Miller’s long service (he’s been with Tyler since 1997) offers significant advantages to the publicly held government back-office systems company: (1) long-term relationships, including with bankers, external auditors, and the company’s longtime CEO, Lynn Moore, Jr. (2) extensive knowledge of the government technology market, and (3) the historical perspective to envision how tough economic times might play out for Tyler.
Amid high inflation and a possible economic slowdown, Miller has a market another tech CFO could envy: city and county governments, local school districts, and government agencies are in a long replacement cycle of very old on-premises software systems. Once they replace them, they rarely switch. “Governments don’t go out of business; they don’t get acquired. There are things they have to do,” Miller told CFO — like managing public safety records, performing tax assessments, and issuing health department permits.
To extend its presence in the government space, Tyler has pursued M&A relentlessly to build a product breadth, geographic footprint, and customer base that dwarf most other providers — in addition to a market capitalization of $16 billion. Of course, all of that has required a disciplined approach to the balance sheet.
In an interview this week, I talked to Miller about the Tyler’s M&A strategy, the state of the U.S. economy, and finance team recruiting.
CFO, Tyler Technologies
This interview has been edited for length and clarity.
Brian Miller: Valuations, particularly in the tech space, have come down over the last year. But there’s a lag between that and when private company sellers reset valuation expectations.
We have been very proactive about paying down [term] debt. So, we have flexibility around pursuing acquisitions. And we do that through downturns when sometimes competitors [can’t], [widening] our competitive moat.
Miller: The government technology space has been served by companies that are narrowly focused from a product and geographic perspective. For example, a company might do health court systems in California or property tax systems in New York and New Jersey. Often those companies have strong domain expertise but limited resources … When we started on this development strategy, there was no national provider or broad product offering in the public sector. And so we bought a leading ERP company, a leading property tech company, and a leading court software company. And then we expanded those core products geographically and integrated them so they have a common look and feel.
Miller: In our space, the economic backdrop is pretty strong. Property values are higher, and in general property taxes are a majority of [local government] revenues. And then there’s the massive federal stimulus from the American Rescue Plan ($350 billion for state, local, and tribal governments) providing additional funding to our customer base. … Overall, It’s hard to tell if the economy is heading toward a full recession. There are elements of it but there are also elements like full employment.
Miller: Our costs are primarily people — software developers, professional services people who implement and support our software. We certainly are being impacted by the tight labor market and wage inflation. Our [employee] turnover has been, we believe, better than industry averages but elevated. … We’ve implemented a flexible work policy, and we’ve enhanced [employee] benefits — we significantly increased parental leave, for example. It’s not that the people that we’re looking for don’t exist; it’s just more of a challenge to find them and bring them on board.
Miller: Our accounting [staff] turnover has not been elevated; we’re able to replace those people … We’ve been fortunate to acquire a lot of talent through acquisitions and can provide interesting career opportunities [to retain them]. For example, the controller of a Vancouver company we bought a few years now heads our international accounting operations.
We’re also expanding — for example, in FP&A. We don’t have a giant FP&A team, but we’ve looked for different skills. We brought in a person with more of a corporate finance/investment banking background. That person will supplement the [existing] nuts and bolts forecasting talent. We want to do a better job of linking the M&A process with FP&A — carry over the knowledge we get from due diligence to the FP&A side.
Miller: I think maybe I’m a little more flexible and open. We look for existing staff in other areas of the organization that can rotate into finance. So someone from communications and marketing [can] get experience in investor relations, [for example]. … We brought in a [software] developer [to join] our internal audit staff. So I think I’m a little more open in [considering] experience that can provide value to finance.