IE 11 Not Supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

Gov Tech Stands Optimistic as Recession Fears Loom

A review of recent financial reports from the industry — including from gov tech giant Tyler Technologies — shows how companies plan to grow in the midst of economic anxieties. Public safety and the cloud play big roles.

Clouds in the sky.
COVID-related revenues are drying up for government technology providers just as borrowing is getting more expensive and recession fears build.

But even as every day seems to bring more news about big tech layoffs, gov tech providers themselves don’t seem to be sweating things just yet, at least judging by recent quarterly financial reports.

Though only a handful of gov tech players are publicly traded, their Q3 financial reports — including from industry giant Tyler Technologies — give insight into the health of the industry as a new year and potential economic pain approach.

Those latest financials generally reinforce the idea that gov tech, already on an upswing before and during the pandemic, will stand as a relatively safe haven for capital if a new recession does indeed hit. Public safety and the shift toward cloud services explain a good part of that.

TYLER’S GROWTH


Tyler offers perhaps the clearest look into the relatively optimistic outlook among gov tech players — a view at odds with, say, recent economic warnings from Amazon and others.

For its part, Tyler reported a 3 percent year-over-year revenue gain for the three months that ended Sept. 30. Net income grew almost 21 percent.
The company’s relatively new NIC unit — acquired more than a year ago — took in $11.7 million of COVID-related revenue in the third quarter. That compares with $43.3 million worth of COVID-related sales in the third quarter last year. Tyler said that the fourth quarter likely will bring the end of those COVID-19 revenues.

As well, Tyler, like many other companies, is touting its moves to prepare for potentially dimmer economic conditions.

“In light of the rising interest rate environment, we continue to prioritize the use of excess cash to aggressively reduce debt, while being opportunistic toward strategic acquisitions and investments that enhance our long-term growth strategy,” said Tyler CEO Lynn Moore in the Q3 conference call with investors. “During the quarter, we reduced term debt by $190 million.”

NEW OPPORTUNITIES


But as COVID-19 business dries up and capital becomes more expensive, other opportunities come into view — and those new opportunities shed light on the factors that promise to drive gov tech growth as economic anxieties persist into 2023.

Tyler just signed a five year, $54 million deal with the U.S. State Department’s Diplomatic Security Service involving its Case Management Development Platform, a contract that the company described as the “largest-ever award for such a system.”

That came right as Tyler said it would pay $68 million to buy Rapid Financial Solutions. It focuses on digital disbursements and card issuing, and gives Tyler another way to service local and state public agencies, as well as earn revenue from transactions, including in courts and corrections.

“As we look across our Tyler portfolio and market presence, we see a lot of opportunities — other opportunities in the justice space where it’s juror payments or in work release or things like that on the state side [such as] unemployment, unclaimed property, tax refunds, parks and outdoor, enterprise, federal, social services,” Moore said.

SHOTSPOTTER’S FUNDING ENVIRONMENT


The broader area of public safety, in fact, is helping to fuel optimism about 2023 among other gov tech providers. That’s according to recent financials from ShotSpotter, the gunshot detection technology seller that just won a hard-earned and controversial expanded $7 million contract in Detroit.

The gov tech vendor reported a 29 percent year-over-year revenue jump, to $18.8 million. The company’s personnel costs have increased but ShotSpotter also is enjoying what CEO Ralph Clark described as a “funding environment [that] has probably been the most constructive that it’s ever been” for at least a decade or so.

As he detailed in a conference call with investors, New Jersey, New York and Ohio have set aside funds for agencies to buy gunshot detection technology, among other tools.

“This is in addition to the resources continuing to be made by the federal and local budget coffers,” Clark said.

In fact, so much for so-called police defunding, at least from where he sits: He cited statistics that show 83 percent of cities and counties have increased public safety spending by at least 2 percent in 2022 — even amid some serious challenges for policing at large.

“We’re not seeing a lot of folks coming into the profession because it’s a less popular profession,” Clark said. “And that’s putting a tremendous amount of pressure on policing departments to be able to kind of keep pace with an increasing crime wave that’s happening across the country, both small, medium as well as large cities.”

The fourth quarter will bring more deals, he said, including a campus safety project via reseller partnership involving a “major university,” and a “significant eight-figure, multiyear” transaction focused on the company’s case management tools.

“Collectively, this is the highest level of … bookings we have secured since going public in 2017, giving us solid momentum heading into 2023,” he said.

CLOUD MOVES


It’s not only public safety that is fueling the positive attitude among gov tech providers but the ongoing move to the cloud by state and local agencies.

Accela, a privately held cloud-based government software company that releases few details about its financials, nonetheless said that in the first quarter of its fiscal year — the quarter ended Sept. 30 — it posted annual recurring revenue growth of nearly 16 percent.

New customers included the Egypt Ministry of Education along with Lincoln, Wash., and Mulberry, Fla. The company also said it is helping governments in Fort Worth, Texas; Santa Barbara, Calif.; Paradise, Calif.; and Missoula, Mont., move to the cloud.

Back at Tyler, Moore said the company remains focused on its “cloud-first strategy,” another way that the company plans to achieve significant growth and more market share, recession or not. He said total contract value for new software subscription agreements hit a new high, and that those deals made up 91 percent of Tyler’s new software contract value in Q3.

In all, Tyler added “153 new subscription-based arrangements and converted 70 existing on-premises clients, representing a total of approximately $149 million in contract value,” according to CFO Brian Miller. He added that those contracts are getting longer, too: 3.8 years in the third quarter of 2022 compared with 3.4 years for the same period last year.
Thad Rueter writes about the business of government technology. He covered local and state governments for newspapers in the Chicago area and Florida, as well as e-commerce, digital payments and related topics for various publications. He lives in New Orleans.