Charles Strauzer

Charlie Strauzer asked if the recent contraction in valuations has created more intriguing M&A opportunities in the near term compared to share buybacks.

Answer

President and CEO Lynn Moore affirmed that, in a general sense, valuations have become more reasonable, creating exciting M&A opportunities. He highlighted Tyler Technologies' strong balance sheet and disciplined approach, which positions them well to pursue the right deals at the right time, differentiating them from competitors facing high debt or valuation pressures.

Charlie Strauzer of CJS Securities offered personal thanks and congratulations to outgoing Board Chair John Maher for his long tenure and contributions to the company.

Answer

EVP & CFO Brian Miller accepted the thanks on behalf of the company and Mr. Maher, acknowledging the kind words and long relationship.

Charles Strauzer from CJS Securities asked for an explanation for the increase in the full-year R&D expense guidance compared to the initial forecast provided last quarter.

Answer

CFO Brian Miller explained the updated R&D guidance reflects several factors: a planned shift of personnel from cost of sales, the expensing of previously capitalized development costs, and a reclassification of stock-based compensation for R&D staff from the G&A line to the R&D line. This latter change impacts GAAP R&D but not the non-GAAP figure.

Charles Strauzer asked for an explanation for the 'abnormally high' stock-based compensation implied in the 2025 guidance.

Answer

CEO H. Moore explained the year-over-year EPS dilution impact is approximately $0.28-$0.30, resulting from the company's higher stock price, related option exercises, and the full-year effect of the convertible debt. He emphasized that the company's underlying share issuance is modest, at less than 0.4% of outstanding shares, and that Tyler stopped issuing stock options in 2022 in favor of share-based awards.

Charles Strauzer asked about the primary reasons some clients remain hesitant to migrate to the cloud and what strategies Tyler employs to convince them.

Answer

CEO Lynn Moore identified a desire for local control as a historic reason for hesitation. She explained that this is being overcome by several factors: the growing risk from aging on-premise infrastructure, increased cybersecurity threats, and the powerful 'referenceability' of seeing neighboring jurisdictions successfully and efficiently migrate to Tyler's cloud solutions.

Charlie Strauzer asked for an update on the timing of the VA contract rebid.

Answer

David Mutryn, CFO, confirmed current VA contracts extend through December 31, 2026, with no impact on current year guidance. Bruce Caswell, President and CEO, emphasized ongoing technology investments to enhance the veteran experience and prepare for the rebid.

Charlie Strauzer inquired about Maximus's revenue guidance breakdown between in-hand and new work, segment-specific revenue drivers and impediments, examples of programs under the new GSA AI-related blanket award, and the receptivity of state customers to the new SNAP Accuracy Assistant tool.

Answer

CFO David Mutryn clarified that Maximus's fiscal year 2026 revenue guidance includes virtually no new work, with initial guidance having only about 3% from new work. He also provided color on segment revenue, expecting U.S. Services year-over-year organic growth to resume by Q4, while Federal Services faces tough comps due to prior year natural disaster support. President and CEO Bruce Caswell explained that the GSA award leverages their TXM platform for multi-channel contact centers, using AI for seamless consumer interaction and data analytics for mission achievement, citing an FDA use case. He also noted positive receptivity to the SNAP Accuracy Assistant tool, which uses predictive analytics to reduce payment error rates, anticipating near-term tool interest and longer-term business process redesign opportunities. David Mutryn added that combined Medicaid and SNAP needs could create a high single to low double-digit organic growth opportunity for U.S. Services, layering in over FY2027 and FY2028.

Charles Strauzer of CJS Securities inquired about the potential benefits for MAXIMUS from the 'One Big Beautiful Bill Act,' particularly in Medicaid and SNAP. He also asked about the company's competitive advantage due to its conflict-free status, the strategic importance of the recent DoD contract win, and sought clarity on Q4 segment revenue guidance and the potential for EPS growth in FY2026 even with flat revenue.

Answer

President and CEO Bruce Caswell detailed the opportunities from the new legislation, projecting it could lift the U.S. Services segment to mid-to-high single-digit growth, primarily in FY2027. He emphasized MAXIMUS's competitive edge from its scale, existing infrastructure, and conflict-free status, which is crucial for work requirements. Caswell also confirmed an increased focus on the defense sector, leveraging core capabilities and recent certifications. CFO David Mutryn explained it was too early for specific FY2026 segment guidance but noted that lower interest expense could provide a significant tailwind to EPS.

Charles Strauzer of CJS Securities asked about the fiscal 2025 guidance, the drivers behind the strong Q2 margin performance, the impact of federal pricing pressure on the new work pipeline, and the sources of organic growth in the Outside the U.S. segment.

Answer

CFO David Mutryn explained that the updated guidance reflects Q2's overperformance while maintaining a cautious outlook for the second half due to the dynamic environment. He noted that Q3 and Q4 results could be similar. President and CEO Bruce L. Caswell attributed the exceptional margins to high volumes and successful technology investments in AI and automation under the Maximus Forward initiative, which boosted productivity. Caswell also confirmed the pipeline remains strong, with proposals up 25%, despite some slowdowns in civilian agencies that have led to beneficial contract extensions for incumbents. Finally, Mutryn stated that the organic growth in the Outside the U.S. segment was primarily driven by the new Functional Assessment Services contract in the United Kingdom following the successful reshaping of the international portfolio.

Charles Strauzer of B. Riley Securities inquired about the drivers of the strong Q1 performance, the company's confidence in its full-year guidance, potential impacts from the new administration on the business portfolio and sales cycle, and the underlying assumptions for segment margins and the full-year tax rate.

Answer

CEO Bruce L. Caswell and CFO David Mutryn addressed the questions. Mutryn explained that Q1's outperformance, combined with share repurchases and divestiture accretion, drove the guidance increase, clarifying it wasn't a pull-forward. Caswell stated that the core business is resilient to administrative changes, with deal flow remaining normal, though the company maintains a cautious outlook. Mutryn then detailed the margin expectations for each segment, attributing Q1 variances to anticipated seasonality in U.S. Services and temporary high volumes in U.S. Federal, and explained the higher tax rate was primarily due to non-deductible divestiture charges.

Charles Strauzer of CJS Securities inquired about the CMS Contact Center Operations (CCO) contract protest, asking for updates on the timeline and any communications from CMS. He also sought clarification on the FY2025 guidance, specifically regarding the nature of non-recurring revenue and the meaning of revenue being 'roughly similar' to FY2024.

Answer

CEO Bruce L. Caswell stated the GAO is expected to respond to the CCO protest by September 30, but this does not halt the procurement process. He emphasized Maximus's focus on service delivery and pursuing a fair outcome. CFO David Mutryn added that while the CCO contract has a low single-digit margin, its loss would have a larger impact due to indirect cost absorption, though it's not expected to significantly alter the FY2025 view. Regarding guidance, Mutryn explained that FY2025 revenue is expected to be similar to the newly raised FY2024 forecast, with the moderation of high-margin, non-recurring Medicaid redetermination volumes from the U.S. Services segment being the primary factor.

Charles Strauzer from CJS Securities asked for more detail on the key drivers behind the continued impressive growth in the Data Solutions segment and sought clarification on the technology and strategic rationale of the CheckMatch acquisition.

Answer

CEO Barry McCarthy explained that Data Solutions growth is fueled by successful campaigns helping financial institutions grow low-cost deposits and by expansion into new non-FI verticals. He highlighted the platform's ability to provide a trackable ROI as a key differentiator. Regarding CheckMatch, McCarthy clarified that it is a network similar to Deluxe's own Deluxe Payment Network (DPN) and will be bolted on to expand the digital lockbox network, thereby increasing scale, reducing paper-based payment costs, and creating a larger platform for future growth.

Charles Strauzer requested more detail on the Q2 outlook on a segment-by-segment basis and asked about the 'secret sauce' driving the significant success in the Data Solutions segment over the last few quarters.

Answer

President and CEO Barry McCarthy clarified the Q2 outlook, expecting continued strength in Data, softness in Print due to promo timing, and low single-digit growth in B2B and Merchant. Regarding the Data segment's success, he attributed it to a massive proprietary database combined with advanced AI, which allows Deluxe to effectively prove ROI and win campaigns in the financial institution channel and other high-value verticals.

Charles Strauzer from CJS Securities requested examples of recent wins in the outperforming Data segment, clarification on the drivers for the Merchant Services' high single-digit revenue goal through 2026, and guidance on the expected quarterly cadence of results for 2025.

Answer

CEO Barry McCarthy attributed the Data segment's success to its cloud-native data platform, which allows it to quickly meet strong demand from both financial and non-financial institution clients. For Merchant Services, he cited the potential to win more banks and expand into new verticals, enabled by the Deluxe Payment platform, as key drivers toward the 2026 growth goals. CFO Chip Zint detailed the 2025 cadence, expecting B2B and Merchant revenue growth to start low and accelerate sequentially, while Data remains strong and Print continues its predictable decline. Margins are expected to remain stable across segments, with B2B showing expansion through the year.

Charles Strauzer inquired about the specific drivers behind the strong consolidated EBITDA margin and the exceptionally high margins in the Data Solutions segment. He also asked about the company's strategy for addressing near-term debt maturities.

Answer

President and CEO Barry McCarthy attributed margin strength to broad operational efficiency, noting an 11% year-over-year reduction in corporate expenses. CFO Chip Zint added that these results stem from the North Star program's execution. For the Data segment, Zint cited a favorable campaign mix and internal efficiencies as key drivers. Regarding debt, Zint confirmed plans to address the 2026 maturities in the near term, likely in the current or next quarter, to avoid them becoming current on the balance sheet.

Charles Strauzer of CJS Securities, Inc. inquired about the assumptions behind the Q3 transactional guidance, the current IPO and M&A deal environment, modeling assumptions for non-transactional segments, long-term strategic goals, full-year free cash flow expectations, and DFIN's competitive market share.

Answer

CFO David Gardella and President of Global Capital Markets Craig Clay addressed the questions. Gardella explained the Q3 transactional guidance reflects sequential growth but maintains caution due to timing visibility. Clay provided detailed color on the improving, yet uncertain, IPO and M&A pipeline. Gardella outlined expectations for software products like ActiveDisclosure and ArcSuite, continued print declines, and reiterated long-term goals focused on a software-mix shift and margin expansion. He projected full-year free cash flow to be similar to the prior year. Both executives affirmed DFIN is maintaining strong market share in its target market of large, high-profile deals.

Charles Strauzer of CJS Securities inquired about the key drivers behind the significant Q1 adjusted EBITDA margin outperformance and requested more detail on the segment-level assumptions for the Q2 2025 guidance.

Answer

CFO David Gardella attributed the margin beat to three main factors: better-than-expected results from permanent cost reduction actions, strong operating leverage on higher-than-guided revenue, and a larger-than-anticipated reduction in bad debt expense. For Q2 guidance, Gardella detailed expectations for continued growth in ActiveDisclosure, tough comparisons for Venue, a modest decline in Capital Markets Compliance revenue due to lower print volume, and continued benefits from the Tailored Shareholder Reports regulation in the Arc Suite.

Charles Strauzer of CJS Securities asked about the key drivers for the Q4 2024 results missing guidance, the company's strategy for future regulations amid changes to ESG rules, and the confidence level in the Q1 2025 guidance assumptions.

Answer

Executive David Gardella attributed the Q4 miss primarily to a $10 million shortfall in capital markets transactional revenue. Regarding regulations, Executive Daniel Leib stated the impact from shifting ESG rules is "de minimis," while executives Craig Clay and Eric Johnson highlighted the platform's adaptability for voluntary disclosures and new requirements like Tailored Shareholder Reports. For Q1 guidance, Gardella noted confidence based on early quarter activity but cited the $45 million transactional revenue assumption as the largest variable. Clay added that while the IPO market has shown positive signs, the broader M&A environment remains uncertain.

Charles Strauzer asked for clarification on the drivers of the year-over-year decline in Q3 EBITDA margins, the assumptions embedded in the Q4 margin guidance, and the reasons for the increase in SG&A expenses.

Answer

CFO David Gardella explained that Q3 EBITDA margins were negatively impacted by a year-over-year variance of approximately $6 million in compensation-related accruals. He noted that Q4 guidance reflects lower transactional sales and the lapping of a large project from the prior year. The SG&A increase was primarily driven by a one-time $2.8 million accelerated amortization charge for a discontinued software product, which he advised removing for future modeling.

Charles Strauzer, on behalf of Larry Solow, inquired about the company's pro forma leverage after the IV Solutions JV transaction, its optimal leverage target, the possibility of further asset sales, and the extent to which facility consolidation benefits are included in the 2025 outlook.

Answer

Executive Brian Bonnell stated the company's target net leverage ratio is around 2x, which the JV proceeds will help achieve. Executive Vivek Jain added that while some debt is appropriate, it shouldn't be much above 2x. On asset sales, Vivek Jain confirmed they remain an option for value creation once assets are performing predictably. He also noted that the 2025 guidance incorporates progress toward the company's 40% gross margin goal, which is heavily dependent on plant and logistics consolidation.

Charlie Strauzer inquired about the quantifiable impact of recent hurricanes on Q2 results and any lingering effects into Q3, and also asked where the company is finding offsetting strength to counter weakening industrial end markets in Europe.

Answer

President and CEO David Wilson quantified the hurricane impact as approximately $4 million in delayed sales, or $0.03 per share, with no property damage. To offset softness in German markets, Wilson highlighted that the company is generating opportunities in the battery production and oil & gas sectors in Europe, and sees broader strength in the defense, aerospace, and U.S. utility markets.