Shares of Tyler Technologies (TYL 0.58%) climbed on Thursday after the software company reported financial results for the third quarter of 2023. While headline numbers only showed modest growth, Wall Street seemed to like other results beneath the surface. As of noon ET, Tyler Technologies stock was up 10%.
The software company for local governments
Tyler Technologies has a range of software products that are used in the public sector. In Q3, the company's revenue was up a modest 4.5% year over year to $495 million. And its operating income was only up 5% to $64 million. But there's better growth beneath the surface that Wall Street is happy about.
Tyler Technologies is transitioning to a software-as-a-service (SaaS) model. As such, certain revenue categories fell as the company's customers shifted how they buy the software. Encouragingly, SaaS revenue was up 26% year over year, which is better than its 20% growth in the second quarter.
The shifts in the business model impact cash flows as well. Q3 free cash flow for Tyler Technologies was up a whopping 40.7% year over year to $162.7 million. The company's CEO Lynn Moore said, "Our third quarter earnings and cash flow surpassed expectations and reflect a continuation of solid execution on key operational initiatives."
Tyler Technologies goes shopping
Tyler Technologies does want to grow revenue organically but it pursues a growth-by-acquisition strategy as well. In Q3, it completed its $36 million acquisition of Computer Systems Innovations. And on Oct. 31, it announced two more acquisitions: ARInspect and ResourceX.
ResourceX will bolster Tyler Technologies' offerings for budgeting software. And ARInspect will provide some artificial intelligence software for field operations, which includes managing disaster recovery.
Bolt-on acquisitions like these can help Tyler Technologies as it keeps looking for new growth opportunities. And fortunately for investors, the company has done well at buying and integrating smaller players in the past.
