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Where Is Gov Tech Industry Headed in Final Stretch of 2022?

Recent earnings reports from Tyler and other tech firms, along with executive and expert comment, illustrate how labor challenges, SaaS revenues, COVID and other factors will influence the industry in the coming months.

Hiring concerns, growing subscription revenues and winning post-COVID contracts — those are some of the issues facing government technology providers going into the second half of 2022, at least based on some of the most recent financial reports from vendors.

Those issues, in turn, promise to influence how local and state governments buy and deploy technology.

The biggest player in the gov tech world is Texas-based Tyler Technologies, and its second quarter earnings show a company — and an industry — on the rise and working to set a pace for whatever the new normal is after the worst of the pandemic.

Its earnings report also stands as the latest check-in on one of the biggest deals yet for the industry, Tyler’s acquisition of NIC, which took place more than a year ago.


Tyler’s revenue increased 16 percent year over year in Q2, hitting $487.7 million.
Of that, nearly 80 percent stemmed from maintenance and subscriptions — an increase from 79 percent in the same period last year, part of a longstanding trend when it comes to those types of recurring revenues.

In the second quarter of 2022, total recurring revenue for maintenance and subscriptions hit $372.6 million, with growth mainly coming from a 28 percent increase in subscription services, according to CEO Lynn Moore in his post-earnings comments to analysts.

“The public sector is increasingly focused on moving into the cloud,” he said.

As that happens, Tyler continues to make such changes as moving its technology and tools from proprietary data centers to Amazon Web Services, he added.

That comment speaks to a larger trend in gov tech. A recent Government Technology analysis found that cloud computing now represents about one-sixth of funding opportunities in the industry.

The ongoing migration to the cloud also stands as a big theme of the most recent earnings report from gov tech software firm Accela. The privately held company recently closed its fiscal year and said that it had “double-digit growth in its revenue base.”

Accela said its SaaS recurring revenue spiked 31 percent during the company’s most recent fiscal year.

Between April and June, the company signed roughly a dozen new SaaS migrations with clients that include New York City’s Department of Health and Mental Hygiene; the city and county of Denver; and the cities of El Paso, Texas; Indianapolis; Salt Lake City; Culver City, Calif.; Kingston, Ontario; and Lenexa, Kan.

“One trend for certain is that cloud and SaaS revenues have the propensity to grow faster than other types of revenues,” Jeff Cook, a gov tech investment expert who works as managing director for Shea & Co., told Government Technology. “Both Tyler and Accela note a higher growth rate from their cloud and SaaS offerings, and that is entirely consistent with what we have seen throughout the market overall.”


Back at Tyler, in the second quarter, subscription and software services revenue included $15.2 million from NIC’s COVID-related technology, a reflection about how the worst pandemic to hit the U.S. in a century continues to impact gov tech companies.

While Tyler keeps working to better integrate the NIC payment platform and other tech into the larger Tyler portfolio — the NIC division posted core revenue growth of 8 percent during Q2 — the COVID-related gains show that the pandemic has not yet run its course when it comes to gov tech.

An example of the wild-card nature of COVID-19 comes from Maximus, which sells technology related to health and human services to federal, state and local governments.

The company’s latest financial report — released earlier in August and which covers the fiscal 2022 third quarter — show that revenue fell about 10 percent to $1.13 billion.

The decline is partly because reduction in the U.S. of what the company called “short-term COVID-19 response work” even as some of those efforts have “evolved into longer-term work with new customers gained during the pandemic.”

The company also is anticipating an expansion in some state Medicaid programs and new work related to the recently enacted PACT Act, designed to help veterans exposed to toxic chemicals and burn pits, according to comments made earlier this month by CEO Bruce Caswell.


Caswell also talked about the recent hiring done by Maximus, hiring associated with state government work.

“During the third quarter, we successfully hired more than 600 nurses, nurse practitioners and physician assistants necessary to commence assessment work in mid-May for a key state client,” he said.

But he also cautioned about potential labor challenges to come — another theme of these latest round of gov tech earnings reports, and something that could eventually be felt by buyers and users of products and services sold by those companies.

“There are certain skills that have become more difficult to attract and retain,” Caswell said. “While I'm pleased with our success in hiring the clinicians I previously mentioned in a tough market, a contributing factor to the write-down we face this quarter was higher than historical attrition among the technology team on the project.”


And like a ripple in a pond, that problem will touch various areas of the gov tech industry, including end users.

“Higher wage rates affect all market participants, and they become reflected in the rebid and the new work that everyone is bidding on,” Caswell said. “In the meanwhile, for current contracts that are a fixed unit rate or performance based in our portfolio, we work very hard to offset labor cost pressures through greater use of technology.”

Back at Tyler, Moore, the CEO, had similar things to say to that company’s investors and analysts. Indeed, even as tech companies of all types shed workers, the gov tech workforce is changing and vendors are even releasing tools meant to ease labor woes among state and local governments.

He noted that the company has experienced a higher rate of early retirements than is usual — a situation that can affect services the company is contracted to deliver — but added that Tyler is working to hire ample replacements.

He used the company’s ERP group as an example.

“They hired a very large class back in February. I think we're looking at hiring another very large class in the next few weeks,” Moore told analysts on that conference call. “But even when you hire those large classes, it takes time for them to get up to speed and get to a point where they can go out and become fully billable on client implementation. So it can take four, five, six months. So there's a little bit of delay there.”


As for the immediate, general future of the gov tech industry, no major changes are expected when it comes to revenue or earnings, despite the country apparently moving past the pandemic and despite the drama in the labor market.

At least that’s the view Cook, the investment expert, shared with Government Technology, citing demand and budgets that have already been set as some of the factors behind that.

“Overall, I haven’t noticed a major change, good or bad, in the revenue and earnings performance of gov tech companies,” he said. “In large part that is because of the consistency of the gov tech businesses — you simply don’t see many pronounced peaks or valleys like you might see with businesses in the private sector. I think the next six to 12 months will look similar.”
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 Wisconsin.
Andrew Adams is a data reporter for <i>Government Technology</i>. He holds a bachelor’s degree in communication from the Illinois Institute of Technology and a master’s degree in public affairs reporting from the University of Illinois Springfield.