn Moore, 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. As a reminder, this conference call is being recorded today, April 29, 2021. I would like to turn the call over now to Mr. Moore. Please go ahead.

Thank you, Keith, and welcome to our call. With me today is Brian Miller, our Chief Financial Officer. First, I'd like for Brian to give the safe harbor statement. Next, I will have some preliminary comments on our quarter results, and then Brian will review the details. I will end with some additional comments, and then we'll take questions. Brian?

Thanks, Lynn. 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-K 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. Our first quarter results exceeded our expectations, providing an exceptional start to 2021. Recurring revenues, which comprised 75% of our first quarter revenues, were strong, led by a 25% growth in subscription revenues. However, software licenses and services revenues continue to be pressured by longer sales cycles and delays in projects as clients deal with the ongoing effects of the pandemic. A favorable revenue mix with strong subscription growth, coupled with cost efficiencies, drove a 270 basis point expansion of our non-GAAP operating margin to 26.8%. Cash flow continued to be very robust as cash from operations grew 26% and free cash flow grew almost 34%. We're pleased to see signs of growing activity in our public sector markets and expect that federal stimulus under the American Rescue Plan Act will have a positive impact on government technology spending going forward. Bookings in the first quarter were solid at approximately $247 million, but were down 22.8% against a very challenging comparison with the first quarter of 2020. Our largest deal in the quarter was a SaaS arrangement for our Munis ERP solution with the City of Fresno, California valued at approximately $10 million. Other significant SaaS contracts included ERP deals with Hall County, Georgia, and Fort Smith, Arkansas. And an Odyssey Courts deal with Val Verde County, Texas. Our largest on-premises contracts include an ExecuTime time contract with the U.S. Virgin Islands, Public Safety and Brazos citations contracts with Montgomery County, New York, and Cicero, Illinois, and an EnerGov contract with the Commonwealth of The Bahamas. So far this year, we've been busy on the M&A front. On March 31, we completed 2 tuck-in acquisitions, DataSpec and ReadySub, for a total purchase price of $12 million in cash. DataSpec is a market-leading provider of software for the electronic management of veterans' claims. DataSpec's web-based Software-as-a-Service system called VetraSpec allows for secure electronic claims submission to the Federal Department of Veterans Affairs and reporting capabilities, in addition to scheduling, calendaring and payments. DataSpec offers county, state and national versions of VetraSpec, with state solutions making up the majority of its implementations. The solution allows state departments to execute and analyze reports on the entire state, individual offices, regions and districts, and individual users. ReadySub is a cloud-based platform that delivers comprehensive absence and substitute teacher management solutions, serving approximately 1,000 school districts across the United States, with only approximately 20 of which overlapping with Tyler's 2,000 school district clients. The solution helps districts with the labor-intensive and demanding task of filling both planned and unplanned staff absences with the most highly qualified substitute resources. With continuous pressure due to substitute teacher shortages, exacerbated by the COVID-19 pandemic, districts can more easily retain a pool of qualified substitutes and automate the searching and filling of needed substitute spots. Additionally, ReadySub can integrate districts' payroll processes, eliminating duplicate work and streamlining related payroll tasks. Most importantly, last week, we completed the $2.3 billion cash acquisition of NIC, a leading digital government solutions and payments company that serves more than 7,100 federal, state and local government agencies across the nation. NIC delivers user-friendly digital services that make it easier and more efficient for citizens and businesses to interact with government, providing valuable conveniences like applying for unemployment insurance, submitting business filings, renewing licenses, accessing information and making secure payments without visiting a government office. In addition, NIC has extensive experience and expertise and scale in the government payments area, processing more than $24 billion in payments on behalf of citizens and governments last year, which will accelerate Tyler's strategic payments initiative. With the addition of NIC's highly complementary industry-leading digital government solutions and payment services to Tyler's broad client base and multiple sales channels, the combined company will be well equipped to address the tremendous demand at the federal, state and local levels for innovative platform services. Together, Tyler and NIC will connect data and processes across disparate systems and deliver essential products and services to all public sector stakeholders. NIC had revenues of $460.5 million and net income of $68.6 million in 2020. While NIC will cease to be an SEC reporting company, and therefore, will not issue a first quarter earnings release, they also had very strong first quarter results that exceeded their plan. NIC's core first quarter revenues, excluding the TourHealth and COVID initiatives that are expected to wind down after the second quarter, grew more than 10% over last year. In addition, NIC's operating income, again excluding the TourHealth and COVID initiatives as well as acquisition costs, rose more than 20%. We are thrilled to welcome the more than 1,000 talented employees of NIC, DataSpec and ReadySub to the Tyler family, and look forward to realizing the tremendous benefits these transactions can bring to our collective team members and clients and to Tyler shareholders. Now, I'd like for Brian to provide more detail on the results for the quarter.

Thanks, Lynn. Yesterday, Tyler Technologies reported its results for the first quarter ended March 31, 2021. In our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results in comparison with peers in the software industry. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We've also posted on the investor relations section of our website under the financial reports tab schedules with supplemental information provided on this call, including information about quarterly bookings, backlog and recurring revenues. Both GAAP and non-GAAP revenues for the quarter were $294.8 million, up 6.6% on a GAAP basis and 6.5% on a non-GAAP basis. As you may recall, we were off to a very strong start in the first 2 months of 2020 before the COVID-19 pandemic began to significantly affect our business in March. So we're generally pleased with our growth this quarter against that comparison. Software license revenues declined 20.3%, reflecting both extended sales cycles and a high mix of subscription deals at 66% of new software contract value. Software services revenue declined 8.6% as a result of the continued impact of the COVID-19 pandemic, and our shift to remote delivery of most services resulted in a decline in billable travel revenue. On the positive side, subscription revenues rose 25.4%. We added 84 new subscription-based arrangements and converted 39 existing on-premises clients, representing approximately $52 million in total contract value. In Q1 of last year, we added 131 new subscription-based arrangements and had 19 on-premises conversions, representing approximately $98 million in total contract value. Subscription contract value comprised approximately 66% of total new software contract value signed this quarter, compared to 73% in Q1 of last year. The value weighted average term of new SaaS contracts this quarter was 4.0 years compared to 5.9 years last year. Revenues from e-filing and online payments, which are included in subscriptions, were $26.9 million, up 22.4%. That amount includes e-filing revenue of $15.6 million, up 4.8%, and e-payments revenue of $11.3 million, up 59.3%. For the first quarter, our annualized non-GAAP total recurring revenue, or ARR, was approximately $886 million, up 12.9%. Non-GAAP ARR for SaaS arrangements for Q1 was approximately $302 million, up 26.3%. Transaction-based ARR was approximately $108 million, up 22.4%, and non-GAAP maintenance ARR was approximately $476 million, up 4.1%. Our backlog at the end of the quarter was $1.55 billion, up 3%. As Lynn noted, our bookings in the quarter were solid at $247 million. However, this was down 22.8% compared to a difficult comparison to Q1 of last year. Last year's first quarter bookings included several large contracts, including 2 significant follow-on SaaS deals with the North Carolina courts, with a combined contract value of approximately $38 million. For the trailing 12-month bookings were approximately $1.2 billion, down 13.3%, although they do not include the majority of the $98 million extension of our Texas e-filing contract signed in Q4 of 2020, due to certain termination provisions in that contract. If the Texas e-filing renewal was fully included, trailing 12-month bookings would have been down only 6.4%. The prior trailing 12-month bookings also included 4 significant SaaS deals with the North Carolina courts, with a combined contract value of approximately $123 million. The bookings growth rate in Q1 was also affected by a shorter average term for new subscription contracts. Our software subscription bookings in the first quarter added $10.2 million in new annual recurring revenue. Cash flow was once again very strong in the first quarter as cash from operations increased 26.4% to $71.7 million and free cash flow grew 33.9% to $61.7 million, representing an all-time high for first-quarter free cash flow. We financed the NIC acquisition with a mixture of debt at very attractive rates that gives us a flexible capital structure. In March, we completed a $600 million offering of 0.25% convertible senior notes due 2026. The notes are convertible into Tyler common stock at a conversion price of $493.44, which represents a 30% premium over our closing price on March 4. On April 21, concurrent with the closing of the NIC acquisition, we entered into a new $1.4 billion senior unsecured credit facility with a group of 8 banks. The facility includes a $300 million term note due in 2024 and a $600 million term note due in 2026, both of which can be prepaid without penalty. The facility also includes a new 5-year $500 million revolving credit agreement that replaces our prior $400 million revolver. The combination of the convertible debt, term notes, and revolver provides us with a great deal of flexibility. Our balance sheet remains very strong and its pro forma net leverage at the NIC closing was approximately 3.2 times trailing 12-month adjusted EBITDA. And we expect to end the year with net leverage under 2.5 times. The current blended interest rate on the $1.75 billion of debt we have outstanding today is 1.1%. We remain on track to achieve or exceed the annual revenue and EPS guidance that we communicated in February for Tyler, excluding the impact of the NIC acquisition. As Lynn mentioned, NIC also had very strong first quarter results that exceeded their plans. We expect the NIC acquisition will be accretive to our non-GAAP earnings and EBITDA as well as to our recurring revenue mix and free cash flow per share in 2021. Because of antitrust restrictions, we took a conservative approach to our integration and strategic planning for NIC prior to closing the transaction last week. We are currently working closely with NIC's leadership to evaluate strategic growth opportunities that take advantage of the combined strengths of the two businesses and determine the impact on our 2021 plan. We expect to complete the fine-tuning of our joint operating and financial plans for the remainder of the year and issue 2021 guidance for the combined company during the second quarter. Now, I'd like to turn the call back to Lynn.

Thanks, Brian. Our team of professionals, including our new NIC team members, executed at a high level in the first quarter, driving results that surpassed expectations for both Tyler and NIC, and provided a great start to 2021. Exiting 2020, our financial position was stronger than ever, allowing us to continue to pursue strategic acquisitions, including NIC, the largest acquisition in our history with a purchase price of $2.3 billion in cash. We've also been able to continue to invest in and, in some cases, accelerate all of our long-term strategic initiatives, in particular, our shift to a cloud-first approach. As a result, our competitive position has also continued to strengthen. We believe we will continue to see an acceleration of the public sector's move to the cloud, and we are in a great position to support that move. I'm happy to say that we are on track with the strategic investments in optimizing our products for the cloud that we discussed on our fourth-quarter call. This quarter, we saw early indicators that our market is beginning to recover as some delayed procurement processes are moving forward and RFP activity is growing from the levels of the second half of 2020. We also expect that the $350 billion of aid to state and local governments under the American Rescue Plan Act will provide a significant measure of relief to budget pressures faced by many of our clients and prospects, and have a positive impact on recovery of our markets. One topic I've not discussed on these calls before pertains to our efforts regarding environmental and social initiatives. Tyler's culture guides our commitment to being a responsible partner in the communities where we live, work, and serve our clients. This year marks the 50th anniversary of the Tyler Foundation, which since its creation has provided millions of dollars to charities and causes that positively impact our communities. Our culture is also the foundation for our belief in the importance of providing an inclusive and diverse workplace. We are proud to have been included in the Forbes America's Best Employers for Diversity list for the past two consecutive years. The pause in normal office occupancy and business travel due to the pandemic provided an opportunity for us to evaluate our environmental impact across our major office locations and identify opportunities to make our practices more consistent and effective. Last year, we formed an environmental task force to strengthen our sustainability efforts across our office locations and the communities we impact. We achieved a significant milestone last year by responding to Tyler's first invitation to the Dow Jones Sustainability Index survey. More than 3,500 of the world's largest publicly listed companies provide detailed data and background to this global survey for evaluation by its independent sustainability ranking body. Completing the survey was an important opportunity for Tyler to uncover opportunities to strengthen our core responsibility strategy. We recently published our second annual corporate responsibility report, which is available on our website. This report represents a significant expansion of our reporting on our ESG efforts. And we look forward to continuing our journey and sharing our progress in this area. Finally, this week, we are virtually hosting more than 5,000 clients at Connect 2021, our annual user conference with a theme called Virtually Possible. Team members from across Tyler are providing nearly 700 hours of valuable content for our clients using our advanced virtual event platform. We are excited to be able to connect with so many clients at our virtual event, and we look forward to connecting with them in person at Connect 2022. With that, we'd like to open up the line for Q&A.

Yes, thank you. We will now begin the question-and-answer session. The first question comes from Matt VanVliet from BTIG.

Hey, good morning, everyone. Thanks for taking the question. Really appreciate it. I guess as you look at some of the commentary you talked about, about slower sales cycles, but really starting to pick up maybe at the end of the quarter, curious what the federal aid bill kind of points to. Are there any specific areas in your business that you think will have particular earmarks of spending? Are there any limitations that you've seen in the bill so far? Just kind of help us out with where you think the biggest upside will be across the portfolio.

Yeah. Thanks, Matt. That's a good question. I think right now there's still - our clients generally know the money is there. There is still a little bit of uncertainty about how to access it. There is certainly money that's been earmarked for IT modernization efforts. And so, I think what it's done is it's given our clients a little bit more confidence. I don't know that, I would say it necessarily benefits one more than the other. Although one thing that we were noticing last year was in our state business and that - our state business was off quite a bit last year, and there was a little bit of uncertainty around there. As it turns out, a lot of the state budgets were not as impacted as they first thought a year ago. And so, I think the combination of that along with this American Rescue Plan funding is providing a boost in that state area. We're starting to see that with some of the RFPs and things that we knew that were intended to come out that got delayed and we're starting to see some of that. But I'd say, across our entire product lines, I think there is reason for I'd call cautious optimism in what's going on in the markets, and a big part of that is the American Rescue Plan.

And I would just add to that on the Rescue Plan that, the CARES Act, the first stimulus, couldn't be used by governments to replace lost revenue. And it was roughly $150 billion for states and just $150 billion for the largest cities and counties. This $350 billion goes much deeper across states and local governments. And there are very few restrictions on what it can be used for. The funding is just now becoming available to governments. Half of it available roughly now within 60 days of when it was passed. And then the other half is available 12 months from now. So we wouldn't have expected to see much impact on customers' purchasing activities and buying decisions yet. But it certainly points to an opportunity as we move through the year to provide significant relief.

It's very helpful. And then, I guess just following up on sort of the stages of integration for NIC, from a product standpoint and the ability to sort of up-sell, cross-sell both across your customer base and then into theirs, what should we expect in terms of timing? Is there any real heavy lifting to get the products to be fully integrated? Is there anything that needs to be done from a technical standpoint to push their payments platform into your local governments, maybe just how you're thinking about kind of that process from a more technical and sort of product standpoint?

Yeah, sure, Matt. I'd say a couple of things. As we mentioned in our comments, we're really just now beginning to sort of dig deep into our integration efforts and our strategic initiatives. And in fact, this week, we had the senior executives of both companies meeting face-to-face for the first time, which was exciting, and really start brainstorming. And at a high level, we already know sort of some of the major initiatives that we want to take on. And the good news is there are a lot of initiatives. And one thing that we need to do and be careful about is make sure that we prioritize them, look at some of the low-hanging fruit and look at some of the things that will have the most impact. You mentioned payments. That certainly is one of our largest initiatives. From a technical standpoint, there is still a little bit of work to do there. But NIC is the unquestioned leader in payments in the public sector at the state level, and it's a growing thing for us. What we see there is the ability to leverage our client base and get payments more at the local level and leverage their technical experience to help boost our payments. We talked about other sort of integrations and things. We talked before about their state enterprise contracts, which provide sort of hunting licenses. And in fact, it's those state contracts, which they classify as state enterprise revenues, where they go in and then they sort of - they plant a seed and then they're able to go build additional revenues from there. On their own, this first quarter, those revenues were up 20%, which is pretty exciting. And then, what we start talking about is what kind of products do we have at Tyler that we can really just go in and push there. And I don't think there's a lot of technical integration there that's going to need to be done. But that's another one of our major initiatives that we're looking at right now.

Great. Thank you.

Thank you. And the next question comes from Scott Berg with Needham & Company.

Hey, Lynn and Brian, thanks for taking my questions, I guess, I got 2 here. First of all, Lynn, obviously, COVID is still impacting your businesses, as it is several in my coverage universe. But as I look at deal flow in the quarter, it looks like your new subscription contracts were - at 84 were substantially weaker than what we've seen at least over the last 2 or 3 quarters. I guess, as you look at that business, any product area, in particular, kind of driving maybe some of the softness in the quarter versus license sales, which was pretty much in line with last couple of quarters?

Yeah, Scott. We talked about it last year. The expectation really was that, I guess I'd sort of call it the COVID hangover, would bleed into this year, and a lot of it has to do with the fact that our clients' budget cycles are July 1, June 30. And it's a good question. But at the same time, these are the deals that we've signed. And what we're starting to see is, in Q1, for example, we're starting to see more RFPs, we're starting to see more demos, and we're actually - some of the awards that we've gotten in Q1 that are not signed are actually starting to skew even more heavily toward SaaS. We don't normally talk about unsigned awards. We talked last year about how COVID was impacting different parts of our business differently. And we saw a little bit greater impact, say, more on the high-end financials, where Munis is, where a lot of our license sales are. And what we've seen so far in Q1 actually is that the awards that we're getting and the deals that are coming in are skewing at 80-plus percent to SaaS right now. So I think that overall trend that we've talked about is still going on. There's just a little bit of lumpiness and a little bit of hangover still from COVID.

Got it. You actually targeted a little bit. My second question was on those unsigned awards. Brian, we talked about that obviously over the last 6 or 7 years. There is certainly some variance from quarter-to-quarter. As you look at those unsigned awards, was that number, I guess, coming out of Q1, materially higher than what you've seen in the last couple of quarters? Or was it kind of in line with that similar amount?

I'd say it's a little bit higher. As Lynn said, we saw these pauses in procurement processes in second quarter of last year, third quarter of last year, even to the fourth quarter of last year, where RFP volumes were down. Our clients were adapting to remote work. We weren't able to do in-person demos and some clients wanted to - it took a little while longer to adapt to doing a lot of those things remotely. So there were these pauses and delays in sales processes, particularly early-stage sales processes last year. And given our normal sales cycles that are 9 months to a year in typical deals, we expect that would show up in bookings now as we move into the fourth quarter, the first quarter of this year, those delays. And so, really our pipeline is still very robust. The RFP activity is picking up. So as we've said all along, it's really a matter of timing. We haven't seen deals go away. We've just seen the timing pushed out, and it's not surprising that it's showing up. And given that more of the deals are skewing toward subscription, it's more evident in the lower subscription bookings than in the license deals.

Got it. That's all I have. Thanks for taking my questions.

Thank you. And the next question comes from Rob Oliver with Baird.

Great. Thank you, guys, for taking my question. Lynn, one for you. I just want to go back to the, I think, Matt's initial question on the American Rescue Plan. Obviously, sizable amounts of money flowing into local municipal, I think, Brian, you had mentioned that there weren't as many restrictions on the money. Some of our conversations are still, I guess, there are still some uncertainty about how exactly this is going to be spent. One area, in particular, where we're hearing it's green-lighted in schools, and that's I think a noisier market than it's been in the past. But I know you mentioned you guys have 2,000 customers there, ReadySub tuck-ins, seems like it's really perfectly timed just as that was a nightmare to manage moving through COVID. But just curious, if you guys can just kind of frame the schools' opportunity or maybe any other early indications of that "growing activity" you're seeing, as those ARP funds are hitting and people are starting to do projects.

Yeah, Rob, that's a good point you make and you're right. We talked about it last year, how, again, the impact of COVID did impact different parts of our business differently. While we had certain areas of our business, I just mentioned the higher-end ERP, schools was an area that was definitely impacted a lot. And our business in schools was off last year. At the same time, I also mentioned last quarter that last year was a record sales year in our courts business. So it's a little bit of a - it's just different across our business. You're right, the American Rescue Plan, I do expect - there are some money that's specifically targeted for K through 12 and higher education. I think there is about $160 million, $170 million targeted for that. And I think what we're starting to see, generally, is just the more receptiveness from our clients in the schools area in terms of getting RFPs out, in terms of talking about deals. There was a - I'd say there was an area last year where it was, I wouldn't say silenced, but it was certainly muted a little bit, and that's certainly coming back.

Great. Yeah, sorry - go ahead.

And to your point about ReadySub, you're right. That's a really exciting opportunity for us. It's kind of a small deal. And it's a deal that's not just you want substitute teacher application that can go in. It's also becoming more - that type of application is becoming more and more of a requirement in our ERP space for schools. And as I mentioned in my opening remarks, we have over 2,000 school clients. And right now, that application is only in about 20 of them. And it's sort of the same playbook we had several years ago, we did the ExecuTime acquisition. We expect that we're going to be able to grow that product pretty well and it will be great for our inside sales channels as well as new business.

That's helpful. Thanks, Lynn. I appreciate it. And then, Brian, just a quick follow-up for you. Conversions were up really nicely year-over-year. Is that a function of things having frozen maybe in March and comp being easier or customers more willing to convert to subscription or kind of a mixture of the both? I know you guys are obviously leaning in more on subscription and subscription first, but just wanted to get a better handle on the dynamic there. Thank you.

Yes, it's really more the latter. The last 2 quarters have been really strong in terms of conversions picking back up again. And I think that's consistent with what we see in the new business market with more and more customers wanting to move to the subscription of the SaaS model. And as we've said, the complications of trying to remotely access some of these systems has certainly risen to the forefront during COVID and increased customers' desires to move on-premises systems into the cloud. And our relationship with AWS, our capacity that we have available through AWS and - is giving us additional ability to push conversions more aggressively into our customer base.

Great. Thanks again, guys.

Thank you. And the next question comes from Keith Housum with Northcoast Research.

Good morning, guys. If I could unpack the backlog number just a little bit more. It looks like the - or I'm sorry, the bookings number, it looks like for services actually, the services bookings actually went down by about $25 million in the quarter. Was there a cancellation in the quarter?

No cancellations, but you're talking about compared to last year?

Yeah, I think the $247 million you have in new bookings for the quarter, it looks like software and service bookings were actually down by $25 million.

Yeah, I think part of that is billable travel that runs through revenue and therefore through bookings. Last year, we were still traveling through most of the quarter, so you're going to see part of that. That's probably about $5 million of it. I'd say that, in general, the - as we move more to a cloud business, you typically see a little bit lower level of services with new cloud contracts. But I'd say most of that just goes along with the delays in some of the bookings. So along with - both on the license and subscription side, but no, we have not seen any cancellations. There have been - that's really held true throughout the whole last year. We've not seen any meaningful cancellations, either of contracts that are in progress or of projects in the pipeline, really just delays.

Okay, got you. And if I could unpack the NIC numbers just a little bit more, it sounds like it was better than expected. If I heard what you say right revenue was up, excluding the one-offs of TourHealth and the Virginia pandemic assistance program more than 10%. But yet, I think you said the enterprise revenue was up 20%. How was the transaction revenue for NIC last year - last quarter?

Yeah, Keith, they're interactive governance services, which is, as you know, is transaction-based, that was up 16% year-over-year. So in the areas where they're really strategic and growing, they really had a really good solid first quarter.

Great. Glad to see that. Hey, Lynn, you don't happen to have the DHR numbers as well, do you?

DHR was actually...

Driver history records?

I believe DHR experienced an increase of about 4% in the quarter, which is encouraging, especially since it's the first time in maybe four quarters that they've seen such a rise. This revenue is generally more stable. Furthermore, if you look at interactive government services, their enterprise revenues are significant growth contributors, and those saw a nice increase in Q1.

Yeah, absolutely great. I appreciate it. Thanks for the color, guys. Good luck.

Thank you. And the next question comes from Peter Levine with Evercore.

Great. Thanks for taking my questions. So with the move towards cloud, we've seen obviously in the corporate side acceleration of cloud based on the idea that some employees will be given the flexibility of work-from-home, hybrid. Obviously, cloud helps to enable that. Curious, if you're seeing or hearing similar trends on the public sector side, I'm sure there's a certain segment of public employees that could permanently be remote. But just curious now, could this be a catalyst to accelerate cloud adoption?

Sorry. You weren't coming through very clearly. Could you repeat the last part of the question?

Yeah. Sorry about that. Yeah, just curious to know, does - public employees, right? We've seen the trends on the corporate side where cloud acceleration with the idea that some employees will be given the flexibility, right? So obviously, cloud helps that. But curious to know, based on your conversations, are you hearing or seeing similar trends on the public sector side? What the idea is that could this potentially be a catalyst to accelerate cloud?

Yeah, I think, that's definitely true. Typically, you will see the public sector change and evolve more slowly than the private sector. So often those things that - those trends that start in the private sector take a little bit longer to take hold in the public sector. But just like the private sector, our clients have had to move to doing things remotely, and that is, I think, a significant factor in their ongoing preference in new systems for the cloud and in the conversions from on-premise customers accelerating. Courts is a great example where courthouses were physically closed and many of them still remain closed, but courts are an essential function. And so many courts that didn't have the ability to operate their systems remote were just shut down. And we have products, for example, our virtual courts product that we accelerated bringing to market early last year that enabled courts to continue to operate remotely, licensing and permitting functions where clients have old legacy - not our clients, but public sector agencies have old legacy systems that don't allow for remote access. So you don't have people in the office processing building permits and those sorts of things that are slowing down activity. Our systems provide for that remote access, and there's certainly an accelerated interest in those. So I think, yeah, governments will, like the private sector over time look to work more remotely, and also that's a factor with NIC, the ability to interact with government and make payments remotely or online rather than coming to a government office. And as we've talked about their first quarter results, we're certainly seeing that increase in volumes as a result of that trend.

Yeah, great color. And then Lynn, to piggyback off your prior comments on government budgets and the spending bill, any more detailed commentary you can share on whether state and local government budgets are opening up, I would say, more uniformly? Or is it more of a state-by-state situation?

I don't know that I could attribute necessarily anything geographic. I would just say, generally, as a whole, we're seeing a lot of positive signs. We talked about on-site awards. We talked about RFPs, particularly in certain areas of our business. Take, for example, in the higher-end financials, our fees are up significantly over Q3 and Q4, even while they're still down from where they would have been pre-pandemic, and so that's an encouraging sign. There were a lot of big deals that we saw maybe in our appraisal space maybe in our state space that we knew these deals, we plan on these deals coming out in 2020. And those got shut down, and we're actually starting to see those getting released. So just generally speaking, it's - there's a lot of encouragement. Again, I wouldn't say we're quite over the hump yet, but let's get another quarter of seeing this activity, but I think there's general optimism. And I think it mirrors what's going on in the country. There should be a reason for optimism as people continue to get vaccinated, as businesses continue to open up, as money continues to start flowing, people start interacting. You're going to see that flow through our business as well.

Great. And if I could squeeze 1 more in. Sorry, Brian, if I missed it, I hopped on late. But how are you thinking about the combined financials? And what impact, I guess, if any - I guess, specifically the write-down of NIC's deferred revenue could have here in 2021?

We're still working through all that process. That's one of the reasons we aren't providing the combined guidance at this time. I would say, in general, NIC doesn't have a large deferred revenue balance on their balance sheet. Their business is more transaction-based rather than software-based. But that's certainly one of the factors that we're looking at closely as we develop the combined guidance. But they do tend to have less deferred revenue than, say, a pure software company.

Thank you. And the next question comes from Jonathan Ho with William Blair & Company.

Hi, good morning. Just wanted to - I guess, I'll make sure I fully understand this. So would you expect this quarter to potentially be the low watermark in terms of maybe year-over-year bookings growth? And do you potentially anticipate that there'll be a catch-up period once the pipeline starts to normalize even more so than it is today.

Well, it's hard to tell exactly if it's a low watermark, but we did start to see declining bookings last year in Q2. So I think our comparisons will now be against a - start to compare against pandemic-affected quarters. So really, right now, we're comparing against what was not only the last sort of pre-pandemic or pre-affected quarter, unaffected quarter, but also what was just a very strong quarter with some large deals in it. We do think there would be a catch-up. It's not likely to be sort of a dramatic 1 quarter kind of a catch-up, but the combination of, 1, the fact that these are essential systems and that the pipeline - they remain in the pipeline, the timing has just been pushed out. So, again, we're starting to see that increase in activity, those RFPs starting to pick-up again and some of those deals moving forward. So we do believe there's a catch-up. It is just a matter of timing. As we've said before, we also believe that further down the road, that the - there will be some procurements that will be accelerated that might have been - clients might have thought they had years left in existing legacy systems and the need for remote access, security concerns around some of those legacy systems will be factors that will cause them to rethink that and accelerate the replacement of those systems. They'll still need to go through buying processes. They'll still need to budget those, but we do believe that there'll be a longer-term acceleration, but that the sort of pent-up demand in the current pipeline that there will be an acceleration as that works its way out. And that would be consistent with what we saw in, for example, in the recession a decade ago.

Jonathan, I'd just add there, too, that - I like to look at the trends and look at the markets. And again, there's reason to believe the market is starting to come back. We talked about the Great Recession, but also what's our competitiveness disposition like in that market. And even while in the last 6, 9 months that the markets have been off a little bit, our actual win rates have actually been climbing. And so our competitive position continues to grow. And as we look at bookings, we've talked about this a lot over the years, we have a pretty steady stream, but it's always - there can always be some large skews in various quarters, because we do have parts of our business that get some really large deals. Last year, we were a little concerned about Q2 of last year, because Q2 of 2019, we had, I think, one of our largest deals in Tyler's history. And so that's kind of what we're competing against. And those large lumpy - those large deals will always sort of throw off a little bookings number. But when I look back at sort of the underlying thing, what's the market doing, what's our competitive position, what's our win rates, that's all trending in the direction that we'd like to see.

That's helpful. Just 1 question on DataSpec and ReadySub. How do you think about cross-selling those products and leveraging them across your existing clients? And maybe how big of an opportunity could these acquisitions be? Thank you.

Yeah. So I'd say, they're a little bit different, the 2 acquisitions. They're both fairly small. ReadySub like I mentioned earlier, that's probably more like the playbook out of ExecuTime. And that's a - this is cloud-native platform. It's built in AWS. It's actually the founders of former AWS engineers. There's a clear need in that space. This is something that, to your point, we can go out and we can leverage and sell across our base pretty well. I don't know that I've got some good sort of markets for that, but it's an opportunity. And again, it's not just the opportunity of rolling out through our inside sales, but it will also help our competitiveness on new deals in the schools market as it's becoming more and more of a requirement. DataSpec, I would classify it as a little bit more of a consolidation play. They were probably the leader in the veterans' benefits application space. They had 32 state customers. That gives us a lot of credibility so that we can go out as we will eventually probably migrate those customers over to our entellitrak platform, and that just makes us the leader in that space and gives us more credibility as we look to expand in the federal markets as well as the state markets.

Thank you.

Thank you. And the next question comes from Charlie Strauzer with CJS Securities.

Hi, good morning. Just a quick question for you. I know you're still working through guidance on NIC, but hoping to get a little bit more color there, and also maybe timing as to when you think this quarter, you should be releasing the updated guidance at all. Thanks.

Well, we've said we'd expect to release it during the quarter. I would expect that to be roughly the end of May, beginning of June. So sometime in the next month or so, we would expect to be in a position to do that. NIC, again, we're working through not only understanding what their current plans are for the year, but really how the integration with Tyler, the ability to start to address some of our strategic initiatives and cross-selling opportunities, and what we think the timing and size of those is and how much of that will go into this year. But they're off to a strong start. As we said, overall, 10% - a little above 10% growth in their core revenues, they actually on the COVID-related revenues, significantly exceeded their plan on those, but we do expect those to wind down and not really be much of a factor after the second quarter. So their growth rate is a bit ahead of ours. And we talked about some of the strengths in their business from taking advantage of the increased desire of individuals and businesses to interact with governments digitally rather than in-person. So generally, they have a positive outlook on the year. And within the next few weeks, we expect to have that combined guidance out and be able to talk more about the plans for working together through this year.

Yeah, Charlie, if I could just add there, too, I think - yeah, I mean, this is obviously - it's a top priority, right? I mean, it's our largest acquisition of all time. And we talked a little bit about before, and I think Brian mentioned in his remarks, we were in this period from signing and close this regulatory approval period. And you can take all sorts of approaches there, and we tended to take a more conservative approach. And, I'd love to be able to share those numbers with you today. But it was because of that conservative approach, we're just not quite there yet. And the way I view it is we - Tyler very well. You follow us a long time. We're always interested in the long-term. And the thought of even potentially jeopardizing or delaying that deal by getting a few weeks head start on some of the stuff, it just didn't seem worth it. But it is a top priority. I think we'll get those numbers out, as Brian said, in about a month. But we know that it's going to be accretive to earnings. We know it's going to be accretive to EBITDA and all the things we mentioned before and the excitements there. And I appreciate if there's even a little bit of frustration, and part of it's just the timing around that we just closed in our earnings releases now. If we closed a month before earnings release, we've probably been ready to do this.

Totally understand. Thank you for that.

Thank you. And the next question comes from Peter Heckmann with D. A. Davidson.

Hey, good morning. I understand, I would be looking forward to the combined guidance here in a few weeks, so I'll hold my questions on that until then. But just curious on the balance sheet, I mean, Tyler generates really strong cash flow. But would you expect to direct virtually all of free cash flow to debt reduction until you get to some threshold limit or - and refrain from the buyback in the interim?

I don't think there's necessarily a predisposition towards that. I think we're always opportunistic. And I think, at this point in time, acquisitions, we've done 3. Acquisitions will probably need to be a little more compelling. I'm not suggesting that we're done with acquisitions for the year, I think, I mentioned that on Q1. We talked a lot about NIC, and I said we may not be done for the year, and we did DataSpec and ReadySub. Those were deals that were already in process. And so I would expect that we'll be a little more - we may have a little bit higher bar, going forward, in the short term on that. And as it relates to share repurchases, again, we're opportunistic. We're very comfortable with our debt leverage right now. One of the things I talked about at the last quarter - at the last call was we want to make sure we retain flexibility. And I think we have that flexibility. And our combined cash flow, if we did solely dedicate it to debt, it would be paid off in fairly short order. But I always want to maintain the flexibility to invest in the business when it makes sense to do acquisitions when they make sense and to do share repurchase when they make sense. And we've got that. And so you'll see us pay down that debt in a fairly aggressive manner, but we're going to have that flexibility, and we'll open, we'll always have that flexibility.

Okay. That's fair. And then, Brian, this may be jumping the gun to you with the question. But in terms of when NIC renews a state portal contract or any large contract, would you expect to see them flow through bookings? Or would it be like the Texas e-filing deal where there's - it's a little bit harder to quantify it given some of the terms?

Yeah, it's probably a little early to comment on that. We really need to dig into the terms of those. Typically, when we've had contracts that are solely transaction-based like our e-filing that are on a per-filing basis, they don't go into bookings at the inception. They just go in as those revenues flow through our income statement, because there's not a fixed amount. It's really just our fixed fee e-filing that goes into booking, other than in the case of the Texas renewal. So we'll just have to look closely at the terms of those contracts and see how they line up with how we report. So that's part of what we'll be doing as we move through the detailed integration over the - as we prepare to report for the first time on a combined basis this quarter.

Thank you. And the next question comes from Brent Bracelin with Piper Sandler.

Hi, this is Clarke Jeffries on for Brent. Thanks for taking the question. Firstly, I noticed the reacceleration of payments revenue, up 59% off of the strongest comp last year. Wondering, if we could get an update on the trends in that business, I know, there were some impacts in the e-filing side of the house. But are the payment trends looking like it's steadily improving from here?

They are. There's some rebound in e-filing, although, it's not dramatic. I think our e-filing revenues were up sort of mid-single-digits. But as courts open back up, we would expect to see volumes pick back up there in that transaction-based business. That does typically have a payments component. But we've talked about our own payment initiatives over the last few quarters and how we are starting to - with a sort of a newly refined go-to-market strategy. We are trying to push our payments platform into more of our customers, so increase the adoption. And we're certainly seeing increased adoption among their citizens in making payments online. We're adding new customers, and we're bringing in more payment types with those customers that do have our payments platform. So we're still in the early stages within the Tyler business of performing against that strategic objective of significantly increasing our payments business. And we really look forward to seeing how we can use the NIC payments platform and their expertise to help accelerate that. But the business on its own is doing well within Tyler, and it's had really strong growth over the last couple of years. But again, still off a much smaller base than NIC has.

Yeah, that's right, Brian. As we rollout payments, you're going to see throughout the rest of the year as we get more and more of our solutions online in the payments. We've been doing that work. We started that last year. And as Brian mentioned, really, it's - while it's still small businesses tend to grow fast. And if you look at a 3-year run rate, we're probably at 3 times the revenue as we were 3 years ago. And our Q1 actually out-beat plan, and we were up year-over-year in Q1 in our payments. So that's encouraging to see. And as Brian mentioned, our e-filing revenues are actually getting back closer to pre-pandemic levels. They're getting closer to the 80%, 85%, 90% now levels of pre-pandemic. So that's all very encouraging.

Great. And then, I would say one thing that - as we break part the NIC business, that stood out is, I think, Lynn, you mentioned this briefly on the 20% revenue growth on state-level contracts, is that same-state IGS growth that averaged around 15% for the last 2 years? I'm just wondering if this is an asset that could potentially accelerate post-pandemic as some of the DHR headwinds abate, and then you just have new opportunities with new states building off of revenue expansion with existing states.

Well, I think, that's a good question. I don't know it's - again, it's probably a little early for me to comment on their multiyear growth plans there as we're still doing our integration and getting our arms around 2021. But certainly, their IGS services, their same-state enterprise revenues, those are growing areas for them and those areas that we think we can help complement them and help bring even further growth. So that would be my long-term expectation. I certainly don't have anything more specific in terms of guidance around that right now.

All right, great, and congratulations on the quarter.

Thanks.

Thank you. And the next question comes from Joe Goodwin with JMP.

Great. Thanks guys for taking the question and good morning. Can you comment on how Socrata performed? And then also, has there been any changes to competitive environment maybe from some other more horizontal vendors with respect to Socrata?

Yeah, no, Socrata is performing very well. One of the things that we've really put a focus on really last 18 months or so is more, we call cross-divisional bookings, but we're really pushing Socrata through Tyler's traditional sales channels as opposed to Socrata's traditional sales channels. One of the most exciting opportunities, I think, with NIC as well is the opportunity for Socrata. Socrata had a lot of state and federal customers on their own before they came to Tyler. And with Tyler, we've been focusing on driving that more at the local level. And there's a lot of interest at NIC. I mentioned earlier about our management team's meeting earlier this week. And one of the big topics of conversation was Socrata and the excitement around what they can do and push data insights at all the various state agency levels. And so, I think the outlook there is pretty good. I don't know that I've seen anything specific about a competitor that's anything new or different. Socrata has done a number of things in the pandemic, which has been helpful, but also there's been times we talk about delays. It's also been some issues. Socrata's, I felt the same thing the rest of our business has, and has not grown quite as fast in the last years as we may have anticipated. But the future of Socrata within Tyler and our Connected Communities visions and what we're trying to do, which, again, I don't know that any other company has the ability to do it. It's an important piece of that, and it's something that provides a lot of excitement both within our clients as well as within Tyler. So it's, yeah, it's doing well.

Yeah, really the ability to use that platform to provide advanced data and analytics capabilities within our existing Tyler core solutions gives us such an advantage over the horizontal competitors that aren't strictly public sector-focused and don't have that deep integration with our core products. So we started with the ERP and the analytics for finance. We've had great success with public safety. It's really created a competitive advantage for us with our New World Public Safety products by adding the Socrata Data and Analytics layers. And now, we're rolling it out with the appraisal and tax, and with the Assessment Connect product that's adding value to our tax. So as Lynn said, really focusing on driving it into our market, both through inside sales and in new sales by adding a Socrata component to new software sales.

Great. Thank you.

Thank you. And as we have reached our allotted time for questions, I would like to return the floor to Mr. Moore for any closing comments.

Before we close, I'd like to add one clarification on an earlier question. There was a question about the $25 million decline in software and services bookings in Q1 compared to Q1 of last year. That's not just services, that's a combination of licenses and services. And most of that is related to licenses. Again, we had some large license deals in Q1 of last year. We saw a lower number of Q1 licenses booked this year in Q1. So the major part of that $25 million decline and probably about $20 million of it is in the license side and about $5 million in services, mostly related to billable travel services.

Great. Thanks, Brian, for that clarification. And thanks, everybody, for joining us today. We hope you stay safe and healthy. And if you have any further questions, please feel free to contact Brian Miller and myself. Thanks, everybody.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.