Company executives from the handful of gov tech suppliers that are publicly traded highlighted those trends in fourth quarter financial reports — reports that include data and commentary about revenue, operational and marketing outlooks for 2023 and beyond.
While the vast majority of gov tech providers don’t publicly release their financials, those that do — most notably, Texas-based Tyler Technologies, an industry giant — provide enough information that one can at least glimpse the general shape of trends to come.
Those trends, in turn, will help shape how state and local governments buy and deploy technology.
GOODBYE, COVID-19
Tyler’s revenue increased 4.3 percent in Q4, and 16.2 percent for the full year, “a bit below forecasts,” according to a research note from Peter Heckmann, senior research analyst at D.A. Davidson. He said bookings were “flat” in Q4 but he maintained a “buy” rating on the company’s stock.
Tyler also reported $3.5 million in COVID-related revenue for the fourth quarter.
That’s down from $16.6 million from the same period last year, reflecting the diminishing of pandemic projects for gov tech suppliers. In fact, company executives on a conference call with investors said revenues from all of Tyler’s COVID-related initiatives have ended.
As that happens, federal money is flowing into the gov tech space, thanks largely to infrastructure improvement efforts backed by the Biden administration. That’s making gov tech suppliers — and many of their customers — optimistic as the mid-point of 2023 approaches.
“We’re just generally seeing healthy budgets, healthy buying seasons, sort of just a really good, robust market,” Tyler CEO Lynn Moore recently told analysts.
RECESSION OUTLOOK
In fact, as fears of a recession persist, the gov tech market as a whole is seen as a relative safe haven for cash that is all but burning holes in investors’ pockets, and for private equity firms seeking solid growth, as a recent Government Technology analysis showed.
But if the economy does sour, part of gov tech will suffer, at least according to Tom Nieto, chief operating officer of Accela. The privately held cloud-based government software company releases few details about its financials but did report that for its recently concluded second quarter of fiscal year 2023, annual recurring revenue increased 17 percent, with net retention at more than 110 percent.
“Larger players are getting a disproportionate share of the market,” he told Government Technology. “If a recession shows up, some of the small players will struggle, players who don’t have scale.”
PAYMENTS ASCENDING
Recession or not, it seems a sure bet that payments and payments processing — an area that saw a recent acquisition — will grab more of the spotlight when it comes to gov tech this year. Tyler provides perhaps the strongest example of that trend as the company takes in gains from its $2.3 billion acquisition of NIC.
In Q4, Tyler signed 153 new payments deals — the largest was with Milwaukee — that together will bring in an estimated $4.7 million in annual recurring revenue across Tyler divisions. The company signed 571 payment deals in all in 2022 — that’s good for more than $13 million in annual recurring revenue, along with cross-sell opportunities, according to Moore.
“We’re still in the early stages of cross sell, and it’s exciting to see tremendous momentum and collaboration taking place,” he said. “Since completing the acquisition of NIC, synergies between NIC and Tyler have delivered 19 cross-sell transactions worth $9.5 million in total contract value.”
PUBLIC SAFETY’S STRENGTH
Payments, though, can be more variable than other sources of revenue in the gov tech space. And payments pales when one considers how public safety technology is fueling the gov tech industry, with more growth certain to come.
Take ShotSpotter, the supplier of often controversial acoustic gunshot detection systems, along with other tools for law enforcement.
Its recent financials show a 50 percent revenue gain for Q4 and a 39 percent revenue gain for FY2022. Clients deployed 102 new square miles of ShotSpotter coverage in 2022, bringing total live miles to more than 980. The company anticipates 17 percent revenue growth this year.
“Our demand drivers remain strong as there is increasing pressure on cities to deal with the rising violent crime in a transparent and community-inspired fashion,” CEO Ralph Clark told analysts.
As well, federal funds dedicated to public safety improvements for states and localities — including $10 billion from the American Rescue Plan — likely will spark even more demand for such technology.
“The funding and budgetary environment continues to be constructive,” he said. “We are very bullish on our ability to drive profitable growth for the foreseeable near and medium term.”
‘MOONSHOT GOAL’
Another example of the promise of public safety technology comes from Axon, which makes TASERs, body cameras and other gear for police, EMS and firefighters. Not only did the company report a 38 percent jump in revenue for 2022 but it announced an ambitious plan that, if achieved, would certainly boost its own bottom line while influencing local and state tech budgets.
In what Axon called a “moonshot goal,” the company hopes “to cut gun-related deaths between police and the public in half over the next 10 years,” according to the company’s recent financials. “We are committed to investing in the technology, training and data that will help achieve better outcomes and deepen trust between law enforcement and communities.”
WORKFORCE CHANGES
Building, selling and deploying new gear and software, of course, depends not only on market demand but the workforce and creative power at companies that supply gov tech. The relatively tight labor market still presents challenges to those vendors but recent layoffs in Big Tech might help ease the pressure.
At Tyler, for instance, employee turnover was decreasing in late 2022, company executives said, and approaching pre-COVID levels.
“It’s definitely mitigating from what we saw last year,” CFO Brian Miller told analysts, pointing to those layoffs and also to hiring freezes among tech companies in general. “And there’s less pressure than we saw last year on wage increases. Those (factors) are working in a positive manner for us.”
