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How Does Tyler’s Acquisition of NIC Look a Year Later?

The massive deal — the largest for government technology — was completed just more than a year ago. Now financial results are starting to tell the story about the acquisition, and soon tech buyers will notice changes.

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It was the deal that rocked the government technology world.

Now, a year after Tyler Technologies completed its $2.3 billion acquisition of NIC, the combined operation is showing signs of solid growth, though the pandemic and other factors will help determine how successful it all turns out.

The acquisition, announced in early 2021, married a giant of local government software (Tyler) with a giant of state government software (NIC), and stands as the biggest gov tech deal to date. It came as public agencies were facing the challenges of the COVID-19 outbreak and also pursuing longer-term goals to upgrade their software and otherwise make government more digital.

The most recent financials from Tyler offer the most precise picture yet of the deal, along with hints of what will come next for buyers of gov tech as the two companies continue to integrate.

REVENUE GAINS


For the first quarter of 2022, Tyler reported overall revenue of $456.1 million, up nearly 55 percent year over year. That figure includes NIC and other acquisitions. Organic revenue increased by almost 13 percent, which Tyler said was the highest in 20 quarters. Subscription revenue, meanwhile, increased almost 140 percent.

As for NIC, its core revenue grew by 13 percent, a figure that excludes COVID-related sales, according to Tyler CEO and President Lynn Moore.

NIC’s COVID-related revenue “were in line with our expectations at $20.6 million,” he told investors on the Q1 earnings conference call in late April.

“NIC's growth was boosted by revenues under the new statewide payments contract in Florida and in particular, by revenues associated with corporate filings with the Department of State that are concentrated in the first quarter,” he told investors and analysts.

Moore gave more detail about NIC’s performance in the early part of the year, including an extended “enterprise contract” in Alabama and New Jersey (that happened in April), along with a five-year software-as-a-service deal with Mississippi for the NIC cannabis licensing platform, a contract worth some $4.3 million.

“We also signed agreements for NIC's payments platform with existing Tyler clients in Hillsborough County, Fla.; Montgomery County, Md.; and Glendale, Calif.,” Moore said.

OUTDOOR RECREATION


But the splashiest result of the NIC acquisition so far is Tyler’s decision to buy US eDirect, a New York-based company founded in 1999 whose technology helps public agencies manage campgrounds and recreation programs.

The deal, announced in February, has US eDirect’s Recreation Dynamics tool — a “large-scale, enterprise-grade cloud transaction management system focused on the government recreation and tourism industry,” and which digitally handles tasks such as rentals, tours, passes, parking and licenses — folding into Tyler’s NIC payments platform.

The deal “significantly expands our outdoor recreation portfolio, allowing us to offer an extensive all-in-one outdoor recreation solution that will seamlessly integrate with our NIC payments platform,” Moore said. “When you talk about outdoor reservations and stuff, it's not just going in the states, which will be through NIC sales channels, but we also have the ability to go sell it more locally through some of Tyler's sales channels.”

As Moore highlighted the success that has stemmed from the NIC acquisition — he told investors that the deal has “exceeded expectations" — he also talked about what to expect as the companies continue to combine or expand operations. Even as mergers, acquisitions, massive investments and other corporate actions are taking place in the world of gov tech, Tyler needs time to fully digest its own latest deals, which will no doubt have a wider influence in the industry.

“While we continue to evaluate strategic acquisition opportunities, we are heavily focused on the integration and execution around the acquisitions we've completed over the last two years, making the bar on new acquisitions at this time relatively high,” Moore said.

BUYER INTEREST


Indeed, a year is hardly enough time for such a big deal to fully play out, as Bret Dixon, president of Tyler’s State and Federal Group, indicated in a recent email interview with Government Technology. While he emphasized that the deal has met or exceeded financial targets, and that the focus and professionalism of NIC employees have impressed their peers at Tyler, he said significant work remains.

“Because of the pandemic, we are now just beginning to have face-to-face meetings with the broader NIC employee base,” Dixon said. “That has really helped us to align even more closely. We have been careful to not disrupt NIC’s already successful business model while we systemically build Tyler and NIC synergies.”

That said, he said that buyers of technology for local and state governments will certainly notice the impacts of this deal soon enough.

According to Dixon, the company has already experienced interest in “payment capabilities designed for government” in the wake of the deal, and that Tyler plans to meet that interest with specific products.

“Buyers can expect unique transaction-based solutions, packaged/configurable software and state-of-the-art platform capabilities involving our data and insights and workforce case management solutions,” he said via email. “We expect to achieve an even deeper level of collaboration with the NIC team and unlock future integrations with our solutions.”

NO VICTORY YET


From an analyst point of view, Tyler’s acquisition of NIC does seem to be paying off in the short term, according to Jeff Cook, managing director at Shea & Co., an investment bank that has advised in more than 20 gov tech deals in the past five years. But it will take time to deliver a more solid judgment on the wisdom of this deal.

“It expanded (Tyler’s) addressable market by giving them a strong presence in the state market, it meaningfully grew their recurring revenues, and it gave them foundational product capabilities (like payments) to build around,” he told Government Technology in an email. “And they have started to build around it and go further into the states market, a good example being the acquisition of US eDirect in the first quarter.”

Even so, NIC has a “bit different business model” than does Tyler — more specifically, NIC has a smaller number of very large state contracts, Cook said — and keys of longer-term success will be how many new state contracts the combined company can sign, along with how many existing NIC contracts the combined company can renew.

That holds especially true, he said, “with businesses like (Brandt Information Services) and PayIt taking share in NIC’s core market. To summarize, I think 'so far, so good’ but it’s still too early to declare victory.”

FIRST INNING


In the meantime, Tyler Technologies is rolling out a reorganization and branding change, a reflection of the company’s growth. And Moore is cautioning that it is still the very early stages for the combined company.

“We may still be in the first inning of this deal. We've got a long way to go. We're still learning about each other,” he said. “We're still learning — while we spent a lot of time last year educating both teams on products and sales channels and the ways to go about addressing the market, I think we're just barely scratching the surface of what we can achieve together."
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.