The first quarter of the year is in the history books and a look at gov tech firms’ financial reports plus interviews with industry experts provide a glimpse of what’s to come. Relatively few gov tech companies are publicly traded, but the numbers they’ve reported help highlight some of the main trends in gov tech.
Texas-based Tyler Technologies is one example: The gov tech giant reported Q1 revenue of $471.9 million, up 3.5 percent year over year. SaaS revenue increased 24.4 percent year over year to $126.6 million. SaaS deals made up 87 percent of Tyler’s new Q1 software contract value, up from 80 percent for the same period last year, according to CEO Lynn Moore in a conference call with investors.
CLOUD AND PAYMENTS
Meanwhile, at Accela, a privately held cloud-based government software company, annual recurring revenue increased 18 percent year over year, customer bookings increased 68 percent and net customer retention remained above 110 percent. The company doesn’t publicly release detailed financials.
Among the company’s recent achievements were cloud migrations for five Florida agencies.
That reflects the ongoing trend of public agencies concentrating the number of “strategic vendors” they are working with, Accela COO Tom Nieto told Government Technology.
“This is driven by increased security concerns, procurement burdens and internal staffing challenges,” he said via an email interview. “We’ve also seen a trend toward communities needing an integrated, frictionless experience within and across departments and when interacting with residents.”
Payments also are taking on more of the gov tech spotlight, especially when one judges by recent experiences at Tyler, which has made two recent payments-related acquisitions.
Moore told investors that Tyler signed 120 payment deals in the first three months of 2022, and the company continues to streamline disbursements via all types of payment channels. Such work includes what he called the “rapid disbursement” of court funds for counties in Texas and Tennessee.
LABOR AND AI
He also said that Tyler clients continue to deal with challenges from labor shortages, which in turn is leading to more use of technology to “bridge that gap.”
Nieto sounded a similar note about the workforce as he looked ahead to the rest of the year.
“The industry is facing significant talent gaps both within IT and the agencies this fiscal year,” he said. “Gov tech is competing with an increasing number of tech hubs to attract a steady, highly skilled workforce.”
Such concerns, he said, could lead to more use of artificial intelligence and other tools that can automate more governmental tasks — decisions that will be faced by more suppliers and users of gov tech.
RECESSION AND DEFAULT?
Those vendors and clients also will have to consider larger economic questions in the coming few months.
While gov tech still is considered a relatively safe haven for capital in the event of a recession, an economic downturn could certainly have an impact sooner or later on the industry, according to Andrew White, venture partner at Mercury Fund, a venture capital operation with a growing interest in gov tech.
So, too, would a default on the U.S. debt and any associated budget cuts that might come from a deal on that front. In both instances, state and local agencies would have some insulation from the larger problems, including from the ability to raise their own taxes, he said.
Even if severe budget cuts and a recession happen, he says at least one emerging area of gov tech could weather that storm: Digital citizen engagement tools, which help officials determine the mood of their constituents when it comes to local projects, budgets and tax hikes. Mercury has invested in Wisconsin-based Polco, which sells such tools to public agencies.
“In this space,” White said, “there is still a lot of runway.”
