Good day, everyone, and welcome to the Tyler Tech’s Fourth Quarter and Year End 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, this is being recorded. I would now like to turn the conference over to John Marr Jr., Chief Executive Officer. Please go ahead.

Thank you, William, and welcome to our fourth quarter 2016 earnings call. With me on the call today is Brian Miller, our Chief Financial Officer; and Lynn Moore, Tyler’s President. First, I would like for Brian to give the Safe Harbor statement. Next, I’ll have some preliminary comments. Brian will review the details of our fourth quarter results and 2017 guidance. Then, we’ll have some final comments and take your questions. Brian?

Thanks, John. During the course of this conference call, management may make statements that provide information other than historical information and they include projections concerning the Company’s future prospects, revenues, expenses, and profits. Such statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to differ materially from these projections. We refer you to our Form 10-K and other SEC filings for more information on those risks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. John?

We’re pleased with our results for the quarter, which provided a strong finish to 2016. Total GAAP revenue growth was 22%, of which approximately 12% was organic; and non-GAAP revenue growth was just over 20%. For the year, our earnings exceeded the upper end of our initial guidance, and we achieved exceptional margin improvement, even as we invested at a high level in product development initiatives. License and subscription revenues were particularly robust as licenses grew 38% of which 20% was organic, and subscriptions grew 23% of which 21% was organic. It was another good bookings quarter with 18% increase to $212 million. We continue to be pleased with the progress we’ve made with the integration of New World, both from an operational and a product perspective. Through the first full year, as a part of Tyler, the public safety market was good in the fourth quarter and our year-end public safety pipeline was up more than 70% from the beginning of the year. Our largest deal in the quarter was a statewide contract with the state of Maine for our Odyssey courts and justice solutions valued at approximately $17 million, including a multiyear maintenance agreement and a ten-year fixed fee arrangement. This represents our 12th statewide Odyssey arrangement and the first new statewide courts deal since the states of Idaho and Washington in third quarter of 2013. We also singed our first international agreement for Odyssey. The contract with the northern territory of Australia includes several applications from the Odyssey software suite. The project will implemented in phases but it’s expected to ultimately have a value of approximately US$4 million. While the northern territory covers approximately one-sixth of the Australian continent, its population is the smallest in the country’s eight states and territories, with only about 1% of the…

Yesterday, Tyler Technologies reported its results for the fourth quarter ended December 31, 2016. I’m going to provide some additional data on the quarter’s performance and provide our guidance for 2017, and then John will have some additional comments. In our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. These measures exclude write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, the employer portion of payroll taxes on employee stock transactions, amortization of acquired intangibles and the impact of the adoption of ASU 2016-09, improvements to employee share-based payment accounting on our income tax provision. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. In Q4, we adopted ASU 2016-09, which addresses among other items the accounting for income taxes and cash flow presentation of share-based compensation. Under ASU 2016-09, excess tax benefits or tax deficiencies generated upon the settlement or exercise of stock awards are no longer recognized as additional paid-in capital but are instead recognized as an adjustment to income tax expense. This change in accounting for income taxes is effective on a prospective basis as of the beginning of 2016. Cash flows related to excess tax benefits are now required to be presented as an operating activity rather than a financing activity. we elected to apply the statement of cash flows guidance related to excess tax benefits presentation as an operating activity on a retrospective basis. This change in accounting had a significant impact on GAAP net income and GAAP earnings per share as our annual effective tax rate for the year was approximately 15%, compared to approximately 38% prior to the adoption. This accounting change also adjusted the calculation of diluted shares, resulting in a…

Thank you, Brian. As we noted earlier, our earnings for the year exceeded our expectations with New World’s earnings contributing to our above plan performance. Activity in the local government software market continues to be good and our fourth quarter bookings reflect that. As we move into 2017, our guidance calls for organic growth in the 10% to 11% range. Our near to mid-term expectations are for growth in the 10% to 12% range. Although, there will likely be opportunities from time-to-time to exceed that target. And we expect to be well positioned to take advantage of those opportunities. In order to maintain or expand our growth rate on a bigger base, we are pursuing several growth drivers including investing in existing products that do not currently have leadership positions, expanding our available markets through internal development as well as acquisitions, and expanding into new geographies including disciplined international expansion. With our very strong cash flow, we are choosing to invest more aggressively in a number of product development initiatives. We have planned to add approximately 80 developers over the course of 2017 and will invest approximately $6 million more in R&D than we did in 2016. A significant part of those investments involves projects to enhance our public safety products in accordance with our long-term plan to significantly improve win rates and gain market share in that space. Among those efforts include accelerating development of advanced features and functionality and scaling our solution for larger clients. We believe these investments will expand our public safety addressable market by a factor of four times and lead to increased win rates. In addition, we are adding resources to our enterprise development group to accelerate a number of development projects including those we discussed at our Investor Day last May. Those include elements of our Tyler Foundation and user experience with platform services and next generation apps like Tyler identity, bill presentation and payment, and constituent portal. As you know, we have not capitalized any software development cost in recent years with all of the cost expensed to either cost of sales or R&D expense, depending on the nature of the project. Although our increased investment in product development will put some pressure on margins in 2017, we still expect to achieve modest margin expansion this year. We’ve also put in considerable effort over the last year on an extensive white space analysis of the public sector software space. We are evaluating our current product offering in adjacent spaces, identifying connections to our existing offerings, sizing the markets and looking at competitive landscapes. This analysis is an ongoing project and it will enable us to priorities strategic investments, shaping both our M&A strategy, as well as our internal development priorities. Now, we’ll take questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first questioner today is Brent Bracelin with Pacific Crest. Please go ahead.

Thank you. My first question is really around the international kind of expansion; courts and justice win in Australia seems like a nice foothold. Can you walk us through the broader strategy on what markets you plan to go into internationally and how meaningful that could be relative to 2017 and 2018 as a growth driver?

Sure, Brent. This is Lynn Moore. Yes, as we reported, we signed Northern Territory in the fourth quarter; that’s a big step for us. It’s obviously our first strong hold sort of outside of North America. We are going to begin implementation in the first quarter. As we reported, it’s going to be phased implementation, and we’re hopeful that the first phase will go live, which will be the civil administrative tribunals, in the fourth quarter. As we said before, I think the Australian opportunity is roughly about the size of the Texas customer base. It’s very similar to United States in the sense that there are a lot of older legacy products that are running the courts there. There is no clear market leader. And we think we’re well positioned to capitalize on that market. We’re tracking a number of opportunities there right now. I think our primary focus too is really getting the Northern Territory up and running; that’s test stuff and it’s our first foray. And I think once we do that, we will certainly enhance our competitive position to capitalize on other opportunities throughout Australia. As we mentioned, we’re going to take a disciplined approach to international opportunities. And right now, we are sort of looking at Australia to be our first foothold for courts and justice.

Perfect. And then, one quick follow-up for Brian, if I could, on the GAAP guide of 12% kind of revenue growth this year. What’s implied growth rate on the software license and software subscription side? That’s a business that has been growing faster than the corporate average. Should we expect that to grow kind of in the mid-teens here or what are you factoring into that GAAP guide of 12% relative to what the software contribution could be?

Yes. I think if you kind of broadly look at it, licenses would probably be mid teens kind of growth. I think services, as we saw in Q4, was a little bit lighter and we certainly would like to keep services growth below our overall growth rate. I think we’re probably looking at more like mid single digits on services growth, maybe -- certainly in the single digit range. Subscriptions probably also fall down in the mid to upper teens. Maintenance would be in the 9% to 10% range. Appraisal services actually will -- as you know, that business is a cyclical business with appraisal cycles that come on different timing in different states, and this is a year, a bit of a down year for those cycles. So, we expect appraisal services will probably be down in the 5% to 6% range below 2016 revenues. And hardware and other, although it’s a small line with the growth in our Brazos technology business unit, we expect that services -- hardware would probably be up in the 30% range. So, probably those are the parameters around the revenue lines.

Our next questioner today is Alex Zukin with Piper Jaffray. Please go ahead.

So, first congrats on the quarter. I wanted to ask, maybe first for you John. Deal push-outs, shadow backlog, these were issues that you guys confronted in 2016. I wanted to ask, how you saw them play out in the fourth quarter and then, what are the expectations for those in 2017?

Help me on what do you mean by shadow backlog?

Well, when you push -- when there will be deals that were contracted by…

Okay, yes. Sure. We’ve just noted we don’t provide the detail on that, because it can bounce around. But, we’ve just noted that the volume of unsigned awards has certainly been an elevated level and it continues to be that way. They do get converted, and we don’t have any experience of deals that are unsigned that are not being contracted eventually. But, the process itself, especially in larger deals can go on for some time. And again that elevated level continues and we’ll announce those deals as they get contracted. But, it does give us confidence and better visibility into the guidance we’re providing and the sustained level of growth we expect.

That’s helpful and then may be just one more. The assumption, Brian, for New World growth in 2017, how does that compare to what you did in 2016? And overall, maybe, can you just level set, how does that compare to your expectations when you acquired the company, the growth rate that you’re projecting for 2017 for New World?

I think it’s generally in line with what we expected. This is a multiyear growth opportunity in the public safety market, which was the primary focus of the New World acquisition. And we expect that to play out over number of years. Looking at full year growth for New World in 2016 versus 2015, and 2015 obviously, most of the year was not a part of Tyler. So, there may be some differences in their accounting before being a part of Tyler. But, if you look at the numbers that were filed with last year’s pro formas, New World as a whole grew a little north of 7% in 2016 versus 2015. The public safety piece grew a little faster than that; the ERP piece grew slower than that as we sort of narrowed the market in which we sell the New World ERP solution. The plan for 2017, the guidance would include public safety growth generally around the overall Tyler growth level, maybe a point above it or so, but kind of the in line with the Tyler growth level. And we said that over time through -- as we talked about some of the development initiatives, the ability to start to cross sell more aggressively, realizing the benefits of the Tyler alliance with our courts and justice solution, we expect to both expand that growth through both, expanding the addressable market in the public safety space as well as improving our win rates, which today in public safety, it’s a pretty competitive market and our win rates, they are well below what we see in some of our other more mature Tyler products. So, we would expect that if you look over the next few years that growth rate will continue to accelerate. But, I’d say looking back for first 15 months, it’s been generally in line with what we expected, and we didn’t expect it to be an overnight sensation.

And maybe just sneaking one in on the margins. I think, John, you mentioned that there is some modest upside for margins in 2017 but then it is an investment year, particularly on the R&D side and the product modernization, expansion side. Where would the upside come from, particularly as you could realize some synergies, operational synergies with New World, what would be the drivers of upside on margins, potential drivers for upside for margins in 2017?

Within the short run, meaning 2017, it’s just execution. And the management team has a record of doing that very well. So, it’s not unusual that throughout the year we achieve better margins than maybe in the plan. And there is a little bit of that allowed for in our guidance because the record again is pretty long now and happens. So, it’s generally managing headcount. These heads, services heads, R&D heads all of those are in the plan, but we will still be disciplined as we go through the year with turnover and filling the new heads and managing those costs. So, it’s just an execution thing that again the team does very well on and in generally we can rely on some good performance there. In the longer term, obviously, it’s more the model and leverage in the model. And we appreciate your patience. We are investing at a higher level than probably even we thought we would. And it’s just a result of opportunities we see that we think should be funded. And we think that three, four, five years from now, to have an even stronger leadership position in our core applications and to achieve leadership in some of the surrounding applications where maybe right now we are not there, it’s going to deliver greater value to the Company than taking those margin gains right now.

Our next questioner today is Scott Berg with Needham and Company. Please go ahead.

One question and a follow-up, I guess. First question John is on the platform investment. A year ago, you called out investing, I believe it was an incremental $15 million in the platform to try to help bring some of the technologies together, and that’s a longer term thesis. And you see more aggressive on this call in terms of organic product development. I guess, it’s a two-part question. First, I assume those $15 million that you spent last year are also flowing this year; you are not point back on that. But then secondly, is this really more of a multi-year strategy to get more aggressive on the organic product side?

Yes. I think it is, Scott. And I’ll be honest with you, we obviously are opportunistic and we look at this and look at where we think the greatest return can be. Markets, whether you are acquiring public companies or private companies, are rich. And as we talked about, we are doing I think a much more sophisticated look at these markets with our white space initiative in determining adjacent markets that we think can be catalyst for growth on a long-term basis, trying to pick up those extra incremental growth points on our core growth. And as we go through that, Tyler has maybe almost a unique ability to build these products and prove these products and invest. And certainly they run through the P&L and put some pressure on margins. But long-term, to have a seamlessly and integrated product that has the broad breadth of offering that the public sector can benefit from is just simply a great opportunity for us to invest. And we did last year, as you said. We are incrementally investing that this year. I think if you look at the very long-term, these are accelerating, these are situations where we’re accelerating R&D headcount into these products from future years. And I still believe that flattens -- that curve flattens well below the overall growth rate of the Company, and there will be margin opportunity there. But we won’t try to achieve that prematurely at the expense of competitiveness.

We like strategy, because it’s clearly been favorable for you over the last decade. My follow-up question is on the Australian contract deal. I believe I read a press release that said you are going to be engaging with NEC for part of the implementation. I wanted to try to understand and I know that you are bringing your own employees over there to help that as well. Trying to understand, A, their involvement; and then B, is that part of the long-term strategy as you go international that you probably have to engage with some other professional services or integrators, implementers to actually get these products live?

Yes. Scott, this is Lynn Moore. I think that’s more of a case-by-case strategy. This is our first foray. We are sending our people down there; we’ll get our expertise there. We felt it was necessary to partner with NEC for parts of this. I don’t know that we’re going to -- we’re sitting here today saying that’s our long-term strategy. Like I said earlier, it’s most important that we get Northern Territories up and running. We’ve got so much success in United States, we’ve got so much creditability here, that carries through down there, but getting them up and running, getting them functional, getting them live, doing all the things that we do here in the United States is what’s going to put us at a competitive advantage for the rest of the opportunities there. So, we’ll look at that as we go forward. I wouldn’t say that’s a long-term or specific business model.

Our next questioner today is Brian Kinstlinger with Maxim Group. Please go ahead.

Thanks so much. It’s a follow-up question, kind of what some people have asked. A year ago, you announced increased investments in NWS; and again, you are putting money into that to improve their products and their win rates. Were you aware of their lower win rates when you bought them? And then, the $60 million or so that you are increasing it sounds like in R&D, is that enough to get the software where you needed to be or do you think you’ll have to increase investments even more in 2018?

We knew the win rates when we did the acquisition. They’re probably deteriorated. These things bounce around marginally from there. And that analysis for us suggested that we should make this level of investment. So, we certainly knew the win rates; we knew the market landscape; we’re familiar with the competitors in that space. It’s a very competitive market space and it’s more fragmented than the other markets that we’re in. It’s just kind of less mature than the other markets we’re in. And that works both ways. It requires an investment and it requires great execution to gain in that space. But, in terms of working both ways, it also has a significant opportunity that comes along with it. The win rates that we have with products like MUNIS and Odyssey, they simply can’t go up that much because there isn’t that much room left. They are already winning significant shares of the marketplace. We can broaden the footprint a little bit, we can bolt on extensions, things we’re talking about which we were very focused on, but the public safety market, it wasn’t so much exactly what the market share was as the opportunity that was compiling to us that drove the decision to do that deal. In terms of the level of investment, yes, we believe we’re making the right level of investment. Obviously, there has been a lot of exchange between the leadership of that division and the corporate executive team, in terms of determining exactly where that was, we don’t want to lose the discipline that Tyler has in these areas, but we do want to be aggressive about taking advantage of the opportunities that are there. So, every credible investment, whether it’s in feature and function, whether it’s in technology or whether it’s in the integration to the other Tyler criminal justice products, all of those are funded. I believe that our product roadmaps that are very detailed are pretty solidly in place for the next two years. So, I believe that the headcount and the level of investment that we’re sharing with you now is pretty certain for the next two years. Obviously, years out from there, as I said, more broadly earlier, I would expect that the growth and expense in R&D would level in relation to the overall growth, and we start to see that leverage kick in. But I think the level of investment for the next two years is pretty well known.

And then my follow-up again on NWS, when you acquired them, their margins were much higher than yours. Is that a function of the lack of investing maybe they had? Tyler has been tremendous in investing in their existing products. And then, I just wanted to make sure I heard you correctly, despite their lower win rates, they are growing as fast as the Tyler business?

Their margins were higher than Tyler’s blended margins. So, when you look at the whole company, they were in line with some of our more mature divisions, simply because our more matured divisions are larger. And everybody runs these companies a little differently. New World was incredibly successful company. But, I would say, it was being run a little tighter than we run operations. And these are somewhat subtle differences. But yes, I would say our level of long-term investment is little bit higher, maybe our level of investment in some of the service deliverables is a little bit higher. And if you’re interested in taking advantage of the highest growth rate you can achieve on a sustain basis, the Tyler model would suggest running at a little less tight, and that’s what we’ve done. And we look at that as kind of a -- as we absorb the company into our model, kind of a one term adjustment and then we will get back into a margin expansion mode and eventually get back to and hopefully above the margins they achieved. But with our objectives as a public company and growth oriented, we’re running it a little less tight than it was run.

And Brian, from a growth rate perspective, yes, they’re growing in line with or as I said, just slightly maybe a point above Tyler’s overall growth rate in 2017. As John mentioned, their wins rates are lower than some of our other Tyler products, just because it’s a more competitive marketplace today; there are greater number of competitors. And New World doesn’t focus historically on the entire public safety market; they really focus primarily on the mid and lower mid part of that market. So with these initiatives and including some of the things we are doing today, we are going after a much bigger public safety market. So, we want to have higher win rates and in a bigger slice to the market. So, they are still able to -- and it is a growing marketplace. So, even with the win rates we are at today we are able to grow that business. But, longer term, we think that opportunity for it to grow above our overall growth rate and contribute to long term growth is significant.

Our next questioner today is Kirk Materne with Evercore ISI. Please go ahead.

Maybe just to start, John, have you guys seen any major change or I guess any incremental change rather in terms of people looking more at the cloud offering versus the on-prem? I guess I am trying to get a sense on what you guys are thinking that might look like in 2017. And does that have any sort of impact -- obviously, it’d be positive bookings, but does that have any impact on your revenue guidance for next year?

The answer would no. No major change. It bounces around. If you look at an individual quarter, you can see changes. But, if you are tracking trailing 12-month rates, we remain in this kind of 30, low 30% adoption in the new market, both in terms of names and dollars. Yes, it shows up heavier in the bookings and the backlog and yet puts pressure on short-term. But being somewhat stable, and I’ve said this for years that Tyler kind of has the best of both worlds. We haven’t taken a big hit on margins or earnings in order to support our cloud business. So, it’s been growing in parallel and the adoption works well for us. Our strategy doesn’t have bias. If you are on-prem only or cloud only, then you are missing a significant segment of the marketplace. And we are a comprehensive vertical player and want to have strong offerings in both of those channels and we do. And as you can see, we are looking at 20 to little better than 20% growth in both perpetual licenses as well as cloud. And I think there really aren’t a lot of companies that cannot cannibalize their perpetual licenses and even grow on as they grow a nice cloud business. So, we are pleased with that.

And Brian, maybe for you, just the e-filing business in 2017 versus 2016, are you still expecting a little bit of a step up on that? Can you just remind us sort of what the assumption is for that for this year? Thanks.

Yes. I think for 2017 in e-filing, our expectation is mid teens growth, pretty similar to the kind of growth we saw in e-filing in 2016. So, I think we grew it roughly 15% in 2016 and it’s growing somewhere around that same rate in 2017. As you know, we have somewhat long lead times on some of these. We have a number of e-filing arrangements that we have a lot of visibility over, jurisdictions that are either already committed to doing e-filing with us but won’t start until some point in the future, perhaps when their an existing case management implementation goes live, there are number of those in California, for example. Others where they are currently doing e-filing but we are rolling out it across the state in the safe manner or in places that are doing e-filing today but it’s not mandatory; and as they move to mandatory somewhere down the road, the volumes and the revenues will increase. So, we’ve talked about over the next three to five years expecting to grow that business from -- we finished with e-filing revenues in 2016 just shy of $37 million, to grow that, with the visibility we have today over that going to roughly double to around $75 million over the next four to five years. So, to get there, we would look for that then to accelerate a bit from that level and grow more in the 20% range in sort of 2018, 2019, 2020 timeframe. So, we do expect with some of the visibility we have for that growth rate to accelerate and some of these go lives happen in 2018 and 2019.

Our next questioner today is Tim Klasell with Northland Securities. Please go ahead.

Yes. Just two quick questions, one from a high level on the international, particularly in Australia, obviously courts and justice is sort of a kick off there. Have you thought of some of your other products like public safety? Is that something you would want to bring international to, just given that that might have a broader reach besides the countries that have the same language and -- or similar legal systems I should say as the U.S., so i.e., could public safety or others expand into other international markets as well?

Yes. And I would say, our strategy again, this is something you just want to put on the list of these incremental growth drivers over a long period of time, nothing explosive in the short-term, kind of leading with courts and justice. We look at our products, everything is vertical, but some things are more vertical than others, and those would be applications that kind of exclusively work in the public sector, so courts and justice; public safety; tax and appraisal, some of these kinds of applications. Those kind of hyper-vertical applications that are exclusive to the public sector versus maybe enterprise apps like financials and human resources and others are likely the products we would move internationally with first. And so, public safety for both of those reasons being sub-vertical as well as being related to our courts and justice offering, if it becomes established in certain markets, would be a candidate for that. Right now, we’re obviously very focused on the things we’ve been discussing on the call in terms of the current investments in those products and achieving higher market share and the broader footprint here in the states. But it certainly is a candidate down the road for international expansion.

Okay, great. And then just a detailed question for you, Brian. On the effect of 2016-09, as we look at share count growth going forward, even past 2017, does that affect that at all, or is that just a one-time step up and then we can keep the same sort of share count growth going forward?

It is primarily -- we’ll kind of see how it shakes out. I think it’s primarily a one-time sort of step-up, we think increased our share in 2016 and 2017, and it increases our shares by about 1.3%. To the extent that we have a much-larger stock option exercise gain, it could increase that slightly. But, I think it’s going to be right around that rate. So, I don’t think it moves as much as it moves the tax rate.

Our next questioner today is Jonathan Ho with William Blair & Company. Please go ahead.

Let me echo my congratulations as well. I just wanted to start out with a question around your comment around the public safety market expanding by potentially four times. Can you give us a little bit more color on maybe where this will come from and maybe how quickly investments can open up that much of a market expansion?

Sure. I guess, it’s two different things. We’ve talked about expanding the breadth of the product. So, it will include incremental products that are either part of the core sale or add-on sales over time. But, the larger driver would be the size of the jurisdictions that we’re competitive in. And as Brian indicated earlier, New World has been mostly a mid-range player, not to say they haven’t done smaller and larger deals, but that’s been there sweet spot. And the most significant growth in the addressable market would be from being able to move up into tier 0, tier 1 opportunities and down as well and broaden the size of that addressable market. So, this is a long-term initiative. But, making progress on win rates and market share and growing in larger footprint it is our strategy.

And then, just as a follow-up, I know there was some noise during the quarter that was related to court case implementations; I think you guys have put out several press releases tied to that. I just want to sort of verify that there was no real long-term impact to your business or win rates or to the backlog.

No, there hasn’t been. Obviously, it’s a distraction. We’ve got a lot of customers. We have hundreds of implementations underway at any given time. And depending on how you measure, 15,000 clients. So, it’s a challenging business, and there will be issues. And normally Tyler does an exceptional job on execution and getting through the challenges of implementations and customer issues. These two have gotten a little hotter than what we normally experience, and unfortunately a little more public. We don’t like to resolve customer issues publically. But, I think what we’ve said, you can go out and read, which really is that these are issues specifically associated with those particular accounts. We don’t believe we’re the direct cause of those things; we can be the solution to those issues or those accounts if they want us to be. So, we’re working with them to achieve those things. But no, it has not manifested itself and any effect on our new business that we can see in a meaningful way. Obviously, there is a number of dynamics that affect every new business decision or customer situation, but it has not become a meaningful problem for us outside of those specific accounts.

Our next questioner today is Kevin Liu with B. Riley and Company. Please go ahead.

I guess first question here just regarding the 70% increase in the New World Systems pipeline. Could you just elaborate a little bit on some of the factors driving that, whether it’s cross-selling into your customer base, have better field coverage or maybe just larger transactions in general?

Yes. It sounds like a big number. I don’t know that it is that kind of enormous change in that market space other than to say, it’s healthy and it’s growing. We may be more aggressive in identifying opportunities. We’re broadening that footprint, probably even ahead of our capabilities to be competitive in some of those spaces. So, I think the data point is to establish, but it’s a large and growing market place that we have a broader look at that market than we have in the past or they had in the past. So, there is a substantial opportunity there.

And I think in recent years, John, you’ve characterized the market for MUNIS and other financial products as being pretty robust. How would you characterize it at present, and what sort of factor and how does that play into the guidance for the current year?

It’s probably modesty higher. It has been steady, robust to some degree, not explosive. And leading indicators would suggest that that’s at least stable if not modestly growing. And they have done a great job in improving their win rates and the competitive position. So, the challenge is obviously to sustain the growth rates they’ve had historically. And again, win rates have allowed them to continue to do that and we’ll continue to work with those products aggressively to try to sustain that.

Our next questioner today is Shane Svenpladsen with Avondale Partners. Please go ahead.

Good morning. With respect to e-filing opportunities, other than Michigan, are there any opportunities in the market right now that you are tracking?

We normally wouldn’t comment on opportunities in the marketplace. We announced on this call or talked about on this call, Maine, which includes a 10-year e-file arrangement on a fixed fee basis. The numbers that Brian spoke of doubling the e-filing revenues in the coming four or five years really only includes things like Maine and things like other opportunities that we have high levels of visibility on. But generally, to answer your question, sure, there are opportunities out there. Our expectation is that the majority of the marketplace will have paperless court houses and e-filing and usually with a mandate on that in the coming years. So, there is incremental opportunity beyond that. But, generally, we wouldn’t comment on specific opportunities in the new business market.

And then, just quick housekeeping item. What were Microsoft Dynamics royalties in the quarter?

Sure. Dynamics royalties were about $432,000 and that’s compared to $319,000, last year’s fourth quarter. And then our direct royalties from our Dynamics deals sold by us were $1.3 million.

Our next questioner today is Mark Schappel with Benchmark. Please go ahead.

Just one question here, John. In your prepared remarks, you mentioned that you are planning to invest in certain product areas where the Company doesn’t have a leadership position today. And I was wondering if you could just give us some indication what some of those areas would be outside of public safety?

Yes. I guess, leadership is a relative term. But for example, Odyssey’s position in case management and electronic filing would be very strong. And by anybody’s definition a leadership position, our presence in jail, while it could be strong in certain markets, may not be anywhere near that level of market share and leadership. So that would be an example of -- and it really speaks to our overall growth strategy. So, we see a little lower growth rate this year. You could say that the trend, that core growth on a bigger base as we said just naturally is going to decline over time. We are not accepting of that. And this would be one of many areas where we say, hey, can we have the presence in jail that we have in case management? Can we have the presence in other areas? Inorganic example would be ExecuTime, obviously EnerGov a few years ago. So, the whole white space initiatives is to find these contiguous products and market spaces that we either have a smaller footprint in or smaller presence and invest in those organically or in the case of an EnerGov or an ExecuTime, acquire something that we can then invest in. Really even e-file with this way with Wiznet a number of years ago now, and have an incremental catalyst to growth that takes what may be a natural core growth rate of 10% or 11% and get you back on that 13%, 14%, 15% growth range. So, that’s what that whole strategy is about.

Our next questioner today is Pat Walravens with JMP Securities. Please go ahead.

Yes. Hi there. This is Matt on for Pat. Thank you very much for taking my question. I just have two. I guess, one, could you comment a little bit on the M&A pipeline; and two, have you seen any change in the demand environment at a rate at which your prospects and customers are willing to adopt technology under the new presidential administration?

Obviously, I wouldn’t comment on a specific M&A opportunity. But generally, I think, I said earlier in the call, it’s a rich environment right now. And some of these kind of white space initiatives that we’re working on that we’d love to do an acquisition on, in a lot of cases it’s just richer than our taste. We’ll always be opportunistic and disciplined. And so, my expectations would be that it would not be a real hot market in 2017. That can change tomorrow with one deal, as you know. But, as a general observation, it’s a pretty rich market. And I’d probably take the under, if we were trying to put a historical number out there against that. The President, we had asked about this. We’ve seen some notes even that could suggest less investment or spending under a Trump administration. I’d just remind everybody that everything we do is essential to local government and it is non-discretionary, they have to do. And we don’t see a lot of changes, even in timing at this point in time. So, the answer to that would be, no, we haven’t really seen any changes.

It looks like we have no further questions. So, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. John Marr Jr. for any closing remarks.

Great. Well, thank you all for joining us on the call today. I appreciate all your questions. If there are any further questions, feel free to reach out to Brian and Lynn or myself, and we would be happy to work with you. Thanks again. Have a great day.

The conference is now concluded. Thank you all for attending today’s presentation. You may now disconnect your lines.