Tyler Technologies Aktie

Thank you for joining us today. My name is Pete Heckmann. I'm the fintech analyst at D.A. Davidson, and hope you're having a good day here at our Technology and Consumer Conference. Joined today by long-time CFO, Brian Miller, of Tyler Technologies. Brian, thanks for participating with us today.

Yes, absolutely. Good to be here.

Definitely. And so Brian just came off a big event just yesterday, Investor Day.

Tuesday.

Tuesday, that's right. And Tyler did a fairly bold thing back in 2023 at their Investor Day. They provided guidance out to 2030. And I think that's the first time I've seen one of my companies or a company within my sector provide essentially a framework for thinking about growth in margins over 7 years. And A big part of that was the multiyear transition from on-premise software to the public cloud, and you've made significant progress on that. But can you talk just a little bit about it and some of the big milestones you're trying to hit like closing the data center, talk about that and talk about some of the milestones that you expect to see? And then you talk a little bit about where do you think you'll be by 2030?

Yes. I'll talk about the cloud specifically and then how that plays into our overall projections. Yes, in 2023, we laid out a vision for 2030, especially around the key objectives around recurring revenue growth and the cloud is a big part of that as well as our transactions business and around free cash flow targets. And we also set out interim targets for 2025, and so having 2025 in the books now, it was a good time to have the next Investor Day and update those longer-term targets. Really pleased that for every one of our 2025 targets we met or, in almost all cases, exceeded those. So the progress we've made to date gave us a lot more confidence in updating and effectively raising the 2030 targets as well.

Around the cloud transition specifically, we've kind of talked about it in a couple of phases. We've gone from originally being, for many years, strictly an on-premises business. So we have a huge base of customers, most of whom were on-premises and paying us maintenance, very, very sticky customers, as you can imagine, the public sector. All of our customers are public sector. And then we had a hybrid model for several years where we offered our products either in the cloud, which was a private cloud hosted in a Tyler data center, or on-prem, and we were kind of neutral or agnostic around that. And then in 2019, we had a shift really to cloud first. And we said, really, we're only going to try to sell software in the cloud going forward, and we're going to have a more aggressive plan to move our on-prem customers to the cloud. And at the same time said we don't really want to be in the data center business long term. We can't scale that and we don't have an advantage over AWS or Microsoft, so partnered with AWS to be our primary public cloud provider.

So we had some targets through '25, a big one of getting out of our data centers. So we had 5,000 clients to migrate out of our data centers into AWS, and we laid out a timetable for that. And we completed that on time, so at the end of '25, we exited our last data center. So now all of our cloud customers are in AWS and all of our new customers go into AWS.

We -- part of -- a big part of that, especially as it relates to margins has been around version consolidation. So Tyler has a lot of products that we serve really all of the essential back-office functions of government, things like tax systems, court systems, public safety systems, 911, licensing and permitting, land records, school bus transportation, so a wide range of products, dozens of kind of major products and then within that hundreds of SKUs of modules within this. So we've had a lot of products. We've got -- we've also historically supported multiple versions of a lot of products. So we didn't force customers to upgrade to the newest version. And so over time, that became very expensive that we're supporting, we're devoting development efforts and costs into products that aren't the current version of our software.

So we've had a fairly aggressive program of consolidating, sunsetting older versions, moving clients to the current versions of the product, which then puts them in a better position if they're on-prem to move to the cloud. So the second phase is really what we call cloud living, and it's really truly operating, not just hosting in the cloud, but operating as a true cloud company. Everyone will be on one version of the software and they will all stay on that version. They'll all upgrade at the same time. It will be seamless sort of bite-sized upgrades on regular schedules rather than like a big annual release, much better client experience, but also better for us to have everyone -- and much more efficient on the same product.

We've also done a lot of work around cloud optimization, so optimizing the architecture of our products to run more efficiently and take advantage of the cloud features. So we've made a lot of progress with that. There still is work to be done over the next few years. So that's part of our ongoing margin expansion. So we've really set out a new target of expecting around the 20% CAGR in SaaS revenues over the next 5 years. That's up from a previous target of the high teens. We also raised our margin expectations from -- on an overall basis. Previously, it targeted a 30% operating margin by 2030. Now we've raised that to the mid-30s. And that's roughly 1,000 basis points of margin expansion from where we are today, I'd say, 300 to 400 points of that is coming from the cloud opportunity.

We also raised our free cash flow target from high 20s to the low 30s free cash flow margin, and our cash flow target from $1 billion to now $1.1 billion to $1.2 billion in free cash flow by 2030.

Yes. Yes, very impressive. And so when we think about versus 2023, we are -- to 2030, we're moving towards a more recurring revenue model. Can you talk about like SaaS subscription as a percentage of revenue back in '23 and where you think it will be in 2030?

Yes. Yes. SaaS right now is a -- subscription is around 1/3 of our business and maintenance from on-prem is around 20% and then transactions is about another 1/3 and then nonrecurring revenue sources make up that other balance, which are really professional services and hardware. Those nonrecurring streams are growing at a much lower rate like mid-single digits by design. And we don't want to do more of those. They're not highly profitable. So yes, SaaS will be well north of 90% recurring revenues. And by 2030, that will be, say, about 1/3 of our revenues -- we expect still roughly 1/3 from transactions, but the SaaS will be another 55% or something, so move from 35% to 55%.

Yes. Yes. A real transition and some heavy lifting. I remember when we met [ 25 ] 6 years ago, Tyler was a much smaller company, but now really has become the category leader within the public sector. And can you categorize -- I mean, we just -- on the municipal market first, we can talk about state and local in a little bit, but just on the municipal market first, kind of how you characterize that market in the terms of like how many -- I think generally, you said like 55,000 municipal entities that each require about 6 systems. Can you talk about how your evolution has gone in terms of serving those needs, and kind of how you characterize your share today?

Yes. Yes. We have, by far, the broadest set of solutions for the public sector. No one else is close to us in terms of having that breadth of product offerings. We've also got the biggest customer base, although it's a really fragmented market. So we're still not highly penetrated in terms of a market -- well, highly penetrated, but not anywhere near saturation in terms of market share. So our revenues, at a high level, were roughly 70% to 75% local governments, so cities, counties, school districts, local agencies, authorities, that sort of stuff. We're about 20% to 25% state with most of the state business being transaction funded. And then we are less than 5% federal. So that's a relatively small exposure. Yes, so if you add up all the cities, there's like 37,000 cities and towns, 3,200 counties, 15,000 to 17,000 school districts, a lot of special agencies. So there's, yes, probably somewhere around 75,000 entities. And we have a presence in about 16,000, so -- that have at least one system from Tyler.

We've got about 50,000 systems installed. So that math says the average customer has about 3 products from us. And we believe the average customer could have 8 to 10 products from us. Now what a city would have versus what a county versus the school district, they might be different products, but there's that kind of an opportunity.

So there's a huge upsell opportunity or a huge TAM just in our existing customer base, those places we already have a product, and then there's a lot of green space for expansion in places that we don't have systems today. So if you take that, we say there's like roughly 500,000 systems across the local government space, and we've got 50,000, so it's a 10%, 11% market share kind of at the high level of looking at it. It varies by product, and every system is not the same size or the same dollar value, but there is that kind of an opportunity to expand just within our customer base.

And then I'd say one of the things that's important about kind of how governments, especially local governments, buy software is very different than the private sector. There's a lot of things that are really different. But sales cycles are really long. They're typically replacing a system that's at end of life. So governments have not historically been ROI driven, although they are starting to look at things a little differently in today's environment. They don't have competition. They don't like change. So they tend to use systems much longer than you would typically see a system used in the private sector. We -- probably the average we replace is like a 20-year old system. So they use systems until they die. They buy a system and they use it until they absolutely is not supported anymore. It runs on old hardware, so they have to replace it. The mainframe systems, a lot of homegrown systems, some are 30 or 40 years old that are still being used, and there's no more programmers around that can keep it going.

So that's created this very steady, but never explosive growth, just a very steady growth. And there's this constant replacement. It's a nondiscretionary decision. But now we're seeing more of a focus on efficiency and the way governments get more efficient is through the use of technology, so put in a new system. Even though old systems, maybe they can get another 5 or 10 years out of it, but it doesn't have online access, so there's no citizen self-service. There's no -- it's a paper-based system. So they're massive amounts of paper being dealt with, all kinds of reasons that there is -- that I think we're starting to see a trend -- trend may not be the right word, but starting to see more cases where governments are saying, well, there really is an ROI. There's a compelling reason from an efficiency standpoint for me to replace the system even though we don't have to.

So we think that could potentially create some acceleration of demand, again, not explosive, but I think that we're starting to see some signs that kind of changes in the market a bit.

Yes. And Tyler has such a great brand and these municipal CIOs and CTOs and sheriffs, they go to a lot of events and conferences and they talk to their peers. And so referenceability is a big thing, but I think that's really contributed to your win rates. I guess, how do you -- and thinking about like the relative -- in terms of your growth algorithm, the relative ease of adding a new logo in terms of a new municipality versus sometimes the challenge of cross-selling just because sometimes the person making the purchasing decision can be the person who could be very siloed within municipalities.

Yes. Governments are very siloed. And -- so yes, but it's always better to have -- you are right, references, reputation, trust are a big thing in the public sector. And again, because they don't compete with each other, they talk to each other a lot and they share successes and failures. So the fact that Tyler does have a very strong record over decades of execution, and so they're wary of new entrants. It takes a long time. You don't see a lot of new entrants in our space that are super successful.

So it's always better to have a reference down the hall -- at City Hall than a reference across the country. So -- and we have a lot of reasons besides just a good reputation that our products work well together. We've got a lot of foundational elements, the same technology across things like payment platforms or workflow engines or security and sign on that say, okay, if you buy that next product from Tyler, it makes it easier. We -- and in some, they're very tightly integrated, like courts and public safety are adjacent markets. So there's a lot of really compelling integrations there from having those from the same vendor. But -- and I think that trust is one of the things that -- we'll probably get into AI a little bit, but as our customers think about and are just starting to think about AI, they're also very cautious about that, but they're telling us that they want it from someone they trust. They don't trust a startup to come bolt some AI on top of a Tyler product, but they want it integrated with their product and they want it from us. And that trust is a huge thing.

They want to trust how their data is going to be used and where their data is going to go because they're very cautious about that in governments. In our systems, there's a lot of very sensitive data around that governments have, if you think about a court system or a public safety system or a payroll system. So that trust and reputation is a big thing. And so we think we should have almost an unfair advantage to sell more products to our existing customers, but also to continue to have very high win rates in new logos.

Right. And one of the amazing things and what makes it kind of easy to track, Tyler, but relative to your underlying 50,000 of 500,000 potential installations, your win rates are much higher than your current share. So can you talk about some of the win rates across...

Yes. I mean our win rates, they vary by product, but typically, we're winning. Often in our flagship products, our win rates are more than 50% or around 50%. So we're winning kind of more than our share compared to the number of competitors. Some areas like courts, where we're really the clear leader in that space, we have win rates of 75%, 80%. Other areas that have more broad competition like public safety, where there's a number of good competitors, we still have strong win rates. There might be 4 or 5 competitors, and we're winning 1/3 of the business, something like that.

So yes. So we do continue to gain -- even though these systems turn over kind of slowly, we win a strong percentage of the new ones. And so we're gaining market share every time those turnover.

Yes. And retention rates just by the nature of who you serve are higher because there's no M&A...

They don't go out of business. They don't get acquired.

Yes. So your typical client lifetime relationship is going to be...

Yes. Our gross retention over, same thing, decades is like 98% in terms of revenue, 98% names, 99% dollars, and then net retention with upsells and pricing is significantly better than that, kind of north of 110%.

Yes, yes. And so up until 2019, 2018, maybe like fair to say municipal was closer to 90% of revenues?

Yes. We were almost all local before that. A little bit state -- mostly systems that were used at the local level, but bought at this state level, like a state-wide court system. The courts are run at the county level, but the state bought the system. And then the NIC acquisition in 2021 really got us into the state space as well as the transactions or payments space.

And that's been fascinating. When I covered NIC since 2005 and until the buyout -- I think it was 2008, but in any case until the buyout, and it is a company that...

They got very few analysts to cover...

Right. Right. I thought I had a really unique mousetrap, and I thought, well, I wonder how that's going to translate to Tyler, but it's been fabulous. And so can you talk a little bit about how kind of the hunting licenses that NIC had with 28, 29, 30 states have allowed you then to sell more into the state? And then what capabilities really did NIC have primarily from their self-funded model that you've gotten and deployed?

Yes. So while we were almost all at the local level, they were almost all at the state level. We were almost all the back-end software. They were more the front end door to government and providing interfaces to what were often big mainframe legacy systems for citizens or business to interact with them and that was all through a self-funded model or transaction-funded model. So you think about -- and they had the state enterprise or have. We have the state enterprise arrangements with, I think it's 28 states that are very broad arrangements, provide a wide range of services, but things like motor vehicle registrations. So you want to renew your car license online, there's a big mainframe DMV system somewhere in the back of the state that was not built to have online access. So we built a portal. We built the interface to that so you can renew your license plates online. Maybe the state charges you $70, there's a $7 convenience fee that goes to Tyler that funds that. So the state doesn't have to budget any money to pay Tyler. They don't have to budget for SaaS fees or other costs out of their budget. It's tacked on. So same thing, you get a fishing license or campground reservation or business license or professional license, all of those things are kind of funded through that.

Now there are some things that we provide services that don't have those revenues, but the whole model works by funding from the services that do have revenues attached to. So it's a really attractive model to the states. It's very sticky. We become very, very embedded with the state. We're -- we have close relationships so we know what initiatives they have coming that they're going to need something. So the premise behind acquiring NIC was that where Tyler didn't have these relationships or didn't have a sales force, but we have products that we could sell to states, but we just really didn't have access to that market and would take a while to build it up. So the idea was that now through these relationships, we can sell more Tyler products. So for example, Tyler has a very robust set of regulatory products for licensing and permitting, including a cannabis licensing product. So as more states have legalized cannabis, they need a system to manage all that. And there's all kinds of aspects of that, the retail and the taxes and the medical marijuana, and all those things have to be regulated.

So we're already there. And so we say, "Hey, we've got a system." We know well ahead of time that it's coming. We've got a system for it. There's no RFP. There is no competitive process. There's no lengthy contract negotiation because it's treated as a new statement of work under our existing contract. And so we've been able to sell software into those states. And we're still in the fairly early stages. Even 3 or 4 years into it we said, we really kind of need more of a bridge here between all these products and the relationships. So last year, we built out a new state -- kind of senior state sales force that's kind of creating that bridge.

So that was kind of the big opportunity, which is -- it plays out over time, but it's definitely meeting our expectations. The second opportunity was to take their payment engine and to be able to integrate that with Tyler products that have payments around them. So Tyler has a lot of products at the local level that facilitate payments, present bills, things like utility billing systems, licensing and permitting systems, property taxes, traffic court, tickets, fines and fees. But we didn't have a payment engine. So we kind of had third parties that we resold payment services, but that really wasn't part of our model.

So now we came with these huge payment capabilities, a very robust platform that NIC had built out to service their customers. And so now we're integrating that with all of our products. So that going back and adding those payment capabilities to our software products, both to existing customers and then with new software sales, adding a new layer of revenues from transactions on top of that. It's better than a commoditized payment system. We talk a lot about how it's more than just payments because it's embedded in the software. So it's one solution for the customer, provides a lot of advantages like automating reconciliations. And there's some real reasons why it's better for the customers and can have premium pricing.

So we're moving away from kind of commoditized payments and more towards this kind of value add or selling software that's funded through transactions.

Right, right. And so I think maybe 3 or 4 years after you did the NIC deal, I think you had crossed over 1,000 new payments contracts to your existing contracts, but they're not all small deals. Talk a little bit about the contract you signed in the state of California.

Yes. In fact, that was the biggest contract in Tyler's history, and it's interesting because it was a software deal, but it's not showing up in our software revenues. So the state of California -- we have a very robust suite of outdoor recreation products to manage of all the aspects of parks from campground reservations to retail to anything they need to run this park. So California needed an antiquated systems. California State Parks is the biggest park system in the country, or state park system. We had all the software capabilities, but all the payments capabilities. So we were able to provide them with this complete suite of software as well as payment processing, but we can do it under a transaction-funded arrangement. So California has budget issues. And so rather than them paying us a $20 million a year SaaS fee for the product, they pay us through -- we get paid through transactions. So if you reserve a camp ground and maybe the state charges you $15, there's a $3 charge to Tyler. Tour the Hearst Castle, there's a $20 ticket, maybe there's a $4 fee of Tyler. Rent a kayak, there's a [ fee to ] park. So -- and we do all the payment processing around that.

So the state doesn't have to appropriate any funds, find any money in their budget. We have a pretty good confidence around the number of transactions, but there's upside as volumes go up. And it's north of a $20 million, $200 million total contract value. But because of the model, it's not showing up in our SaaS revenues. So there's kind of this...

Nor did it show up in bookings.

[indiscernible] up in our SaaS bookings, even though it's our biggest deal ever. So -- because the transaction funded deals still have to have a transaction occur. So there's really kind of this -- in the middle, there's a bit of a blurring of software and transactions, and that's why we say transactions is a lot more than -- it's not just payment processing, it's wrapped around software at the core and sometimes it's delivering software through a transaction. That doesn't apply to every kind of payment or every kind of software opportunity, but outdoor recreation, we've done several -- our biggest deal last quarter was a DMV deal in a large state in the South for new digital motor vehicle titling, so car titles won't be paper anymore, they're all digital. And it's the same thing. We get paid through a fee that's tacked on to your registration when you buy a new car or sell a car. And so it creates a really nice revenue stream, but again, it didn't show in our bookings, didn't show up in -- it won't show up for a year until the system is live.

Yes. Yes. Well, you can't talk to a software company without talking about AI a little bit. And I really appreciate it, at your Investor Day, the time that you spent on it. Talk about how Tyler is developing AI-enabled systems, provisioning AI? And it's the first time I've seen a company doing a really nice job of saying like, "Hey, here's how we monetize it and here's why we feel we have a right to win." Can you talk a little bit about that because I think it's pretty interesting.

Yes. Obviously, it's a big topic of conversation and certainly something that we think has affected our valuation. But at a real high level, we think it makes Tyler more valuable. We see it as a tailwind, as an opportunity, not a threat. We think our customers -- and we hear from our customers that they want AI that is integrated into their core systems of record that manage these essential functions. They want it from someone they trust, and they want their data protected and they want to comfortable with that. There -- I guess, at this point, governments are mostly kind of cautiously curious about AI. There -- the adoption curve like with everything else is going to be much slower in the public sector. But we are -- we see it as an opportunity, not besides internally using AI, but from a product perspective, an opportunity to add new AI applications around our existing products.

In some cases, we've made a couple of acquisitions that are products that are AI-driven. But things like -- and things that we can monetize and things that solve real practical problems that customers have, which mostly stem from a lack of staffing. Governments are not typically overstaffed, they're way understaffed, and they're facing another big wave of retirements, and they struggle to replace people to compete with the private sector. So that's a big challenge for them.

So example would be an application review assistant for our licensing and permitting system to use AI to review a building permit application. Because there's not enough clerks to review them, so it might take 6 months to get a building permit application approved. AI can do it in minutes, and customers are willing to pay for that because it's create -- solves the problem they have, and it creates more development and more tax revenues, so it's a good thing. And in many cases, they're seeing it as something that should come out of the labor budget and not out of a software budget. So we're seeing uplifts and we treat that as an uplift to their SaaS revenue.

And we're seeing -- we gave some examples where we've seen, in some instances, 20% or 30% uplift. In the case of one state client, we talked about a 170% uplift from, I think, it was document automation because they can see that they're going to save $2 million a year of labor from clerks not having to do this, and they're willing to pay $700,000 a year for that.

So high level, we see it as an opportunity. We did not build incremental AI. Today, our revenues are probably $20 million, $25 million around AI, specific AI products. But we did not include in our 2030 targets. We said AI will be on top of that because we just don't think we can -- it's too much that's unknown right now about how fast the adoption curve will be, how all the pricing will ultimately work out. So we're confident that it's incremental and it's a tailwind, but it's too early to give a credible number for 2030. But we think we've got a wide moat, and that really revolves around the domain expertise we have, that we understand these complex workflows and the system of record is more than just processing transactions.

The relationships and sales channel that we have as a trusted partner and the data that we have both access to, to build better models, but also their concerns about data leaving their system, and therefore, wanting to get that from Tyler.

Yes. Yes. I think we're almost out of time, but I did want to just comment like Tyler has made a number of -- like 68 relatively smaller acquisitions over the last 25 years, and that's been additive to the overall growth. And when you've talked about your 2030 revenue growth goals, not only does it not include AI, it also does not include future M&A. But you have a great balance sheet, you have a great track record and a process of finding acquisitions. Given the recent conversion, should we expect anything different from...

Not really different. I mean I think we still look for opportunities to fill in spaces or adjacencies around existing products, often things that we can leverage our sales force and leverage our customer base to grow faster. We gave an example of the 7 acquisitions we did from '23 through '25. Those -- the CAGR for those businesses through 2030 is about 24.5%. So they're growing at twice the growth rate of Tyler because they're being sold through our sales channel and being sold into our customer base. So that's still the thing. I think we'll still see tuck-ins. I think there'll be bigger opportunities right now. It seems like sellers are still kind of coming to grips with a different valuation framework. Public companies, obviously, like Tyler are coming to grips with it too, but we don't have a choice right now. We have also -- so we've got -- I think the key is we've got a lot of firepower. We've got $1 billion in cash on our balance sheet. Over the next 5 years, we'll generate north of $4 billion of free cash flow. We got $1 billion revolver. So we've got $6 billion of firepower to use for acquisitions, and we've got a really good track record of doing this well, and stock buybacks. We've been opportunistic about buybacks, being more aggressive when there are more compelling opportunities.

We certainly view this and us trading at a multiple that's at least a 15-year low, even though the company is many, many times stronger and the high visibility into future cash flows. So we put in place a $1 billion buyback authorization earlier this year. We've already bought back $670 million of stock, about 5% of our stock, since February. And we've got a lot of firepower left to do that as well. So I think we can do both acquisitions and M&A and drive a lot of shareholder value through both of those.

I know there's a huge vote of confidence at the time where you've clearly passed the tipping point of your move to the public cloud. So you've done a lot of heavy lifting there. You're executing the biggest acquisition in your history, you've executed on very, very well. You've given guidance out to 2030, but because of this unique market environment, stocks trading at 20 year -- multiple lows. And so it was great to see a step up and be aggressive on the buyback. So that I think there's a lot of reasons to feel confident in the outlook at Tyler. And so I really appreciate you participating with us today, and we're out of time, but thank you for coming, and we look forward to the next update.

I appreciate the opportunity to tell the story.

Thank you.

Okay. Good morning, everyone. I'm Hala Elsherbini, Senior Director of Investor Relations, and it's my pleasure to welcome you to Tyler's 2026 Investor Day. It's so great to see so many of you here in person today. We appreciate you coming out, and thank you to those on the webcast tuning in. We have a full agenda, and Lynn will kick us off in just a moment. So let's cover a few housekeeping items.

First, our forward-looking statements. Today's presentation may include forward-looking statements regarding our expectations of future results and our financial performance. These statements are based on our current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. So please refer to our SEC filings for more information on these risks and other factors.

Our statement here regarding are of non-GAAP measures, Note that all financial measures in today's presentation represented here are on a non-GAAP basis, and we do have a reconciliation of non-GAAP to GAAP in the appendix of the presentation.

Let's take a look at the agenda and just the flow of the day here. So we have the first 3 presentations. We'll focus on our key initiatives and our growth strategies. We'll follow that with a Q&A session in about 25 minutes. We'll take a short break, and then we'll dive into our AI strategy, our capital allocation. And Brian will bring us up to date on our financials and take us through our 2030 outlook.

We'll have another Q&A before Lynn comes up and give his closing remarks. So given our large audience in person today, we will not be able to take questions from the webcast. We'll be taking questions here from the in-person audience. But anybody that has a question from the live webcast, please do send those to me, and we'll follow up later this week.

We'll end today with lunch -- and then it will be in the 4 year and then Seating will be here. So lastly, the presentations will be available later today on our IR page on the Events and Presentations page. Now please join me in welcoming Lynn Moore, Executive Chair, President and CEO.

Thanks, Hala, and good morning, everyone. Welcome to Tyler's Investor Day. I appreciate everyone taking the time to be here today and those on the webcast and also really appreciate everyone's interest in Tyler. So our last Investor Day was 3 years ago, and a lot's happened since then. There's been a lot of execution on a number of strategic initiatives, and we're really excited today to share with you what we've been doing over the past 3 years. So let's go ahead and get started.

So I'm going to kick things off today by covering 3 things: first, our performance since the last Investor Day, call that commitments made, commitments delivered. Second, I'm going to spend a little time talking about why the public sector is such a unique market and what separates Tyler from its competitors within that market. And then finally, I'm going to give you an update on some of our 2030 targets, not the whole targets. Brian is going to have those later. I know some of you all were asking earlier, you have to wait for some until the end.

Okay. Let's start with the basics. Tyler is the largest company that's solely focused on providing software solutions to the public sector. We are by far and away the market leader. Last year, we did about $2.3 billion in revenues, 87% of which was recurring. Now the public sector is a market that's built on reputation and trust, and we have a long track record of successful implementations and delivering trust to our clients. And it's why our gross retention rate is 98%. In fact, I think in the 28 years I've been at Tyler, our gross retention rate has been about 98%.

As you can see on the right side of the screen, -- we have all -- we have solutions that meet all the mission-critical needs of the public sector, whether it's financials, courts, public safety, tax, state and federal, Whatever they need, we provide. So 3 years ago, at our last Investor Day, we outlined a clear strategy that would guide us to 2030. I'd like to spend a little time updating you on how we've been doing on that strategy.

I'd say at a high level, I'm really pleased with our progress. Today, we either at or ahead of my expectations that we set 3 years ago. Our cloud transition has been progressing well through product optimization, version consolidation, exiting our data centers. We talked about an inflection point in our financials and that happened in the fall of 2023 just as we expected. We've done 8 acquisitions since the last Investor Day, expanding our offerings, including things like AI capabilities. You've heard us talk about document automation -- document automation, excuse me. In addition, over the last 3 years, we have developed and refined what I call a smart AI strategy. You're going to hear more about that today from Franklin Williams, our new Chief AI Officer.

So let's take a couple of moments and take a closer look at where we are in our cloud transition. So I think the takeaway here is, again, I couldn't be happier with where we are today and where we're going. Now many of you have heard me say over the years that Tyler is not going through a single cloud transition. We're actually going through multiple cloud transitions. And why do I say that?

Well, I just showed you the breadth of products we have. So we have a big product suite that's going through this different starting points, different ending points, different technologies, different client bases, different number of versions out in the field, very complicated process we've been going through. And when we talk about our cloud foundation internally, we've been talking about in 2 phases.

The first phase is what we've outlined at the last Investor Day, and it's really more of a foundational phase. Again, it's around the things we talked about, selecting AWS as our public cloud provider. It was optimizing our products to run in AWS. It was version consolidation, closing our data centers, proving out our SaaS flips and the metrics around those. That continues today. And again, we are on track with those initiatives.

Second phase is something that we've been working on internally for almost 2 years now, and we call that Cloud Living. So what is Cloud Living. Well, Cloud Living to me at the highest level is, it's really operationalizing the cloud. It's really operating like a true cloud provider with continuous improvement, continuous delivery, small regular releases that are coordinated across our entire client base, providing a more seamless experience for all of our clients.

Now Russell Gainford, our CTO, is going to get up in a few minutes. He's going to go in a little more detail, but it's a really exciting next phase of Tyler. It's something that I'm really looking forward to. So from a strategic standpoint, as I just said, we've even been on track or ahead of track from where we thought we would be 3 years ago. So what about the numbers? Well, we're also either at or ahead of all the interim financial targets that we set out 3 years ago.

Now if you remember, I called this section commitments made, commitments delivered. And to me, that's a hallmark of Tyler. If we say we're going to do something, we're going to do everything in our power to do it. But importantly, we're not even going to say that we're going to do something unless we believe we have a reasonable credible path to get there. And so I'm really satisfied and gratified by these numbers. And particularly, I think when you look at our free cash flow margin, it's up 8 to 10 points from where we thought we'd be 3 years ago, and we've generated a lot of cash. That's probably the thing that stands out to me on this page the most.

So let's switch gears a minute and just talk generally about the state and local government market and what separates Tyler from the rest of our competitors. So state and local government market, it's a large market. Gartner estimates that it's about a $4 billion market today, but it's also a market with a long history of consistent growth. As you can see from 2023 through today, it's been growing at about a 10% CAGR, and we expect that to continue through the rest of the decade.

So what is it about this market that fuels this consistent, steady growth? Well, to me, it's a different market. It's structurally different than what happens in the private sector, and it's different in meaningful ways. So on the left side of the chart, you see some of those differentiators. The public sector market is still really absorbed with old antiquated systems, homegrown systems that are reaching end of life, systems where other vendors are no longer supporting them. There's an ongoing workforce shortage in the public sector. Labor is shrinking, retirements are happening, and it's not being replaced with younger workers.

Expectations of citizens continue to rise. People expect to interact with their government, the way they interact with technology in every other parts of their lives. It's putting more and more pressure on local government to keep up. Obviously, cyber security, regulatory mandates, AI, all of these things contribute to 1 thing. At the end of the day, the governments must modernize. They have no choice.

So what does that mean for our prospects for future growth? Well, today, Tyler has over 50,000 systems located across more than 16,000 client locations. So the answer there is we still have a very long runway ahead. From a system standpoint, we have about 11% market share; again, a really long runway ahead.

So let's talk about why Tyler has been so successful. What differentiates us in this market? Why will we continue to capture an increasing share of this growing market? Well, there's 5 unique things that separates Tyler from all our competitors. And importantly, there's no other company out there that can list all 5 of these strengths. So let's take a look at each one.

First is our portfolio of products. We have the broadest, most integrated set of public sector solutions in the market. As I mentioned earlier, we touch all the mission-critical needs of the public sector, whether it's in public admit or schools or courts, public safety, state and federal. Now there may be competitors who compete in one of these lanes, but more likely just a piece of one of these lanes. -- but no one has the broad set of solutions that covers the entire mission-critical needs of the public sector.

In addition, we can play at any level. We can play from the largest cities, largest counties to the smallest. We can play from state agencies to local agencies, from school districts to special districts, again, whatever the public sector needs, Tyler has a solution. And that takes me to our second differentiator. Our singular focus and deep domain expertise. The public sector is all we do, and we've been doing it for decades. We understand this market. About 45% of our team members have worked in the public sector. What you see here on this slide are things that differentiate us from our competitors, whether they're local, regional niche players, someone who may have a single product or someone who just plays in a certain geography or a more large multi-focused national player, someone who plays in the public sector, but also in the private sector.

Only Tyler can provide the full end-to-end suite of integrated products that are purposely built for the public sector. Our third strength is our large client base. We have the largest client base of any vendor out there. Again, more than 50,000 installations, over 16,000 client locations. Nobody can match that, and many of you in this room have heard me say that our client base is our greatest asset. And why do I say that? Because in this market, a client base like that doesn't take years to develop. It takes decades to develop. And only Tyler has decades of proven results and trust within the public sector.

And what that does is it creates a significant opportunity. You can see here on this slide that our average client has about 3 Tyler products. Yet we believe with our current portfolio that can grow to 8% to 10%. And that actually can grow even more as we continue to do more and more innovative R&D and more and more M&A. So speaking of R&D, that's our fourth differentiator. We have a long history of innovation that's tailor-made for the public sector. Again, 45% of our people have worked in the public sector. We know what they need to -- we have over 2,800 engineers who wake up every day come to work, focused on creating new products or increasing the competitiveness of our existing products and doing things like AI to do those.

As you can see on the right side, our R&D has increased about 3.5x over the last 8 years, and all of it is for the purpose of 2 things: growing our revenue and increasing our moat.

Our fifth differentiator is M&A. We've been an active strategic acquirer in the public sector since the beginning. Three years ago at the last Investor Day, I used the phrase, I think, for the first time that M&A is part of our DNA, and it is. We've done over 60 acquisitions in the last 28 years that I've been at Tyler. What are the things we look for in an acquisition. If you look on the right side of the slide, we look for voids or gaps in our offerings, new capabilities, new technologies, things like AI. We look to expand our TAM. We look to add clients to our base so we can do more cross-sells, more upsells. And one of the things that we really focus on is can we bring something in leverage the Tyler machine and get it to grow at a rate that's faster than Tyler's overall growth rate.

Okay. So pulling all this together, Tyler is dominant in this market because we have 5 strengths that are difficult to replicate. They can't be created overnight. They can't be spun up in a lab. The public sector is a business that's grounded in trust and reputation, something that takes decades to establish. It's what makes Tyler unique and what makes us well positioned to continue to capture an increasing share of a large and growing market.

Okay. So I talked about our 2025 commitments. I talked about the public sector market, why it grows, why it's unique, why Tyler is uniquely positioned. So let's turn and say, what does this mean as we look ahead? What's our go-forward strategy and what results do we expect.

So when I think of Tyler, I think of 1 word, consistency, consistency in strategy, consistency in values, consistency in execution. Yet at the same time, we're also nimble and agile enough to adjust to changing market conditions, changing technologies like AI. So what you see here is our 4-pillar growth strategy that we outlined at the last Investor Day, leveraging our installed base, expanding our TAM, completing our cloud transition, driving transactions growth. Same strategy. But you also see we've made some adjustments. We've woven AI into each of these growth pillars. And we're going to do a deep dive later on AI and how it does affect those growth pillars.

As for our goals, those also remain the same. We're going to continue to grow ARR, continue to improve margins to drive expanded free cash flow. So 3 years ago, we outlined a strategic vision with what I think were really bold 7-year financial targets, including $1 billion in free cash flow. I remember standing on say, $1 billion in free cash flow. That was incredible to me for someone who's been around when the company did $25 million in revenues to think about $1 billion in free cash flow.

Over the last 3 years, we've been building a more and more valuable company. Quarter after quarter, year after year, our AR continues to grow and our free cash flow continues to grow. We've been executing on our strategy, and we've been laying the foundation for a more scalable growth. You're going to hear about some of that today.

Based on that, we're raising 2 key 2030 targets, ARR and free cash flow. So in 2023, we projected our 2030 ARR would be $3.2 billion to $3.4 billion. Today, we're forecasting the high end of that range between $3.3 billion and $3.4 billion.

Also in 2023, we projected free cash flow to be $1 billion. Today, we expect it to be $1.1 billion to $1.2 billion, likely at the higher end of that range or 15% to 20% higher than what we said 3 years ago. So how are we going to measure success going forward? Well, it's the path to reaching those 2 goals. We get there by growing ARR at 10% to 12% a year and increasing free cash flow margin to the low 30s. These are our anchors. These are what you should look to when determining our progress towards our goals.

So in summary, Tyler today is stronger than what it was 3 years ago. We have clear long-term strategic initiatives. We have alignment across our executive team. We've been executing on those initiatives. And today, I can stand here and say that we are at or ahead of what my expectations were 3 years ago.

Because of that, and this is something I say all the time inside of Tyler, I can stand up here and say, I've never been more confident in Tyler's future than I am today. Okay. Let's talk about the rest of the day. Hala covered this a little bit. Russell Gainford, our Chief Technology Officer, is going to come up and talk about where we are in our cloud transition, going a little bit deeper into cloud living, again, initiative that I'm really excited about.

Liz Thomas, President of our Federal group is going to come up and talk about transactions, how they're differentiated. I think it's part of our business that's still not fully understood by investors, and I think you're going to get a lot of clarity on that today.

Franklin Williams, our newly minted Chief AI Officer, is going to come up and talk about AI and why we believe it makes Tyler a stronger company in the future. I'm going to jump back up and talk about capital allocation. I know you all have a lot of questions for me over the years over capital allocation, Bruce is smiling. And we're going to wrap it up.

Brian Miller is going to come up with a financial update. He's going to give a more in-depth look at our 2030 outlook. So with that, I'm going to turn it over to Russell Gainford, our Chief Technology Officer.

All right. Good morning, everyone. So my name is Russell Gainford. I serve as Chief Technology Officer here at Tyler. I've been with the organization for 8 years. Prior to that, in total, I've been in the gov tech industry about 26 years, helping those who serve the public.

So today, we're going to talk a little bit about reiterating our strategy, what we talked about in 2023, what are our ultimate goals. Then we're going to go into how are we actually delivering on that strategy. What is the progress that we've made, then I'm going to talk about our path to 2030, what you should expect from us from an execution perspective the next 5 years.

Then ultimately, the final piece of this is we're going to touch on the end state of our SaaS transformation, something that we call internally Cloud Living, and we're all really excited about.

So as a reminder, SaaS is a huge growth driver for our organization. It represents approximately $780 million or 33% of Tyler's 2025 revenue. We've seen a 21% CAGR over the last 3 years. Maintenance, which is largely on-premise licenses, represents another 19% of revenue. So we have dozens of flagship products. We have hundreds of product SKUs. So for the sake of simplicity for the first phase of our cloud transformation, we broke down our execution into 3 key pillars that are important.

The first was new clients shifting our go-to-market to be SaaS first and ultimately, SaaS only. The second was our existing hosted clients we manage for years and getting out of the private data center business. And our third pillar was our existing on-prem clients and partnering with them aggressively to move them to a SaaS arrangement.

So how have we done on these 3 pillars since we last met. So for net new clients and leading the public sector market to a better destination. In 2019 about 50% of our total contract value was signed in a SaaS arrangement. In 2023, that number increased to 86%. And today, over 95% of our total contract value is signed in a SaaS arrangement, and those clients now go straight into AWS.

We still have some small modules, an occasional on-prem deal that takes place, but you'll see those continue to diminish. So that's our first pillar, new clients. Our second pillar was the existing clients that we had and ultimately moving to a point where we are moving out of the private data center business. We've historically had 2 primary data centers an organization.

One was in Dallas, Texas and one was in Yarmouth Maine. And the goal of this project was to move 5,000 live customers out into AWS and ultimately realize the lower capital and operating costs associated with those locations. This chart shows you here where those customers were located, how many of each when we started the project in 2021 and where they are today.

And we're proud to announce that we completed both of those projects on time, on budget with the last of our customers and our main data center moving out at the end of last year, and we're already seeing margin uplift as a result of this. So now let's turn to the final pillar. The final pillar is migrating or a term you'll hear me use a lot flips of existing customers from on-prem into the cloud.

When we started and went cloud first about $500 million of maintenance is what we had to convert. And flipping a client involves multiple steps, partnership, ready assessments, signing a new SaaS agreement, working with their IT team and moving the data and their business processes over to the cloud. Today, we retired about 30% of the maintenance revenue that we began with. And we're on track to hit our target of converting 85% of that by the end of the decade. I'll show you in more detail what we expect that to look like shortly.

So in summary, we are on track with all 3 pillars of our cloud execution. We're almost all new deals are in SaaS arrangements, we closed our data centers on time and on budget, and we're happy with the conversion progress and the foundation we've made to date, and you'll see us introduce additional incentives to entice more customers that are on-prem to move to the cloud shortly.

So those are the results. However, I want to touch for a moment, as we went through and execute on those results, we built a foundation of operational efficiency, scale, muscle that is allowing us to drive towards our 2030 goals proactively. So I want to talk about the trends we've seen and what we've actually done because I think it reaffirms our strategy and drives additional optimism in where we're going. So you've heard Tyler talk many times about version consolidation. So I want to spend a moment on why that isn't so important to us. In a legacy historical on-prem environment, where you're supporting thousands of customer environments across many, many software versions, it becomes incredibly complex and expensive to run. Our clients don't always get the full value of our investments as fast as we'd like them to.

They can voluntarily skip individual updates they may have constraint on IT staff. So the value we're delivering can be delayed months. And in some cases, it's delivered years later. Our teams have been very hard at work on using the capabilities of the cloud to consolidate many of these legacy software versions. Ultimately, partnering with our clients to drive them on a current version that provides more simplicity, our ability to keep them current and generates additional CSAT with all the capabilities that we've invested in. Now you've actually asked us about version consolidation many times on what the progress of that is, and data matters, so I want to show you 2 actual quantitative examples from 2 of our flagship products in our portfolio.

When you look at the flagship product to the left, this is a project that started just over 3 years ago. They've been partnering with clients, the number of customers that were not on current versions or prior versions before and 3 years later, only 7% of their clients are off a current version. Our flagship product 2 on the right, had significantly more installations, went through a similar project and now only 12% of their clients are off current versions. Why are we showing these? Why is this so important?

When we move a customer onto the current version, then when we're ready to flip them to the cloud and sign an agreement, it is significantly simpler. We've removed the consumption gap of all the capabilities that weren't being used and now it becomes a small technical exercise. And also, when we get them in the cloud with the foundation we've created, we are keeping them current, driving a higher CSAT and driving more cross-sell opportunities.

So what? So we've consolidated versions. We've executed today, what are the outcomes that we're actually seeing. But the outcomes we're seeing is that clients that are now running in the AWS cloud versus prior locations are significantly happier and view us as more of a strategic long-term partner. It drives higher retention rates and ultimately, it's driving additional cross-sell opportunities. So rather than just hear from me, let's hear from one of our actual clients who signed a Software as a Service agreement, what were the drivers and when they signed to move to the cloud? And what did they see on the other side?

[Presentation]

So I just want to point out there, that's not the exception use case. That's the pattern we're seeing as customers get more current, they move to the cloud. These are the types of responses. And unlike the private sector, in our market, every 1 of these peers talk to each other. They share stories and they tell them what their experiences were. So now let's turn to our path to 2030 and how to think about our delivery and what we'll be delivering on over the next 5 years. So with that foundation that we've created, the client conversion progress and success that we've seen, we see a meaningful growth opportunity and a visible ARR tailwind that will take us through 2030.

When you look at our 2025 recurring software revenue mix, on-prem ARR or maintenance in our balance sheet, is about 22% of the total SaaS is about 78%. We still have about $400 million in maintenance left to convert. Now note that, that maintenance balance changes over time, both in positives and rising and negatives. We have yearly rate increases. Customers add additional modules that are on-prem today, the rare on-prem deal. But ultimately, you'll see that continuing to come down as we go through flips.

Now when you ask us about progress, I do want to call out that the metric that we use is the percent of maintenance dollars converted that we've done to date because we have so many products and portfolios and suites and we have some customers that pay us a few thousand in maintenance and some that pay us millions. So measuring by maintenance dollars converted makes the most sense for us as an organization.

Now when we convert flip and migrate a customer to the cloud. On average, the ARR revenue from the maintenance move to a SaaS agreement increases about 1.7x. Now this is a consistent model. We've reiterated it, and we continue to see it across our portfolio of solutions. This does not include any other cross-sells that go along with that, modules, department expansion that they're on a current version, payments and transactions. That's just the uplift rate from on-prem maintenance to the SaaS agreement. And we expect to have 85% of that maintenance converted by 2030.

Over the next 5 years, you should expect us to introduce quite a few more incentives for our on-prem clients to move to the cloud. The existing incentives still remain, and we still see a lot of traction, performance, reliability, the CSAT response from your peers. I'm also noticing and I'm talking about cloud living shortly and the benefits that that's going to provide. That will be a huge incentive. We're also introducing new features and capabilities, including AI that will only be available in the cloud version.

So as we continue to see the pool of on-prem customers shrink, you also expect to see disincentives from us for customers to remain in that world. So with the progress that we've made, the incentives we just talked about, we see a meaningful growth in our flips from where we are today in 2026 through 2029 ultimate leading to us hitting our 85% maintenance conversion by the end of the decade.

Brian Miller will be up shortly, and he'll talk to you about what that looks like in our 2030 financials. Okay. So now let's talk about unlocking the full value of the SaaS model because this is what really matters. I want you to think about our cloud transformation into 3 distinct states, where Tyler came from our initial state, expensive, complex, many software versions, often characterized by undifferentiated heavy lifting.

The last 3 years, we've been moving to this intermediate state, optimizing products for AWS, converting our customers and creating automation, moving customers off of legacy software versions. We've built the foundation with that to take us to 2030. But more importantly, it now allows us to focus on the investments for the end state and what the future is.

So in parallel to building that foundation, we were working as a leadership team with our staff across the company and saying, what is the best end state for Tyler in SaaS across our organization? What provides the most value to Tyler, our clients and our shareholders? We call this initiative Cloud Living, and it's a bold vision for the future. We began rallying our organization around this at the end of 2024. We've been executing on it now since then, and we will have our initial rollouts with pilot customers coming in 2027.

So let me drill in a little more to cloud living and the heartbeat of value that it will provide to our clients in the market. Cloud link centers when you break down the term into 4 key priorities that are critical to our success. Every growth product at Tyler today and every operational team that works on those products, is investing in all 4 of these priorities for delivery because they will deliver the most long-term value. When we complete all 4 of these priorities, we expect additional new revenue and opportunities, more operational efficiency, and ultimately increase profits.

So I'm going to go through each of these quickly in detail. Our #1 and most foundational priority to Cloud Living is finishing our version consolidation journey. It will ultimately improve our scale and lower our cost to serve. We are cutting the cord with cloud living of our history of multiple version support, and moving to 1 SaaS version for all. All customers on 1 cloud platform. All Cloud Living clients will receive a single continuously updated biweekly set of features and capabilities on a unified cloud platform. This is incredibly transformative for us. It's going to dramatically reduce our operating costs, complexity supporting our clients and our innovation is going to be delivered so much faster than in this prior model.

Our second priority is moving to a standardized SaaS model. that will enable our most critical operations. This right here is all about how much value can we provide to our clients how quickly, time to value. In addition, this model will provide a consistent seamless client experience, whether a Tyler customer has 3 products or whether they had 10 products.

Historically, every Tyler business unit and product made their own release schedules and maintenance windows and manage them what was best for that individual deployment schedule, which worked well -- but as clients buy more products, it creates a point of friction. All of that is removed in cloud living. Every solution will operate on the same schedule. There will be an automated delivery framework. In practical terms, I want you to think of a Tyler agency client. Their staff will leave on a Wednesday and they will come back on a Thursday morning with every Tyler solution they own updated with the latest capabilities, performance enhancements, maintenance updates and security capabilities, all seamless to them, all nondisruptive.

We've already been piloting this. We started rolling out with some customers to say, what does this model provide compared to the prior model. And you can see the results on the right. Customers using this automated model are now receiving value 15x faster than the prior model. We're already seeing the proof.

Our third key priority of the 4 is that with the stronger partnership and value that we're delivering, we will drive additional cross-sell and higher retention rates. As clients get greater value on the platform, they will expand into other departments, and they are happy to give Tyler percentage of that value. This is an example from an actual customer use case. This customer was on-prem for many years and paid us $950,000 in ARR. As we took them to the cloud and the current version, they saw new capabilities and started expanding the department use that they had, rallying internally of how this could streamline their data processes, improve the way that they operate.

Ultimately, without expansion, they then decided to do another purchase of cross-sell product to improve their inspections maturity. This client got significantly more value from the platform and Tyler got 142% ARR increase as part of it. So when Lynn shows you the slide of our opportunity of going 3 to 10 products, this is the priority that gets us there.

Our final priority is using the strong SaaS platform that we've created to increase our win rates. As we build and deliver more value as we get this expansion, we will generate the engine of the most powerful asset that you can have in public sector technology, customer advocacy. This leads to increased client references, department expansion and additional net new revenue opportunities. Lynn will review that slide on our TAM, 11% penetration. This is the driver that makes that roadway wider and allows us to fill up more of it, more penetration in the market.

So, as we deliver on these 4 key priorities, the outcome is clear with our Cloud Living investments. Tyler will provide the most broadest and deepest integrated and seamless SaaS suite of software solutions for the public sector. As an analogy, I want you to think about the Apple ecosystem that many of you use today or Microsoft 365. Every new product and capability added to the platform provides more value and it expands the moat. The only difference here is that Tyler is the only vendor with a deep focus on the public sector industry and the breadth of portfolio and capabilities to make this vision and ecosystem a reality.

So in summary, our cloud transformation progress is becoming a powerful growth engine for our organization. We remain on track with all of our conversion targets, and it's positioning our organization for higher recurring revenue as we look forward. And Cloud Living, which is ultimately our end state is already targeted to begin early pilot launches in 2027, and it's going to provide greater operational efficiency and long-term shareholder value for the organization. So thank you. And I'm now going to hand it off to Liz Thomas, who's going to talk about our transaction business.

All right. Thank you. As Russell mentioned, my name is Liz Thomas, and I am the President of Tyler State and Federal and I've been serving these important markets for the last 15 years. I could not be more excited to be up here on the stage today to talk to you about transactions because not only are they an engine that drives the state and federal markets, but I am passionate about growing Tyler transactions across all of our divisions with my friend, Ryan O'Connor, our new Chief Transaction Officer.

Unfortunately, Ryan was not able to be here with us today as he had a last-minute illness that we look forward to introducing you to him in the future.

To set the stage, Tyler transaction represent over 1/3 of Tyler total revenue and growing. Tyler transactions will continue to -- meaningfully contribute Tyler's diversified revenue portfolio as well as those free cash flow targets you just heard about. But as Lynn mentioned, as important as this revenue stream is, it is also often 1 of our most misunderstood revenue streams because we use terms like payments and transactions interchangeably.

Today, I'm going to spend some time level setting with you what we mean when we say transactions to set that foundation. And then we're going to pivot to the key growth drivers that will take us to our 2030 targets.

So let's start with that foundation. There is power in Tyler's diverse transaction portfolio that goes well beyond monetizing payments. We think of this portfolio in 3 parts: the first being transaction-funded software solutions. An illustration of this is our California State Parks reservation solution that also happens to be the largest single contract in Tyler history. At the heart, this is just a SaaS software solution to provide reservations that we can flexibly fund through transactions or a fixed subscription fee or a combination of both.

In the California example, it's 100% funded by users of the system and not state appropriated dollars. Another feature is you won't see these transaction contracts and our bookings targets, as the implementation cycles can be lengthy and often both the volume and the timing of revenue are subject to variability, but they represent meaningful growth.

The margin profile also mirrors that of any other SaaS solution, but with upside as adoption increases. The next bucket is our premium payment solutions, an example of which is our enterprise payment portal that we delivered to Riverside County. These are solutions that really wrap around our payment ecosystem, that transaction that comes in or out of government, they facilitate the transaction and add value to our clients.

In the case of Riverside County, we're delivering the city or the county a centralized revenue management system. And then, of course, finally, we offer that secure modern payment platform that's fully embedded with our software products that allows us to create a seamless payment into or government or from government to the constituents.

So if you take away one thing for today, I hope that you take away the Tyler transactions is a powerful diverse portfolio that goes well beyond monetizing payment authorization. We set goals for transactions in 2030. And just like all of the goals Lynn talked about, we have met or exceeded every 1 of them. Our transaction growth has grown double digits and this growth has been diversified across higher transaction volumes, higher attach rates and expansion of that transaction-funded portfolio.

So let me give you some examples of that portfolio expansion. We've developed multiple new solutions over the last 5 years, each 1 with a focus on innovation and better outcomes for our clients. As you can see from the metrics on this slide, every 1 of these solutions carries its own unique value proposition for our clients, but they have 1 common theme. And that's a direct correlation between product adoption, Tyler revenue growth and client satisfaction and return.

Tyler's demonstrated ability to deliver software solutions for the public sector market, combined with that demand Lynn talked about for solutions that improve efficiency and enhance that resident experience are what is going to continue to power this portfolio expansion. Not only is our product portfolio diverse, it's difficult to replicate. We have competitors that can offer 1 or a few similar capabilities but only Tyler is offers that full transaction ecosystem, allowing for a deeply embedded end-to-end interaction with government that creates both a competitive advantage for new sales as well as stickiness within our existing customer base.

So let me give you an example of the power of the Tyler portfolio in action, allowing us to create a classic land-and-expand strategy within a large state enterprise client. We started this journey back in 2009 with our front-end portal solutions. We built relationships and became a trusted partner for the state. Over the next 4 years, we've not only expanded those payment offerings, but we were able to add new Tyler products. each 1 of them generating incremental transaction or SaaS revenue, doubling the client ARR. Nearly all of these solutions also have additional upside as adoption increases, without us adding a single new product to this portfolio. That's the power of Tyler transactions, and this is just an example. This opportunity exists across multiple clients and markets. But just as Russell said, we don't want you to only hear about this from us.

We want you to hear directly from our clients the value they find in the Tyler transaction ecosystem and the deep integration that we've created.

[Presentation]

What you just heard, that's the Tyler difference. So we've talked about those differentiators. I want to pivot now to how we're going to turn that opportunity into revenue. But before we do, just 1 quick second to remind you, I was talking to someone this morning about how significant this market opportunity is. With over $10 billion in serviceable market just for our existing transaction portfolio, including significant remaining room to attach payments within our installed base, we have meaningful runway for growth.

In 2023, we set those targets for double-digit growth. And we have 3 clear growth drivers in motion to achieve those targets. The first of those growth drivers is increasing the attach rate from the mid-20s to over 40% by the end of the decade. Why are we confident in our ability to do that because of the demonstrated results we've seen from our inside sales team over the past 3 years and of course, that significant remaining opportunity I just showed you.

Let me give you a real-life example of how attach rates allowed us to double a client ARR for a large California county. So you can see on the left, we started with just 2 Tyler products, 1 of them that had attached payments, as Tyler's transaction portfolio grew and product portfolio, we were able to not only add embedded payments, but bring in that enterprise payment portal that I mentioned doubling our client ARR, but also creating significant value for the county through this single unified payments layer that brought together revenue reconciliation and management for not just Tyler products but non-Tyler products as well.

Our second growth driver is continuing to expand that portfolio of transaction products so that we can expand the TAM. The success of this expansion is really best demonstrated by the 20% growth rate we've seen from the new products we've introduced or scaled since 2023, that's grown nearly twice the rate of our core portfolio.

At Tyler, we are uniquely positioned to deliver this innovation because, as Lynn said, we wake up every day thinking about how to solve the specific problems of the public sector. And we're also able to often introduce this innovation through the -- in the form of products or modules that sit adjacent to or expand the functionality of an offering that we already have. As is the case of earned wage access, which sits as a module that attaches to our ERP payroll offering or our AI-powered resident assistant that can be delivered as an amplifier to nearly any Tyler product.

These new products are in the early innings, but they all solve a problem for our clients, have a clear trajectory for growth, and they carry that common theme of a transaction-funded product which is the direct correlation between product adoption, Tyler revenue growth and increased client satisfaction.

So let's talk about adoption, our third growth driver. You've heard me say it now repeatedly, adoption is a unique factor of a transaction-funded solution. It also happens to be a specific discipline within Tyler. As we partner with our clients and their constituents to increase the usage of our solutions, we've seen per client revenue grow 10% or more in many cases. These adoption strategies come in many forms. Some you might think of education and awareness, but also in the form of the implementation of our AI-powered resident assistant that better connects constituents to online services.

An example in action of that AI power is the workflows that we're enabling in our outdoor reservation solution that presents all the adjacent offerings within a park to a user as they're making a reservation. This not only expands our value, it expands value to the agency as well. So with adoption, not only does Tyler's revenue grow, but clients see measurable benefits in the terms of reduced manual workflow, backlog, wait time and that superior resident experience that drives clients at and retention.

So to summarize, it's these 3 clear growth drivers, attachment, portfolio expansion and adoption that make us so confident in our ability to achieve the 2030 revenue goals. Take away from my presentation that the Tyler transaction portfolio is a powerful mix of transaction-funded software and payment solutions that continues to grow. And that there is no one else like Tyler that can offer that deeply embedded seamless constituent experience that goes all the way from the user to the agency system of record to the flow of funds to and from government.

And that's only going to get better as we harness the power of AI within these solutions. That's the Tyler difference. And with that, I'm going to transition to Hala as we open up our first Q&A session.

Great. Thank you, everybody. Okay. I'm going to invite Lynn and Russell back to the stage and also ask our COO, Jeff Puckett; and Brian Miller, our CFO, to join us as well for this Q&A session.

[Operator Instructions] Okay. I saw Jonathan, and then we'll go to Matt after Jonathan.

Jonathan Ho from William Blair. Thank you so much for the presentation today. This has been really help. One thing I wanted to understand a little bit better, Lynn, is when we think about sort of this cloud transition and the ability to kind of convert your customers more, how do you think about the decision to apply more of the carrot based approach versus the stick-based approach when it comes to your sort of encouraging the slips to take place? .

Yes, John, that's a good question. I think over the last several years, we've been really applying carrot approach. And part of the reason for that is we've been needing to build the foundation and do the things that Russell talked about, version -- getting our clients on the more current versions, so that we can get to a position where we can do that more seamlessly.

As we look forward, I think you're going to see more and more of the stick approach. We talked about AI features only being enabled in the cloud version. Internally, we are going to be setting standards for our clients to where by a certain date in the near future, we're going to ask them to have a plan in place to move to the cloud. That plan -- the date for that plan to be placed is likely early '28 with the actual plan to be executed through 2030 with some exceptions for a couple of years later.

One last thing. When we were at Connect this past year, we had a client advisory board, and we talked a lot about flips. And what I'm hearing more and more from clients is interesting is they actually are looking for us in a lot of instances to start providing those sticks. They need to be able to sell it to their internal stakeholders as to why they need to make these investments and move forward as their IT staffs are starting to shrink and things like that.

So I think we've gotten to the point where we've built the momentum and now it's time to press the accelerator, so to speak.

All right. Matt VanVliet from Cantor. I guess when you look at the 11% market share and about 3 products per customer, you said -- the aim is to get to 8 to 10 products per customer. But what additional level of, call that, 89% market share is really target customers are going after today that are of the right size, maybe sophistication? How much of that grows over time. But what's the catalyst for both, I guess, getting new logos, but also getting more products in those customers today? So like how much of that TAM is you're going after today?

I don't know -- do we have that number, Brian of the 500,000 that are addressable are currently addressable with our current...

No, we don't really break that out. I mean, we -- as we said, we addressed virtual segments of the market from very small agencies to very large state and federal governments. There is a segment at the very low end that's probably to small for Tyler for some of our solutions and not all solutions fit at the very high end, but we would have products that address we would be going after the vast majority of that TAM.

So I think the drivers when you talk about going from 3 products to 10 just within our existing client base, it's the things we've been talking about here that on and things we're going to talk about after the break around AI, their improved cloud experience, understanding more how we can bring transaction value and unify those solutions within those jurisdictions.

It's our great sales team that continues to cross-sell and upsell. And when I talked about 8% to 10%, don't forget, I actually think that number is going to be higher. As we continue to innovate, we continue to do more M&A just within our existing client base, but we will also continue to get new logos, new flags along the way.

Another way to think about it is the opportunity is both horizontal and vertical. So as we add more products and we do a good job for those customers, a lot of the processes that they undertake actually span multiple offices and multiple products, so you have the opportunity to land in 1 area and then stay in the same process zone and expand to other solutions. But then there's also a vertical expansion on top of that once you have this core solutions in place, you can layer transactions on top of that. You can layer AI on top of that.

So it's a really -- it's a much broader expansion opportunity than just adding additional solutions. And just 1 more point on that. When we talk about the going from 3 to 8 to 10, that's really kind of talking about a suite of products or think of it as an office or an agency within a city or a county but their multiple cross-sell and upsell opportunities within each of those 3 products that we already have, selling more modules, as Jeff said, selling more horizontal things on top of them.

So their cross-sell and upsell opportunities within that existing base and then include expanding into other offices.

Della -- and then we can go to Rob.

Bella Kaman Alexi, Coles team at JPMorgan. Thank you so much for the presentation today. So as you think about really getting to those 8 to 10 products per customer, would you say the adoption would require significant sales step-up or any increased sales investment and really breaking that down by customer segment or customer type, which do you know are most receptive to cross-sell versus others?

You asked a lot of questions there. Let me see if I can replay them all. I would say it doesn't necessarily apply to a particular segment of our business. is active across all segments. As it relates to sales staff, sales investments, our inside sales has been a strong growth engine for us for many years. At the same time, as we look out over the next few years, 1 of the things we've been talking about significantly inside of Tyler is revamping how we look at sales generally, how we go to market, adding new salespeople changing territories, changing comp plans. We're taking a hard look at that in 2026, so that we can also help to continue to drive this revenue growth in our 2030 goals. .

Rob Oliver with Baird. Thanks so much for hosting us today. I appreciate it. My question is for Liz. on the transaction funded software solution opportunity, which is clearly a really big opportunity for you guys and 1 that you guys brought to Tyler. It is growing, and obviously, very large contracts. And I appreciate some of the clarity because I think it's a little bit misunderstood by some investors in terms of how it flows through the financials and stuff.

But when you look at those transaction-funded opportunities, Give us a sense for what's still out there. I think we know some of the ones that you guys have today, but what's still available to you guys out there to get it's transaction funded? I think we understand parts, we understand DMV, but what's still available for you within that TAM?

Yes. You touched on some big ones. But then when you think about our regulatory market, too, and I sometimes joke regulatory is the entire business of government, right? So we provide regulatory solutions, and that might be someone applying for an occasional licensing or going through a real estate board those solutions, that's a suite of products that we have that we actually see often flexibly funded.

Some states choose to apply transaction fees and some of our larger transaction contracts come from that regulatory market. where they might have a hybrid of both where there is a -- depending on whether we believe the volume will be there for that particular board. We have the flexibility to have a minimum SaaS amount plus transaction-funded arrangement beyond that.

So I think that's where we see opportunity. But really most of the things that you do for government, you're actually -- it's typically some type of transaction and payment coming into government. So we see a lot of opportunity to fund those solutions through transaction fees. It really just depends sometimes on state preference or whether that solution or that market is familiar with a transaction-funded approach.

I might add, Rob, I know it's intuitive. But we get a lot of questions about the macro environment and budgets. And when you think about a transaction-funded software solution, it takes it right out. Our largest contract ever was in the state of California parks example, and we all know what the budget issues are in California, yet it's our largest contract ever, and it's funded through transactions. .

Yes. I think we have -- is that Alan over here, and then we'll go to Keith over here.

Allan Verkhovski with BTIG. It's great to see the 2030 targets moving higher, and I think your market leadership is clear. But I want to ask about anthropic and others, which are now actively marketing clot code. -- and similar agent coating tools directly to state and local governments with documented productivity claims. How do you think about how your installed base is positioned against the government IT team that can increasingly build and maintain custom applications without a vendor in the context of wanting to drive more cross-selling? And how is AI generally been impacting your sales cycles?

So I think we're going to cover some of this after the break. Franklin is going to go into that in some of our differentiators. Just not to leave the question hanging for 30 minutes. I think when I think about the conversations we have with our clients, you heard me talk earlier about trust. That's something that's really important to them. When you talk about the data, the data is running through our systems, even you saw 1 of those videos, you talk about the importance of the data and the type of the data. And what our clients are telling us is they're not going to let outside third parties get access to that data.

We also talked about how the market moves slower in the public sector. And one of our advantages we have there is distribution. So when we are able to spin up things quickly, we can get it out in the hands a lot quicker. Again, Franklin is going to go in a little bit more after this break, but I would say that's a quick 50,000-foot view.

Keith Housum from North Coast Research. Once again, economy Talking in terms of the adoption of products in your customer base and acquisitions. -- very acquisitive over the past 2 decades, whatever it is. Maybe just taking it down a little bit more level of detail in terms of talking about specific acquisitions in terms of how you guys have been able to tolerize them and maybe a part of the overall portfolio, and expand the amount of customers that you've been able to apply to their products they've brought in. We always speak of this 30,000-foot level, but maybe to the extent you can bring it down to the 10,000-foot level and give specific examples of how you guys have taken these acquisitions and really made on part of the Tyler Group and expanded your presence within their customer base?

It's a good question, and I hate to keep deferring, but actually have a specific slide on that when we get to capital allocation. I'm going to have an example of what we've done in the last 3 years. I'll give you another example. We talked about it at the 2023 Investor Day, our caseload Pro, which is our enterprise supervision product. That's a company that we brought in. And today, it's i-- I think the revenue is 7x what it was when we brought it in today in late 20s, '18. But we'll cover that in the capital allocation section. It's a good question and what a lot of people here have asked. .

IN the corner.

Alek Zukin. I think last year, we were talking about how there were some internal changes and focus is on dealing some of the sales force and go-to-market functions that we were talking about last year. So I guess, first, how has traction been there? How has that trended? And then as a second part, when we're looking at the targets for that flip ARR, that conversion ARR is increasing after this year, how much of that increased confidence in that level of conversion ARR is coming from more confidence in your internal sales force and a better go-to-market function versus a better path for that version consolidation on cloud products that you guys have kind of been planning out as well?

I'll start, Russell, you can jump in. I would say, in my opinion, the second question it's more the latter, it's more of what we've done internally. When you talk generally about the sales organization and breaking down silos, as I just mentioned, we're continuing to look at that across all. But many of you have heard me use the phrase for a couple of years now, One Tyler. And what does One Tyler mean? One Tyler spans all different types of operations across Tyler and up and down Tyler. And I think probably one of the best examples of One Tyler in action is what we're about to do with Cloud Living to where all of our clients regardless of which product they have and which business unit services that product is going to get the same experience, the same releases and a regular cadence regardless, and that's something that's never happened before at Tyler. Russel, I don't know if you have any more.

Yes. I mean I'd add another level of confidence is you can sell something, but the scale of our customers being ready for it. So when I talk about the foundation, we're ready for the uptick flips that we expect to have. We've gone from a much longer flip process that was much more customer touch engagement now that we've moved them to most current release. We can automate most of it. So one is the sales side, the carrots and the disincentives we talked a little bit about the other side is are we operationally prepared to execute on it, and that drives our confidence.

I'll just make 1 final comment. As you look at Tyler's growth over the years, and there's a lot of factors, but I believe we have the best sales engine in the business, the coverage we have. I think there's areas to improve. But I think it's been a big part of our success. And just like a lot of Tyler executives and really up and down Tyler, the tenure at Tyler is so long. Our tenure in our sales organizations, they know this market so well. They know our product portfolio. as we grow where there's tweaks we need to be making, and we're looking at all that. But hats off to our sales organization. They do a great job.

And I would add 1 other thing that's underpinning that is the investments we're making and the effort we're putting forth around improving our client experience with our new Chief Client Officer, Andrew Call, a number of significant initiatives there to improve our overall client experience, especially as our clients have more and more products from us. and to break down some of that friction that comes with that. And that makes customers more willing to move to the cloud with us, more willing to buy more products from us and is really a key factor in that transition.

Connor Passarella from Truist Securities. Russell, just sticking with the flips and tracking towards the 85% cloud penetration target in 2030. As we think about the evolution of cloud adoption within the base at this stage, I think the Tyler had done a really good job with educating the base -- the benefits of cloud over the past several years. That said, as you look at the current bottlenecks, how impactful are things like implementation time lines as well as the general complexity of large customers and systems that still have to flip?

That is a great question. When we started this the last 3 years, if you asked me the first 18 months, we would find some bottlenecks, processes that were built over 10 years of an on-prem system that had created an ecosystem between tooling and our capabilities to move through that has significantly reduced the bottlenecks. Some of the bottlenecks that exist today is more about seeing the incentives that we're offering, the value that's going to provide. I think there's a great point of some of our customers have even said to us we need to understand what's the past so we can get through this as a priority in our budgeting.

So it comes down to going through with the customer and addressing their individual bottlenecks, we do readiness assessments with them and then prepare them for the flip process. But operationally, what used to be very complex now has a pattern for execution on each flip we go through.

Different clients need different kinds of help as we approach them to undertake a flip -- if they have more products, that's going to create more complexity, they need our help to map out that transition. They meet our help to model a financial arrangement that takes into account the fact that they just purchased a bunch of hardware for a data center way and needs to take into account those bubble costs. So every single customer is different. And our engagement with them is really what drives that adoption rate.

It becomes more personalized on the value statement for that individual agency. Yes. .

We'll go to Adam and then Parker.

Great Adam Hotchkiss with Goldman Sachs. A lot has been made recently about AI's impact on cybersecurity and even more so lately with some of the news flow around the most recent anthropic models. -- how, if at all, does that impact customer decision-making at this point? And then how are your posturing your product and innovation priorities in the context of some of the unknowns in the security space. .

So we are diligently on top of it. We're in partnership with the partners that we have with the model generating frontier model companies. It's something we think about all the time. And the way we look at it is the work that we're doing, this continuous update and delivery and inspection process or environments is what the future needs to be. What this is also driving in the industry is it creates greater concern for the on-premise environments that exist. And that's been a driver for years. I mean I can tell you stories right now of mission-critical systems that have experienced an issue and us as a partner who's been able to move them to the cloud in under 72 hours.

And that's not a onetime thing that's occurred, that's a common pattern. What we're seeing with AI is the increase of concern on that. And the cost to keep up with the risk and these unpressed environments are increasing. And so we see it just driving additional adoption for our service offerings.

Parker over here.

Parker Lane at Stifel.

Russell sorry. The virgin consolidation, you gave some really nice examples of the flagship products and success you've seen of getting customers current there. If you take a step back and look at the entirety of the platform, how would you assess the progress on the product level. What do you think that journey looks like on the course to your 2030 targets?

So just in summary, I think we've made significant progress pretty much across all the major products, and I'll address them on our like product -- I'll address them on our product maturity stage if they're in a growth stage or some products that we have, they're more in a maintain stage. All our major growth products have made significant progress in version consolidation. The way that this is going to roll out is when we start piloting clients in cloud living, that's on 1 SaaS software version, -- we're building customer advocacy as we go through those pilots and then we're consolidating everyone else into the cloud living operating model over the next few years. .

So you're going to see whether some of those products still have 2 product versions or they are 4, all of those are going to consolidate into the Cloud Living SaaS version.

Matt. Andrew is back there.

Matt again from Cantor. So you kind of previewed the raised free cash flow target for 2030. So I'll take an opportunity question here and maybe Brian will give us more later, but you raised that. I think since you set those targets, there was an IRS deal that you thought you had that kind of fell through the Texas payments contract has gone away. So there's a fair amount of revenue that's been sort of lost. But you made some acquisitions. There's been some federal tax legislation that has maybe improved on the free cash flow side.

So how much of those, I guess, sort of onetime-ish or outside of your control type of things have changed that number versus internal productivity, better free cash flow conversion, maybe faster migrations than you originally projected. So -- what are kind of the puts and takes there to raise that number significantly?

Yes. And I will talk about that a little bit more later. But I think at the core, the key driver of that is higher margins. So operating margins, driving most of that. you're right, there have been a number of puts and takes. I mean, when you think about the recurring revenue growth, that 10% to 12% target is still what we talked about from 2030 from 2023 to 2030, but we did have in that original model $100 million of transaction revenues between Texas and the IRS that albeit at much lower margins have gone away, so that's been a margin positive but a whole that we have more than filled with some of the other growth initiatives. The taxes does have some impact on it, but it's mostly operating margin. .

Go to Andrew.

Andrew Sherman with TD Securities. The 11% market share, this industry is obviously very highly fragmented. How has the competition evolved over the last few years? Have you seen the point solutions subside a bit, just given what's happening in software overall? Are the big ERP players getting any more or less aggressive? And just talk about your ability to become the standard across different product categories within these big counties?

I'll start. Jeff, you can jump in. I would say, generally, over the last couple of years, I wouldn't say that I've seen a meaningful change in the competitive landscape. We remain extremely competitive across all our core offerings. No real changes.

We compete very well. Every deal we fight for is hard fought even with our flagship products that we dominate. We never take this business for granted. -- but we're able to leverage those strengths that I talked about before to continue to win business and continue to grow our market share. Some competitors have cycles, they come and go in terms of their competitiveness and that happens across our entire portfolio.

Every single 1 of our product lines, our divisions would be able to rate their top 3 competitors I think the thing that's interesting is that none of the competitors across those product lines is the same. It is very fragmented. And so at least in my -- I've been at Tyler for almost 35 years. And what you've seen is just a churn of those competitors over time. The big horizontals will play in the market, especially when the broader economy is soft. But when it's hotter in a different industry, they'll go run over there. The small outfits will get acquired, they go out of business. We may acquire them. And so there's a constant churn in the competitive playing field in each of those different sub verticals, but there's no consistency. We don't have any competitors that span across that entire...

Yes. And just to add to that, in any of our markets where there's public safety years ago, some of these native cloud startups or you can talk about a horizontal player that comes in. There's a lot of times when someone comes in and makes a quick splash and all of a sudden is able to get a lot of contracts. .

What they have a hard time doing, no matter it's the very largest companies that are coming in our space or some of the start-ups is executing on the business. And that's where they tend to fall in just because you may read some headlines that they want half a dozen contracts, check in with those clients 6 months later, 9 months later, they're not able to do it. And a lot of times, we end up getting that business again.

I'm going to go back to what I talked about at the beginning, reputation and trust decades to earn, and that's what separates us. And we're always going to have competitive cycles, but we're up to the fight.

We're going to take 1 more question from Trevor and then we'll close the first session.

Trevor Walsh from Citizens. Russell, maybe for you, just more clarification just based on both what you had in your briefing and then some of the responses to questions. When you're talking about cloud Living, you said there was going to be a release in 2027 or launch of some sort. Just trying to understand, is that a platform that single version kind of prepared kind of technical piece, and if so, does that mean we should then assume that the updates to versions are going to be completed by that 2027 launch time? Or am I kind of conflating these 2 things, just a little bit more color or explanation would be help>

Yes, please don't assume that, that is like the way that we're going through that for 2027 is what our release process, there will be updates that are going to go out to our customers every biweekly cadence as I mentioned. And you'll see from Tyler introduced what's called 4 quarterly seasonal releases across all of our products. So we will -- when we talk to our customers, we will be talking about what's coming in the spring, the summer, the fall and the winter release across all the products that they have. .

So what we're doing in '27 is each of these products is working with early adopter clients to go into that release model on the platform where they're delivering more frequently and quarterly, they are activating the features for our clients. So it's nondisruptive and we can activate features for them without ever having to actually deploy anything new. It's just -- it's already there sitting behind flags.

So that's the process we're going through in '27. Our goal is get these initial clients rolled out with it. They are champions. They're talking about it at Connect and then ultimately, that drives additional adoption because due to the historical pattern, we're now making this more of a seamless update process, but we have built up over years it being more of a project process. So we're taking that out of the equation.

An important part of it is the technology to facilitate everything Russell just said, but more important than the line technology is a shared methodology across all our product lines and basically giving customers the exact same experience in receiving those updates regardless of which product or products they may be using.

Okay. We're done with our first Q&A. We'll take about a 10-minute 10-, 15-minute break, and we'll get back on schedule with Franklin Williams, our Chief AI Officer for AI strategy.

[Break]

If everybody can take a seat, we'll get started with the second half of our presentations. Okay. Well, it's my pleasure to bring up Franklin Williams, our Chief AI Officer.

Thank you, Hala. Good morning. I'm thrilled to be with you here today to talk about how AI ultimately makes Tyler a stronger company. My name is Franklin Williams, I've been working in the govtech space is about 2014. First, as a startup focused on selling data and insights into the public sector before I had the opportunity to join Tyler in 2018 as part of the Socrata acquisition. .

Since 2019, I've been leading the Data & Insights division. And then for the last 2 years, I've been working on Tyler's AI strategy, both in terms of how we use it to transform our own products and how we use it to transform the work that our clients do but then also how we use it to transform our own work internally within Tyler. And I use that word intentionally, transform. We truly believe this to be a transformative technology on the same par as mobile and SaaS and other transformations that we've been through as an organization.

And so to clearly does the market. However, we think that there are a couple of things that the market misunderstands about Tyler. And the biggest misunderstanding is the impact that Tyler that AI is going to have on Tyler's valuation. Let me be clear. AI is going to make Tyler a more valuable company than it is today.

And let me repeat that. AI is going to make Tyler more valuable. And it's going to do it in 2 key ways. The first thing that it's going to do is it's going to strengthen our existing business. So the $2 billion that you see on the right, the growth rates that you've heard about us talk about all the way up to 2030, AI is going to make that business stronger. But then there's another thing that it's going to do I think this is something that people miss and something maybe people don't appreciate about the position that we're in.

AI is going to unlock a whole new TAM that is right for Tyler's taking and that Tyler is uniquely positioned to win. And so over the next 20 minutes, we're going to talk about each of these. We're going to talk about how AI strengthens our existing moat. How AI opens up a new TAM that Tyler is uniquely positioned to win. And then ultimately, we're going to close with exactly explicitly how we do that.

So let's start with how AI is strengthening our business. Now you heard Lynn talk about this a little bit earlier today. You heard Lynn talk about how the public sector market is structurally different than the private sector. And that holds with AI as well. What that means with AI is that the pace of adoption for AI in the public sector is going to follow a different path than it does for the private sector. At some level, the market and our position within it is a key element of our moat.

Public sector buyers are notoriously risk averse, and risk-adverse buyers choose trusted incumbents. And nobody has more trust in this space than Tyler Technologies. Our earned position, what we've earned over the last 2 decades means that there's nobody better positioned to bring this technology and nobody better positioned to lead this transformation than Tyler Technologies. And Tyler Technologies is bringing a number of key advantages that we believe are going to strengthen the business. I want to talk about 2 of those right now.

The first one I want to talk about is data. And the first thing that I would highlight is we think about data is that the systems that Tyler sells these systems of record are critical infrastructure for the government. They are producing critical data every single day that any piece of AI that's trying to improve the public sector is going to need access to. Now the second thing that I would highlight is that our clients are fiercely, fiercely protective of this data, almost paranoid about the data.

Now you had asked a question earlier today about, hey, how do we think about Anthropic and how do we think about people maybe vibe coding and replacing the systems of record, these ERPs. And truthfully, like we don't really see it. like we don't see that risk. And the reason why you don't see it is because of some of the things that you see on this slide, like our clients are fiercely protective of that data. And if you think about what's in these systems, it's critical, critical information. Social security numbers, payments, bank info, criminal records, all sorts of stuff that our clients, one, they don't have the staff to really do this; and two, they're not going to accept the risk of disclosing that data and disclosing that information by kind of by coding their own.

Now one thing we do think they'll do though, and one thing that we think is ultimately going to make these systems much, much more valuable is we do see them using AI to build integrations on top of these systems of record. And when they do that, we think that's going to make these systems a record much, much more valuable. Because these systems of records to access this data, again, remember our clients are pretty paranoid about it. So to access this data, they're going to have to go through a trusted layer that's owned, audited and governed by Tyler or they're going to have to use AI agents that are owned, audited and delivered by Tyler. In either of those situations, you're going to get more and more integrations on top of these systems that are going to increase the stickiness, increase the value of those systems.

Just walk with me a little bit through a thought exercise. Imagine you're a CIO and you're supporting the staff of hundreds, if not thousands of people. And that those staff are starting to build integrations on top of that system of record, maybe they're by coding a dashboard. Maybe they got a little something that takes a little bit of friction out of their day. And imagine a year, 2 years, 3 years goes past, and you come to this decision, you're like, okay, what do we need to do with our -- what should we do with the system record.

3 years past, you've got thousands of integrations people are using every day. Is that system of record more sticky or less? Are the switching costs lower or higher? We would argue that AI has made those switching costs higher. And we would argue that AI has made those -- that system of record, particularly that critical system of record that we sell more sticky and more valuable.

But then there's another advantage that I think some people miss and that's what you see here on the right. And this is the advantage that we really bring within distribution. And you heard me talk about having spent time in a startup, having some time in at Tyler. And it's given me a unique perspective. I've got to kind of see the market this specific market from 2 different angles. I've got to see it from the angle of a start-up, and I'm going to see it from the angle of a trusted incumbent. And let me tell you, I can tell you firsthand that trusted incumbent is better, particularly in a world in which feature development is accelerating, and the big bottleneck is not how quickly you can build or how quickly you can sell and how quickly you can scale AI into this market.

And Tyler's advantages here, the 16,000 clients that we have, the deep trusted relationships, the earned position that we have in this market means that there is nobody better positioned to deliver this technology to our clients. And Tyler can be scaling this technology to hundreds to thousands of different doors while our competitors, particularly new entrants are still on their second procurement. And so that's why if all we did was play defense. If all we did was focus on that $2 billion and the growth rates out to 2030, we think we'd be in a significant -- we think we'd be in a stronger position with AI and without it.

Now of course, that's not all we're going to do. because there's a bigger prize that's out there. And this bigger prize is a new TAM that AI is going to make uniquely available to Tyler. So let me tell you a little bit about what we're looking at on the slide here. On the left-hand side is you see our existing TAM, vertical software in the government space, about $44 billion.

On the right-hand side is the TAM that we start getting into will, we start moving away from systems that simply record outcomes to systems that drive outcomes. Now I think 1 of the things that people often overlook or misunderstand about our market is just how hard it is for people to hire into this market. This is a market that is ripe for a technology that can help do people do more with less. It's right for a company that can come in with a trusted position and help people do more is less.

That technology is AI. And that company is Tyler. Let me give you an example of kind of what this looks like in practice. We have a solution today that we call a document automation. And what this does is it helps people do more or less by taking off things like data entry, document redaction, the things people spend weeks doing in the public sector.

So again, walk with me and put yourself in our customer shoes. Imagine you're supporting the staff, you've got dozens of people that are doing nothing other than data entry, document redaction and violate. And you would go hire another 12 next week if you could find them, but you can't. Now imagine that a company comes along, Tyler comes along and we say, "Hey, we can actually help you with this problem. We can use AI and instead of needing a staff of dozens, you'll need a staff of 5. And when you're done, you're not going to get an 85% accuracy, you're going to get a 95%. " Well, that solution would be pretty valuable to you, right? Like particularly if the company that was delivering it was uniquely positioned to deliver because we had the data, the expertise and the trust that the public sector requires to deliver these types of capabilities into the market.

That's the type of opportunity that we're seeing here on the right-hand side. And that's the type of opportunity that we get pretty excited about at Tyler. It's also an opportunity that we think we have a unique right to win. You can see all of the things that are uniquely required by the public sector to deliver AI into this market. And there's a lot of them. And you've heard me talk already. You've heard me talk about trust. You've heard me talk about data. You've heard me talk about distribution.

But there's 1 more on this list that I'm going to spend just a couple of seconds highlighting, and that's expertise. We've earned our position in this market over decades. We know the jobs that people are trying to do in the public sector, almost better than they do. And what that means is we can deliver AI, We can deliver agents that are helping them do more with less that are helping them do those jobs better than just about anybody that's out there. But here's the really cool part. And this is also a thing that I think people miss is that because of our continued focus in this space, these agents, this AI is only going to get better over time.

So we're going to basically be in a situation where we're going to get a bit of a flywheel effect turning here. And what's going to happen there is people are going to use our agents, those are going to produce data. We're going to use that data and make those agents better. What's that going to do? It's going to cause more people to use them. And then they're going to produce more data. Those agents are going to get smarter and 2 things happen.

Our clients are going to get a ton of value. But then the distance between us and our closest competitor is going to start to separate over time. because, again, nobody has the focus that Tyler does and nobody can get that flywheel affect turning like Tyler can. And when we think about our competition, we don't think that there's actually anybody else that's out there that can provide these capabilities like Tyler can. There's no horizontal SaaS player. There's no AI startup, there's no point solution. And I would argue that there's no -- even no hyperscaler that has the unique set of advantages that are required to win in this market and the unique set of advantages that are required to deliver in this market.

But I don't want you to just take it from me. I want you to hear from our clients about why our market is unique and specifically why Tyler is well positioned. So for the next few minutes, you're going to hear them a series of our leading clients that are using Tyler solutions today, Tyler AI solutions today that are helping them do more with less. They're going to you a little bit about why our market is unique. And why Tyler is the only vendor out there that they trust to deliver this transformative technology into their jurisdictions.

[Presentation]

See you heard from me, you heard from clients about why our market is unique, why we're well positioned to win and why we have a unique right to win in this market. So let's spend the last 10 minutes that we have together, talking a little bit more about explicitly how we win. And if you want to understand Tyler's AI strategy, there's really kind of 3 key things that you need to understand. You understand how we embed it, you understand how we price it and you understand how we scale it.

And if you can understand those 3 things, you're going to have a great foundation to see how AI is going to drive incremental revenue for Tyler. So let's start from the top. Let's start with how we embed it.

So in the video, you heard from our clients, and they told you how important it is to have AI that's available where they work. And so that's what we're doing. We're bringing AI capabilities directly into the workflows where our clients are already working. By the end of the year, we expect to have 25 different agents in production being used by our clients across 100% of our flagships.

And not only is that going to give our clients industry leading value, and this is super important. That's going to give us a platform on which we can start to monetize AI across Tyler's very broad and very diverse client base. And when we think about monetization, we're thinking about monetization really kind of in 3 tiers.

The first tier that we have is what we call our essential steer. So these are the table stakes features. These might be the freemium upsells where we're trying to move people to higher tiers or they might be the type of features that benefit not just the client but also Tyler as well.

So let me give you a quick example of what that might sound like. We're in the process of embedding Agentic support into our core flagship operation -- our core flagship products. So this is support the kind of rides along with the user. It sees what they're doing, knows who they are. And because of that, answer questions in a targeted way and provide a better experience for the client.

So our clients get a better support experience, but then that also benefits Tyler because there's simply less inbound cases for us to handle. And over time, we start support costs decreasing. Those are the types of capabilities that you might see here in this first bucket, this kind of essentials bucket. Now the second bucket, though, is 1 that we get pretty excited about. And this is a bundled set of AI capabilities, things around agents, access information and data and AI capabilities that we think will ultimately lead to a premium uplift on top of our base SaaS SKUs.

So this might be something along the lines of an order of 10%, 20%, 30%, but we really think that this is a meaningful uplift that is going to cover really kind of the broad portfolio of Tyler solutions.

Within the one that we get really excited about, the 1 that is represented by the right-hand side of that TAM that I talked about earlier is when we start talking about outcome-based. These are places where we share measurable savings and efficiency gains from our clients. So when we're putting time back and people say, money back in their budget, we're able to command a premium there, and we're able to basically deliver AI that we can charge for that's commensurate with the value that's being delivered.

An example of that might sound like document automation, something that we talked about earlier, where instead of needing a team of dozens, you needed a team of 5 that are helping you drive these outcomes and the remaining staff are freed up to work on more pressing problems and get back to the mission of government. And so the final leg of the stool, the final thing to understand about our AI strategy is, again, how do we scale this? How do we get it out into the market? And this is again a place where Tyler's unique advantages really come into play.

We have an installed base. You heard Russell talk about Cloud Living earlier today. And what that means is that they are -- we can turn these capabilities on with a flip of a switch. No new installs for clients to manage, nothing new that has to get installed. We turn it on, those capabilities are there.

We have an established sales force with deep relationships that can push these products out in the market and get us to hundreds of thousands of doors before our competitors ever on their second procurement. We have a path to procurement, where we can attach an amendment to an existing contract and procure these solutions in the order of weeks, whereas the new entrants may be spending quarters, if not years, navigating the procurement cycle.

And then finally, you heard Lynn, you heard a number of people today talk about trust. Our clients trust us. They trust us to run their critical systems and they trust us to deliver this transformative technology in a way that's going to work for them.

And what's exciting about this is that this work is well underway. Like again, you heard me talk about, by the end of the year, we expect to have 25 different agents across 100% of our flagships. If you attended to connect, you saw the launch of Tyler Foundry, our platform for agentic AI across this entire portfolio. And so the work here is underway, although I will say that because of the pace of our market, we do expect this to be a multiyear journey. However, we expect the prize at the end of this journey and the opportunity at the end of this journey is going to be significant.

And to try and give you a sense of what that opportunity looks like, you heard me talk earlier today about our pricing strategy. we talk about the 10% to 20% uplift on top of 16,000 different clients and $2 billion. I want to share with you 3 early examples that we have for our clients that show that this story is resonating in the market and that our strategy is working. Let me share with you the first from a client in Tarrant County, who's telling us with tools like Tyler's document automation, we're starting to look at our labor budget as a software budget, because that's where Taylor is adding value, and that's where we're seeing really real opportunity in our client base.

They pay us a roughly $900,000 for their core system of record, by adding a single solution that helps put time back in people's day, money back in their budget, they're paying us almost 43% more, almost $400,000 more for a single solution.

Another client, City of Doral, Florida, we beat out 40 different vendors in this. And the reason why we did was because they told us that Tyler is built in governance, security and controls, configurable workflows and future integrations, reinforce the city's commitment to investing in technology for tomorrow, not just for today. And they're awarding us for that. They spend about $190,000 on their core system of record, that's enterprise permitting and licensing. With the addition of a single AI solution something that keeps their staff off the phone that helps residents have a better experience. They paid us almost $40,000 more, so a 21% uplift for a single solution.

And then finally, our friends in Plaster County, California tell us that AI is only as powerful as the data behind it. Our data lives in Tyler and our workflows live in Tyler, and that's where AI needs to be. And Plaster is rewarding us for this strategy. They spent about $225,000 on their supervision software. After AI, with the addition of 1 AI solution that, again, is helping save time, that is helping with one of their most pressing problems, which is a workforce shortage in supervision, they're paying us almost double that base system of record.

And so I hope what you see with each of these examples is that there is a significant opportunity ahead of us. Now we're obviously very encouraged by this. But because of the pace that our market moves, we don't quite yet have enough data to raise our projections for the next 5 years. However, we believe and we hope you would agree that the opportunity here is going to be significant. We also hope you would agree with us that at the end of the day, AI is going to make Tyler a stronger company.

Most of you would agree that the public sector market behaves differently and the Tyler is well positioned within it. that our strategy is well underway and already resonated with clients, and we expect this to have a material impact on our business long term. However, if there is 1 thing and only 1 thing, that I hope you take away from this presentation, it's what you see here at the bottom of this slide, is that if you were designing a company from scratch to winning government AI, you would build Tyler Technologies. I want to thank everybody for the time today. Looking forward to the Q&A session here this afternoon. Thanks.

Thanks, Franklin. You all know me, I'm Lynn Moore. I've already been up on stage. So I'm going to spend a few minutes talking about capital allocation. Now earlier this morning, I talked about a new 2030 free cash flow goal of $1.1 billion to $1.2 billion. And I think the logical question is, what are you going to do with all that money? That's a lot of cash.

So ever since I've been a part of Tyler, capital allocation has been a real focus for me as part of my responsibility. And it's a responsibility that I take very seriously. Specifically, I can't tell you how many conversations I've had internally about how do we take the cash we generate and turn it into increasing shareholder returns.

So let's take a little deeper dive into our thoughts. So I'm going to go through capital allocation in 2 segments. First, I'm going to talk about where we are today. And then second, I'm going to talk about what our priorities are going forward. So let's start by reviewing what we've done in the last 3 years. At our last Investor Day, we outlined 3 priorities: debt repayment, strategic M&A and opportunistic share repurchases. If you all recall, back in 2023, we had about $1 billion of debt still on the balance sheet from the NIC acquisition.

I think about $600 million in the convertible and almost $400 million in term debt. And you can see over the last 3 years, what we've done. We paid off that $1 billion of debt. We spent $360 million buying 8, 9 companies. I can't remember the exact number now. We spent $840 million repurchasing our shares. I talked earlier in my first presentation about commitments made and commitments delivered. And this is just another example of Tyler making that commitment in 2023 and delivering on that commitment in less than 3 years. So what's our capital position today? Today, our balance sheet is as strong as ever. In March, we paid off the $600 million convertible from the NIC acquisition. And last month, we issued a $1.4 billion convertible debt and also upsized and renewed, extended our revolver to $1 billion. Now a lot of people have asked me questions, both internally and externally, why did you do the convertible debt? And the answer is really, to me, kind of simple. Number one, the convertible debt market is as good as it's been in over 5.5 years.

It was really robust. And then the way I think about it in my head is, to me, I was basically taking my 2031 free cash flow, and I'm putting it on the balance sheet today at really attractive terms to be able to go out and utilize that cash today. Another reason was as part of that convertible debt process, we were actually able to do significant share repurchases on the day of offering. We bought over 1 million shares that day, over $300 million we spent in that 1 day.

We also took some of the money and invested in a capped call option to protect future dilution, which effectively raises the dilution up to $655 stock price. Now on the right side of the slide, you'll see what our projected cash firepower is over the next 5 years. We currently have $1 billion of cash on the balance sheet. We expect the free cash flow about $4 billion cumulatively. We have a $1 billion revolver. So again, $6 billion, that's a lot of firepower at our disposal for the next 5 years. One thing I want to emphasize, though, is, yes, that's a lot of money. And it's easy when you put a lot of money on the balance sheet to maybe not have the same discipline that you've had for so many years. But I can tell you it's one thing I continually emphasize internally, one thing I think about all the time is we are going to continue to execute our capital allocation priorities with the same discipline that's been our MO for the last 28 years. So we have a strong balance sheet. Our cash flow is growing. Let's talk about what our priorities are over the next 5 years. I spoke also earlier about consistency at Tyler. And when you see these 3 priorities, they've really been our historical priorities since the 28 years I've been here, invest in organic growth, continue to do strategic acquisitions and do opportunistic share repurchases. So let's take a deeper dive into each one.

Our first priority will continue to be internal investment in R&D. We're going to continue to invest in new product offerings, competitive enhancements to our existing products and new functions and capabilities around AI that you just heard Franklin talk about. The purpose of this innovation, again, is simple. We want to continue to drive top line growth, and we're going to continue to expand our moat in this market. Our second priority, we're going to continue to pursue M&A. I mentioned earlier, M&A is part of our DNA, and it is. We've done over 60 acquisitions in that time that I've been here. As a reminder, what I said earlier, what do we look for in acquisitions? We look for voids or gaps in our offerings, new product capabilities, new technologies, things like AI. We talked about document automation and priority-based budgeting. We talk about increasing our TAM, adding to our client base, so we can get more cross-sell and upsell.

And I think one thing at the end of the day, and I mentioned this earlier, is we think about bringing a company in, leveraging our Tyler machine, leveraging our position in the market to help that company grow at a rate faster than Tyler's overall growth rate. Now at the last Q&A, Keith asked a question, where are you, Keith? There he is. It's a question I've been asked before. How have these performed?

A lot of times, these acquisitions, they get buried in the financial statements. It's kind of hard to tell how have they done? You've talked about what you like to do, but are they actually performing. So what you see here is the actual and projected 5-year revenue streams from the deals that we've just done in the last 3 years. Each bar on this chart represents a company that we actually acquired between 2023 and 2025. And as you can see, we expect our revenues from those acquisitions to grow at a 24% CAGR in their first 5 years. Some of these are actual revenues they've achieved to date and some of them are near-term projections based on what we see in the market. That's more than 2x Tyler's overall growth rate.

But again, these are just a sample of the acquisitions we did from 2023 to 2025. What about our most recent acquisition, FTR? That's not represented here. Let's spend a minute talking about it. FTR, it's the third largest acquisition we've done in Tyler's history. They're the global leader in cloud-based courtroom recording and what we call legal grade speech-to-text technologies. I'm really, really excited about this acquisition and for good reason. It ticks all the boxes. It's adjacent to one of our core market-leading offerings, our court systems.

It makes both products more competitive and more sticky. It's going to be accretive to growth. We expect their ARR to grow at a 20% rate over the next 5 years. It addresses a critical market need. There's a growing shortage of court reporters in the court business. They're a leader in the U.S. They have international operations. They've established that. That's another opportunity for us. And our strategy with FTR is to take their AI-powered transcription and unify it with our underlying case files to create what we call judicial intelligence. Now this is a deep data and AI play. We believe it expands the TAM by over 4x of what it was before, over $1 billion TAM, we think this opportunity creates. And here's the critical piece of the puzzle. You heard Franklin talk about this earlier, data. We own the data that's produced here. That's very critical. This is also a company that we knew very well. We made a minority investment in FTR in 2015. So we've been involved. We've had a Board seat. We know their culture.

We've watched their strategy evolve over time. We've gotten to the point where it was like this was the right time to pull the trigger on this acquisition. Again, at the end of the day, there's a lot to like about this acquisition, and it's why it's -- I'm excited about our third largest ever. Okay. Our third priority is opportunistic, meaningful share repurchases. Bruce is already smiling. He's talked to me about this for many, many years. Our approach has always been opportunistic. We look at the market value of Tyler stock, and we look at what we think the intrinsic value of -- and when there's a gap, we generally step in and buy. Last -- and we have no fixed annual targets, and we're always focused on long-term EPS accretion. In February, the Board authorized a $1 billion share repurchase. And you can see that so far today, we've executed on about 2/3 of that. That includes the purchases that we did in the convertible debt offering. That equates to about 5% of Tyler's outstanding shares. Now when I started on this slide, I talked about opportunistic, but I also talked about opportunistic, meaningful purchases. So what do I mean by that? Well, there's 2 things about that. Number one, when we buy, we typically don't nibble. We tend to get in and try to get a significant share of the market. And second, you have to really look at the disciplined approach that Tyler takes itself with respect to issuing equity.

So let's take a look at what I mean by that. What you see here is a comparison of Tyler's stock-based compensation versus our peers across 3 metrics: total expense, a percent of revenue and a percent of free cash flow. And you can see on this chart that we issue shares at a rate of about half of what our peers do. Now I'm a shareholder of Tyler. I'm a shareholder of other companies. And as a shareholder, I want executive teams to be vested in equity. I want them to think like shareholders, be aligned with shareholders' interests. And that's the approach I've taken in designing executive comp at Tyler.

All our senior executives are comped in a way that's 80% performance-based, 20% service-based. And of their total compensation package, there's a target of 70% of their target comp is based on 3-year long-term goals. Those goals are growing ARR and growing operating margin. And as we know, operating margin turns into free cash flow. And those goals just happen to line up with what I said our measures of success were going forward, growing ARR and growing free cash flow margin. So when you combine this approach of how we take to issuing equity and you couple it with the approach on share repurchases, it creates accelerated shareholder returns.

So over the last 25 years, Tyler's top line revenue has grown over 2,000%, but our fully diluted share count has declined by 12% -- now I understand I'm not supposed to talk about free cash flow per share metrics. There's strict rules about that. But I actually think it's a very valuable metric. It's a very valuable measure of a company. And what you see on the left-hand side, which is not a free cash flow share per metric, it's our free cash flow from 2001 to 2026. In 2001, our free cash flow was a little over $3 million. Today, it's approaching $700 million. That's over a 20,000% increase in free cash flow. Again, at the same time, our fully diluted share count has gone down by 12%. So to me, the takeaway from this slide, it's really representative of what I would consider our balanced approach to capital allocation, taking our money, investing in top line growth and bottom line margin expansion while also taking opportunistic share repurchases to lower our fully diluted share count.

So in summary, today, Tyler is extremely well capitalized. We've got a lot of flexibility to execute on all our priorities regardless of the economic environment. As our free cash flow grows, our capital allocation will become more and more important. Our approach to capital allocation is consistent and it's proven. And when you couple that with our disciplined approach to issuing equity, we're really well positioned to continue to deliver accelerated shareholder returns. Now I'd like to turn it over to Brian Miller to go over the financials and review our 2030 model.

Good morning, everyone. So you've heard a lot today about our key strategic initiatives and the progress we've made across multiple dimensions since our last Investor Day in 2023. I'm going to recap our financial performance since then and then tie together everything you've heard today into how it rolls into our updated 2030 targets. As Lynn previewed in his opening, we're a much stronger company with a visible path into the future than we were in 2023 with greater free cash flow generation, and that's reflected in our new 2030 outlooks. From a financial perspective, we're well on track to achieve our long-term objectives. What you see here are multiple vectors that are driving that performance.

I'm not going to go through each one of these, but I want to highlight our progress with our cloud transition and our progress in growing recurring revenues that have been keys to achieving those results and will be keys in the future. And our performance to date really gives us the conviction in our ability to achieve our new 2030 targets.

So how did our 2025 results compare to the interim targets that we laid out at our 2023 Investor Day. So what you see here in the middle column are how our 2025 actual results were achieved. And on the right side, you see a whole column of tick marks that show that we met or surpassed all of those interim targets for 2025. So what's interesting to see is how our revenue mix has changed over the last 3 years. Recurring revenues topped $2 billion for the first time in 2025, and we've achieved almost a 12% CAGR in recurring revenues. Our SaaS revenues have grown at a 21% CAGR, which exceeds the targets that we set out for that 2023 to '25 period.

And transactions revenues have exceeded or have been on the high end of our growth range at 13%. So how is this growth translating to margin improvement? We've added 300 basis points to our operating margin and the recurring revenue growth I just highlighted has really been an important margin driver. In addition to expanding recurring revenues, the progress with our cloud transition that Russell detailed earlier, has also contributed to margin improvement. And as you heard, there is much, much more to come from that side. And we continue to maintain a very strong discipline around managing our operating expense.

So before I move on to our updated 2030 targets, I want to spend a minute to update our 2026 annual guidance. As Lynn just discussed in his capital allocation presentation, we completed a $1.4 billion convertible debt offering on very attractive terms last month, and we were concurrently able to repurchase a little over 1 million shares of our stock.

The impact of the convert is accretive to our full year 2026 earnings with higher net interest income and a lower share count. So as you can see here, we're raising both ends of our current EPS guidance range by $0.30 to reflect the impact of the convert. I also want to point out that primarily as a result of this change, our full year earnings are expected to be a little bit more back-end loaded. And so showing you the linearity that we expect here, approximately 53% of the full year EPS is expected to be posted in the second half of the year.

So now let's turn to our updated 2030 targets and how everything you've heard today comes together in a stronger outlook for Tyler. So what you see here is a layer chart showing how our recurring revenue momentum continued through the end of the decade with a 10% to 12% CAGR driving a higher recurring revenue target with better margins.

So the top layer is SaaS which is the biggest contributor with a CAGR of approximately 20% through the end of the decade. This represents an acceleration from our previous targets, which called for high teens growth from 2023 to 2030. Second layer is transactions, which are expected to grow around 10%, as Liz outlined. As we refocus away from lower-margin, commoditized payments and commoditized payments and focus more on higher margin, higher value transaction revenue streams. And maintenance will continue to decline as on-prem clients flip to the cloud.

On the bottom, you see nonrecurring revenues with lower margins like services and hardware will grow at a much lower rate than overall revenues in the single digits. You also heard Lynn talk a lot about our M&A firepower and how we have a strong record of completing acquisitions that are accretive to growth.

And Franklin outlined how we believe that AI will be a tailwind to growth. The numbers you see here, the 10% to 12% CAGR do not include incremental revenues from M&A and AI, although we believe that both of those will provide additional growth on top of that. So what you see here is a bridge to our 10% to 12% targeted recurring revenue growth. So let me touch on the key drivers of that. The first is the uplift from on-prem clients, flipping to the cloud, typically at a 1.7x uplift from their maintenance revenues.

The second is SaaS growth from new logos and net expansion within existing clients. You heard earlier us talk a lot about that opportunity within existing clients moving from 3 products to 8 to 10 products. That also includes pricing, which we typically see a very consistent kind of 5% pricing increase.

And the third is transaction revenue growth, with M&A and AI revenues providing incremental growth on top of that. And while we're excited to continue to drive double-digit recurring revenue growth, we're also looking to get almost 1,000 basis points of operating margin improvement over the next 5 years. And so what you see here are the 4 key drivers to a mid-30s operating margin, and I'll touch a little bit more on each of these.

So the first of these is the cloud. The cloud unlocks significant margin expansion opportunity for us, we believe, in the range of 3 to 4 points of margin expansion. And a lot of that comes from things like the version consolidation that Russell talked about. You may not realize that as much as 30% of our development and support costs are consumed by noncurrent versions of our products. So you can really see how that continued focus on version consolidation can have a significant impact on our margin.

The second key driver is transactions that Liz talked about. She outlined how our differentiated transactions offerings are shifting us towards higher-margin transaction streams that are tied to our software. And we expect to continue to be able to optimize the economics around our transactions business as it scales. For example, contracts like our California state parks outdoor recreation software, deal have software-like margins, even though they're recorded in our transactions line and show up and are paid for with transaction revenues.

This, we expect to add 1 to 2 points of margin. So it should be no surprise to anyone that we expect AI to be a contributor to operational efficiencies and higher margins. You can see here the 3 major areas that we're focused on, where we expect AI to be able to drive productivity and enable us to grow head count at a much lower rate than we grow revenues.

We're still in the early stages of integrating AI into all of these internal functions, but we're comfortable with an expectation in our 2030 model of 3 to 4 points of margin. For example, in our services business. In services business, we've piloted the use of AI to assist with data conversions and new implementations with really exciting results, reducing our time to complete conversions from several months to 2 to 3 weeks. And in support with 1 product, we're now deflecting 25% of the calls that would otherwise be escalated to a Tyler support team member freeing those support team members up to work on more complex tests.

The fifth margin driver comes from operating expense, where we expect to gain 1 to 2 points of margin from leverage as we continue to scale. For example, by consolidating functions, improving systems and adopting AI tools, we've been able to keep our finance head count flat over the last 2 years even as our revenues have grown by almost 20%.

So what's the impact of all of these improvements on our cash flow. Our 2030 model now delivers more cash and at higher free cash flow margins. As you can see here, our cash generation is now growing to $1.1 billion to $1.2 billion in 2030, with the free cash flow -- the free cash flow margin in the low 30s, up from the high 20s. The majority of the improvement is coming from higher operating margins, along with some working capital benefits from higher recurring revenue mix, which has more attractive cash flow characteristics.

So here you can see how our updated 2030 targets are all in line with or, in most cases, improved from our previous targets. Now I want to focus in on 4 key targets among those, all of which represent improvements to our prior outlook. First, our new recurring revenue target is $3.3 billion to $3.4 billion, which is at the high end of our previous range.

Second, our new target for operating margin is now in the mid-30s, up from 30%. And Third, our free cash flow margin has moved from the high 20s to the low 30s. And fourth, we expect to generate approximately $1.1 billion to $1.2 billion in free cash flow in 2030.

So how will you measure our progress towards those targets? Again, we're focused primarily on recurring revenue and free cash flow growth. And as we move towards 2030, our recurring revenue growth rate and our free cash flow margin expansion are the best metrics to gauge our progress and our success by.

So in summary, you can see why we're excited about the future that's reflected in these new higher 2030 targets. And we've got a credible path to further success with 2 key metrics to measure our progress by. That wraps up our formal presentations. We've shared with you a comprehensive look that should give you a clear and confident picture of our future. And now we're going to bring back the rest of our leadership team for the final Q&A session.

Okay. Lynn, come back up and Franklin and introducing Rusty Smith, our Group President, local government and schools; and Jeff, our COO, come back up.

Okay. Well, we'll probably have about 25, 30 minutes. We're running a little bit ahead of schedule here. Do you -- just a reminder, just to state your name and affiliation and we'll get started. .

Go ahead and start with Rob. We'll go to Jonathan after that.

Great. Thank you very much. Lynn, I'd be curious to hear from you about M&A, in particular. You guys have been, in my view, highly successful acquiring within your core and appreciate the out of the growth rates of some of those businesses, which we've seen, which you guys have plugged in and really accelerated. A few times over the years I followed you, you guys have moved outside your core to make acquisitions, whether it be getting into public safety or getting into state and payments, new areas. When you think about M&A, how should we think about operating within those verticals in which you guys are already #1 versus maybe looking at other areas where you perhaps don't have a presence within your current customer base?

[This call length has exceeded streaming capabilities - Please refer to the preliminary transcript that will be posted shortly.]

Great. Hello, everyone, and welcome to JPMorgan Boston CMC Conference. My name is Alexei Gogolev, Head of Vertical SaaS research team. And today, I'm delighted to be hosting Tyler, CFO, Brian Miller. Brian, welcome.

Thank you.

If I may begin our conversation with your SaaS growth durability, you've explained the 2026 SaaS growth bridge so prior bookings and new bookings and flips. But what are the biggest execution risks that could shift timing? Or maybe what are the most upside levers that you see for those numbers? Perhaps it's things like go-live, cadence or some renewal and pricing timing?

Yes. It's mostly around timing. So the biggest driver of our SaaS growth this year is prior year bookings. So things that we signed last year that there's a lag from the time we sign a contract to when the revenues start or -- and some of those are even things that we signed in '24, which was a really, really strong bookings year for us. And so we had a partial year of revenues last year and the full year of revenues this year. So more than half of the growth comes from prior year bookings. Pricing is -- there's not a lot of variability around that. And then the new bookings have less of an impact on the current year, again, because of that lag.

And then there's our flips of our on-prem customers moving to the cloud. So most of the -- either the risk or the opportunity is around timing. So whether someone signs to flip from on-prem to the cloud and we get that revenue uplift, in Q2 or in Q3, or whether it takes 1 quarter or 2 quarters before they're ready for us to execute that migration or the timing of bookings. Generally, especially as we get into the second half of the year, actual bookings for this year won't have much impact on this year's revenues. So more around the -- just all those variables around timing that cause things to either happen a little bit sooner or a little bit slower.

Brian, taking that into account, so given the contract duration can swing and the fact that transaction-funded software doesn't really show up in cleanly in your bookings. What metrics would you suggest that people should focus more on? Do you think things like ACV from new and flips and then renewal prices, maybe some RFP to demo, to award stage like are those better reflections of your...

I think so. I think really, when you just look at high-level bookings, it's a pretty good -- we give total SaaS bookings, it does include -- it's a TCV number, but the duration tends to be pretty stable these days. So that number, the ACV of new SaaS plus flips, but is another metric, but that doesn't capture all of our SaaS. So really kind of our total SaaS bookings is probably the best leading indicator, which encompasses flips, renewals because actually the majority of our new SaaS bookings are from add-on sales to existing customers.

Perfect. You've had a pretty strong quarter, and you've raised your guidance. So maybe can you explain the SaaS revenue guide, which rose by about 1% or $8 million at the midpoint. How much of that is coming from FTR your recent acquisition? And on the surface, it did seem like outlook was a bit more conservative. Maybe you can set the record straight around your confidence about the year. And what sort of assumptions are you making around this acquisition that you made, FTR?

Sure. Yes, at a high level, our adjustments to guidance after the first quarter were -- at least in terms of total revenue, it was pretty much entirely the acquisition of FTR, which we closed in April, but prior to reporting Q1. So we had the forecast for that to include. Typically, we don't revise guidance after the first quarter unless there's something unusual. It's not very long from the time we report year-end at the end of February to when we're reporting Q1. So usually, there's not a guidance revision there. So it's not unusual that really kind of the only change we made was around FTR.

FTR is going through a cloud transition of their own. So we have an estimate of what their total revenues will be and what their SaaS revenues will be. But there's going to be some variability around it, because we're not sure exactly how their revenues for the remainder of the year will play out between cloud and on-prem. So we cushioned it a little bit.

But I think at the high-level answer is there's really no change in our outlook for the full year around SaaS. Anything -- there was some minor tweaking around timing of flips as well, but nothing that was meaningful at all in terms of a change in our outlook for the full year of SaaS.

Okay. That's great to hear. In terms of cloud flips, so you've hit record levels. What has fundamentally improved in Tyler's ability to execute those flips? And what still limits how fast the flywheel can turn?

Yes. And if you step back and look at our total customer base today by revenue, so if you take our cloud revenues today, our SaaS revenues, and our current maintenance from on-prem customers if you translate or convert our on-prem maintenance to SaaS, it's roughly a 1.7, 1.8x uplift that we typically get, where about 55% of our revenue -- equivalent revenue is in SaaS today and about 45% is on-prem. There are a lot of variables that go into how fast those customers or what pace or what the timing is of those on-prem customers moving to the cloud. We've said that we expect that by 2030, at least at our last Investor Day, we said we expected that 2030, that roughly 80% of those customers that were on-prem in 2023 would have moved to the cloud. And we said we're on track to achieve that.

In some cases, what governs when they move is around their own infrastructure concerns. I guess for starters, the public sector moves kind of slowly at all technology changes. A lot of it is around their own infrastructure challenges. So there are challenges in hiring technical people, systems, administrators, applications administrators, their concerns and that's a big issue for governments, especially local governments. They have a lot of retirements coming and really struggle with replacing those people with competing with the private sector, with paying private sector salaries being an attractive place to go to work for those people.

So they're challenged with hiring people. Some of it is around their own data centers and when their equipment is going to need to be renewed. So if they're -- they've got a lot of hardware that's going to be depreciated in 2028. That may be when they're looking at moving to the cloud after they fully depreciate the equipment before they have to buy new hardware. Cybersecurity is a growing issue. Certainly, a lot of government, their own networks and infrastructure are -- they have concerns around their security. There's a lot of vulnerabilities around those. In a lot of cases, they're targets for the bad actors. And so that either when they actually have a cybersecurity event or when they become more concerned about one, maybe see peers or neighbors suffer in an attack, then that becomes a motivating factor.

So a lot of these factors drive when they move. A lot of it's just their overall IT road map. So for example, Los Angeles County is one of our largest clients, both in the court space and in the licensing and permitting space. They signed last year, I think, Q3 to flip their licensing and permitting system to the cloud, but their court system is going to be further down the road. And I would say that our on-prem customer base is still a little bit more heavily weighted towards large customers as well. so they can be kind of lumpy in terms of how that drives it. But we do expect the peak of conversions still to be 2 or 3 years out, kind of the '27, '28, '29 time frame is where we see the peak, both in terms of the average size and the number of clients flipping, and then we'll be more on the downhill side beyond that.

As we look at what we can do to accelerate that because it's not only a better client experience, it's better for us for those customers to be in the cloud, but it's also a better client experience. So A lot of it is around educating customers on the benefits they get from moving to the cloud and why they should do that. I think at this point, you'd find very few customers that would say they have no plans at all to ever move to the cloud. It's more about when and how and all the planning and how that fits into their overall IT road map.

But we currently, I think, are more in the carrot world. We've increasingly told customers that new features and functionality will only be available in the cloud, while we will continue to support their on-prem system that they won't get new features and functionality that we believe they'll want, including in some cases, AI functionality. And then adjusting maintenance pricing, so bigger increases in maintenance prices to provide more of a financial motivation to move to the cloud would be on the horizon as well.

Okay. So when the customers do flip, what is the most repeatable attach motion you're seeing? And how are you helping this flips to consistently come with that incremental ACV beyond what you just mentioned, the 1.7, 1.8?

Yes. So the 1.7 to 1.8x uplift is kind of like-for-like, so it's moving the same product, taking their maintenance and moving it to SaaS, which incorporates the hosting costs as well. But we are seeing opportunities to up-sell or cross-sell other products when they move to the cloud. So for example, someone might be moving their court case management system with Tyler to the cloud but they have a jail system from another vendor and that's on-prem and maybe that vendor doesn't have a cloud offering or it's not a -- it's a legacy system that just isn't current technology. So that creates an opportunity for us to have a conversation with them and present them with a proposal to move that system to a system that's already integrated. It's already the same -- uses the same data part of a complete integrated suite of solutions. So we could be their jail system, their prosecutor system, their probation system, jury system. So there are multiple opportunities to kind of accelerate the replacement of other systems around the cloud.

I think today, compared to, say, 2 or 3 years ago, we're much more intentional around kind of pursuing those opportunities. We look for those and bring in the appropriate sales resources. And so we would expect that we'll continue to see higher attachment rates and better uplift around those as we continue to refine that go-to-market process.

And so payments is one of those attached products. How do you think about penetration of embedded payments across the installed base by some major workflows? And where is the clearest path to materially higher attach for payments?

Yes. So since we acquired NIC in 2021 and acquired a really robust payment platform, we've kind of shifted our strategic approach to payments and transactions broadly across Tyler from kind of reselling third-party payment solutions to our own embedded platform and having that platform tightly integrated with the systems of record that produce the bills and process the account for the payments. So things like a utility billing system, a licensing and permitting system, a parks and recreation, property taxes, utility billings. All of those are big applications for us where we have thousands of customers using those systems and most of them are not using Tyler for payment processing around those.

So we have done the technology integrations where those systems are fully integrated. And so it creates more value for the customer because it automates reconciliations, provides better reporting, better security, so it's a better solution for the customer. They only have to deal with one provider for both the payments and the core software.

And so what we're doing now is bundling that with new software sales. So any time we have a proposal or a sales opportunity for any of those systems that have payments with them that they're getting a payments proposal from us. And then we're going back across our installed base of thousands of customers using those various products and either trying to replace their existing payments provider, sometimes that has to happen when their current arrangement ends or, in many cases, initiating online payments for the first time ever.

And so I think we're still pretty early in that. I think we've gotten a lot of the low-hanging fruit in the first couple of years. Now we have a much more kind of refined go-to-market in how we approach those sales with the combination of a payment specialist and the application specialists and have a pretty compelling value proposition and are having a lot of success with that. But still the penetration is -- the opportunity, even just in our installed base is really significant. We're still in the very early days of that.

And so with that in mind, Brian, with the Texas contract rolling off, what does the kind of steady-state transaction growth look like? And what sort of indicators would you highlight that would validate that, maybe some client mix or unit economics or gross versus net mix?

Yes. We have talked about a sort of low double-digit growth rate, I think 11% to 13% is what we talked about at our last Investor Day for our transaction revenue business. And really our transactions revenues kind of go beyond just payments. Sometimes the terms are used interchangeably. But it's really a lot more than payments. In some cases, the former NIC business, we have these broad state relationships where we provide a wide range of services, including software often, but it's funded by payments or user fees, convenience fees, and we process the payments around those as well. But it goes well beyond just pure commodity payment processing.

Increasingly, we're selling software under these transaction-funded revenues. Our biggest software deal last quarter was one of those, it was a digital motor vehicle titling system for a state government that we have an existing relationship with. It's not a -- we're providing software, but it's not -- it won't show up in SaaS revenues. It didn't show up in SaaS bookings. It's paid for through transaction fees. So when you renew your -- or you buy a car, you pay that titling fee that goes to the state and then there's a transaction fee that's added to that, that goes to Tyler that pays for that system. This contract that we signed this quarter will generate more than $20 million a year in ARR. So it will be a very significant revenue stream. But again, it will show up in transaction revenues, not SaaS revenues.

So broadly that kind of low double-digit expectation, I think, is still our baseline. We have a number of opportunities both around selling software under that transaction model, disbursements is an area of, kind of, the other side of most of our payments revenues today are around inbound payments. So we have offerings around disbursements, AP automation, jury payments, child care payments that we have tremendous opportunities within our customer base that we're also in the very early days of pursuing those.

So we think there are a lot of vectors that get us to being very comfortable with that low double-digit growth rate and opportunities that it could potentially be higher. We've been a bit higher than that the last couple of years, some of that around, as I said, some of the early penetration into our customer base and as well as some third-party payments that -- or third-party revenues that had some pricing that boosted our revenue growth, but really wasn't sustainable long-term revenue growth. So this year, our transaction revenues are a bit below that level because of the impact of the Texas payments contract rolling off at the end of last year. The Texas payments contract was a kind of a non-core piece of payments business that was strictly payments. It was very commoditized, very low margin, less than 10% margin, and didn't really have those other connections that the rest of our payments businesses have.

And so that's providing a headwind for this year's revenue growth, a tailwind for margins. And so as we work through that this year, I think our normalized payments growth would have been something like 13% last quarter, excluding the impact of Texas.

Okay. That makes sense. So you talked a lot about the states impact from NIC, but generally, your exposure to the state contracts. Can you elaborate a bit more about your state specialized sales team? It sounds like it's opening a lot of doors already. Where do you see the biggest upside? Do you think there could be some opportunity with some coverage model or maybe some coordination with product teams, target workflows, like how do you see that state sales team evolving?

Yes. It's sort of all those things. So our business broadly today is around 70%, 75% local governments, 20% to 25% state and less than 5% federal. Most of that state business came from the NIC acquisition. Most of that is transaction driven. So it's not funded by appropriated funds or by budgeted funds, but it's primarily paid for by user fees, convenience fees, transaction fees. So it's somewhat insulated from the budget cycle.

Part of the -- one of the premises of the NIC acquisition was the idea that we could expand our presence at the state level where Tyler didn't have -- we were almost 100% local prior to the NIC acquisition. So most of our software products are installed at local governments. We have some state contracts for things like court systems, but they're used at the local level. So we didn't have really a state sales organization, state relationships, even though we had a lot of products that we could sell to state governments. NIC had these -- I think, it's 28 state enterprise contracts where we're deeply embedded with the state governments, with the CIOs, with the administrations supporting their initiatives, and providing the interfaces for citizens to interact with these state governments. So the idea is that we could leverage those relationships and sell more software from Tyler products at the state level.

But what we learned as we went along the way was we kind of were missing a bridge in the middle. So we've got these strong state relationships on the former NIC side. We've got dozens of Tyler products with sales organizations selling those. But how we sort of matched up those state opportunities with the products was a little more complex. So we created a, kind of, starting at the beginning of last year, a new dedicated state sales force that provides that bridge. So it's kind of high-level sales executives that are really the single sales point of contact for a state government that can bring to bear all the Tyler products.

So as we become aware of opportunities, which we often do early on because of our state relationships. We can say, "Hey, Tyler has a product for that, let us bring the right team in." So we're a lot more efficient about matching those up. So we're seeing some good successes things like this motor vehicle titling deal I just talked about. In a number of states, we've sold our licensing system for cannabis regulation as states legalize marijuana, it creates a need for a whole new set of software solutions to manage that, and we have a platform for that. So we've been able to bring that to, I think, 6 states without RFPs, without lengthy sales processes, without contract negotiations, without new contracting because we treated as a new statement of work under the existing arrangement.

So again, that sales force has just really been built out in the last year. Some of these are long processes, but we're starting to see early success, and we expect that that's really the catalyst we need to kind of fully realize that opportunity.

Brian, can we talk about your AI strategy? You've emphasized discipline over hype. So what ROI thresholds do you require for customer-facing AI features to be productized and scaled?

It's amazing. We went 25 minutes without uttering AI. Yes. So in the public sector, as with almost every technology change, they're amongst the last adopters. The adoption curve is much, much lower in the public sector. They don't want to be the first at anything, and that seems to be the case here. We had our user conference about a month ago with close to 6,000 customers. AI was certainly a big topic of conversation, Tyler talking about our vision of AI in the public sector, the road map around our products, the things we have today, the things that are coming. And a lot of client questions and curiosity. So I think we characterized it as kind of cautiously curious about AI, not -- in a lot of cases, not ready to embrace it, but curious about it, but with a lot of concerns, especially around data, around how it impacts their workforces, how it impacts their communities.

So a lot of concerns and questions but also a lot of interest in how AI can help solve real day-to-day problems, a lot of which stem from staffing shortages. So governments face a lot of upcoming retirements. A lot of workforce challenges already lost a lot of workforce during COVID that haven't been rebuilt. So generally, most of your -- especially your local governments just don't have enough people to do the work they need to do. So as a result, there are things like a 6-month wait to get a building permit application approved, or a backlog of court cases that haven't been entered into the system, so trials are delayed.

So those are the kind of real problems they're dealing with, and that's where we're focusing a lot of our AI development efforts in solutions that use AI to help solve those problems. And that can provide a real measurable clearly understandable ROI, which is not the way governments have usually looked at software through an ROI lens but that they can really see the benefit.

And so we have a handful of products already, some of which came from applications that are kind of stand-alone ROI or AI-driven products. One of the best examples is a product called Document Automation. It interfaces with our court system to automate data entry in the court system. So rather than a clerk having to look at a filing, a lawsuit, a court document and enter it into the system to create a case file or to add data to a case file. It uses AI trained on millions of court documents that have gone through our systems to automate that data entry process.

We have had success, for example, last quarter, we signed contracts with 2 top 10 counties in the country. Harris County, which is Houston and Miami-Dade County, which use our court system to add that on. In both cases, the incremental ARR from the AI application is significantly more than they're paying already for the core court system. But the savings in terms of labor are 2 to 3x what they're paying us in ARR for the AI application. We are also investing in development around not necessarily stand-alone products, but AI add-ons, there would be SaaS uplifts to existing products. So for example, in the licensing and permitting space, where we have a very big presence.

We have a application review AI assistant that uses AI to review, for example, building permit application and say, yes, that meets code or no, it doesn't, approves it. Right now, a lot of places, there's a really long delay for those because there's not enough clerks to review that. And it slows down community development, it slows down property tax revenues. There's a lot of implications around not being able to get building permits approved. So it provides a real value to the customer, provides a revenue uplift for us. And we believe they want to get that from Tyler, because Tyler understands that licensing permitting process, the complex workflows extremely well because we provide the leading system in that space. We have the clients' trust because we have long relationships with these customers. They trust what we're going to do with their data, how we're going to use their data, how we use other clients' data. And we have the sales channel, and we have the relationships.

And we think all of those combined really provide that moat that we will say, our clients are going to want to get that application from Tyler rather than a third-party plug-in or a start-up coming in to build an application on top of a Tyler solution. And they're certainly not doing it themselves. So that's the feedback we're getting from customers and the things that we're building around our products are aligned with where they see value and where they see need and that they're looking to Tyler to get those things.

And in terms of pricing, I think you said that you do not plan seat-based AI pricing. So how are customers reacting to some more of a SaaS or value-based AI packaging?

Yes. In general, for Tyler's software solutions, we don't do seat-based licensing. So to the extent that, that has been a concern around some software models, in terms of lower headcounts or lower number of seats, that's not applicable to Tyler. Most of our products are priced based on some measure of the size of government. So a property tax system would be based on the number of parcels of property a County has. A public safety system would be based on the number of 911 calls they answer. So those are some measure of the size of government.

Our AI applications as well in government, they don't like consumption-based pricing. It doesn't really work well for them because everything in the government is based on the budget, and they set the budget at the beginning of the fiscal year. They know what they think their revenues are going to be. They allocate all their costs. And when there's no more budget, there's no more money. So they really have to have predictable costs, and so they want a fixed price model.

And so our pricing -- so we have kind of -- we sort of see 3 different pricing structures around AI. One are the kind of stand-alone products that I talked about that would have a fixed SaaS fee with caps. So there's caps on usage, so that we're not exposed on costs, but that is reflective of the value of the application, which is generally reflective of the labor savings. So like in Tampa, they're paying us $950,000 a year for the Document Automation application, but they've identified that they'll save more than $2 million a year in labor cost.

Things that are a SaaS uplift would also be sort of value-based but again, a fixed SaaS fee with caps on it. And then I think ultimately, there'll be some AI features that will be embedded in products that won't separately be priced. They'll just be part of the standard product and provide additional value to the customer and a competitive advantage for us. But we generally don't see -- all those things are more value-based and more size-based than seat-based.

So with the Investor Day coming up, the first one you've had recently was in 2023 and prior targets did not include any AI potential upside. What are the most important scoreboard metrics investors should focus on to evaluate some progress that you are obviously making in AI, in cloud and transactions?

Yes. It is funny that just 3 years ago, AI was barely in our vocabulary. And it wasn't part of the discussion at our last Investor Day or part of the models that we put out there. So we had set forth at our '23 Investor Day, what we referred to as our 2030 Vision. So we set out targets pretty far ahead of time for different revenue streams, our growth rates, free cash flow growth, margin expansion between 2023 and 2030, and we had set some interim targets for 2025. So for 2025, we clearly either met or exceeded all of those interim targets and said we were on track to meet or exceed the 2030 targets. So we'll be updating those at our upcoming Investor Day.

As you said, AI wasn't part of those at that point. So to the extent that we have identified cost efficiencies internally around using AI in development, in professional services, implementations and in customer support. We will factor those into our updated targets and the kind of margin improvement we expect to see. I would say we're still pretty early, so we don't have perfect vision. So we'll probably be probably more on the conservative side. But at least to the extent we have visibility around that.

On the revenue side, I think certainly, there are some revenue streams from some of those products that we currently have ongoing revenues from. But I think in terms of trying to credibly predict what our 2030 AI revenues will be is not something we can do at this point, but we'll talk a lot about kind of where we see those revenue streams coming from, and the case for why those will come from Tyler and while they'll be incrementally positive to us, we won't be quantifying those at this point, but we'll be kind of laying out the road map and how we expect those to be accretive.

Great. Brian, thank you very much for being with us today. Appreciate it.

Thank you.

Hello, and welcome to today's Tyler Technologies First Quarter 2026 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. [Operator Instructions] And as a reminder, this conference is being recorded today, April 30, 2026.

I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, John, and welcome to our call. With me today is Lynn Moore, our President and CEO; and Brian Miller, our CFO. In an effort to streamline our earnings communications and provide timely context around our quarterly earnings results, we published our prepared remarks yesterday, shortly after posting our full quarterly results release to the news section of our Investor Relations website. This go-forward practice allows for more timely understanding of our earnings results release before our earnings call this morning.

Additionally, beginning next quarter, we plan to hold our earnings call earlier in the day before the market opens. After I get the safe harbor statement, Lynn will provide a summary of our key quarter highlights, and we'll move to our Q&A session.

During this conference call, management may make statements that provide information other than historical information and may 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. We have also posted on the financial section of our Investor Relations website a schedule with supplemental information.

During the past year, we've discussed our intent to simplify the supplemental information we present to focus on our key performance indicators. Annualized recurring revenue, ARR, and free cash flow, along with other metrics we consider meaningful, including quarterly recurring revenues and bookings. We believe this will enable investors and others to focus on relevant metrics that best reflect the performance and trajectory of our business. Also on the Events & Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks.

Lynn?

Thanks, Hala. Our first quarter results provided a strong start to 2026 with better-than-expected recurring revenue growth and free cash flow generation. Total revenues and recurring revenues both reached new record highs and free cash flow more than doubled last year's first quarter. Public sector demand remains robust with an active pipeline and growing momentum across our cloud solutions, AI-enabled applications and our unified transaction strategy. Operating margins continue to improve, benefiting from our cloud model transition.

During the quarter, we repaid our convertible debt at maturity and executed meaningful opportunistic share repurchases under our new authorization. And earlier this month, we completed the acquisition of For The Record, representing the third largest acquisition in Tyler's history.

We are well positioned for 2026 with durable demand drivers, accelerating cloud momentum and a trust-based approach to leading the public sector's AI evolution, supporting our confidence in delivering on our strategic initiatives and 2030 targets. We'll now take your questions.

[Operator Instructions] Our first question comes from the line of Terrell Tillman with Truist.

I will absolutely look forward to getting back in the queue as well. And I will keep it to one right now. We had the benefit of going to your conference. That was helpful. A lot about enablement for customers moving to cloud and just building confidence that they're ready to move to cloud. But I don't know, maybe this is for you, Lynn. In terms of just confidence level, 90 days since your last update on SaaS flips, the volume and velocity as we look through the year. I know you had ACV growth, I think, on the flip side of 10% year-over-year in 1Q. But just any more color you can share about the confidence level? Has it increased? Is it where it was in terms of SaaS flips for the rest of the year? And kind of related to that, is AI and agentic kind of becoming an incremental stimulus or not necessarily?

Yes. Thanks, Terry. I'd say my confidence level in our cloud transition, both in terms of customers flipping to the cloud and what we're doing from an operational perspective are really high. We showcased this at Connect, as you mentioned, we had a client advisory board where we talked about the future direction of Tyler's cloud movement. And clients now are -- they're just really receptive to it. I think hesitation in the past is really in the past. Now it's a matter of execution going forward.

One anecdote, I would say, is public safety. We used to talk about how that was something that was a little bit slower to move to the cloud. We're seeing now the public safety market is pretty much all 100% going to the cloud. So I think those -- I think all those points lead me to feel just as confident as ever.

Our 2030 plan hasn't changed as it relates to that right now. As it relates to AI, I think it's a tailwind. I wouldn't say it's a big tailwind at this point. We have a lot of AI initiatives going. We've got AI in a lot of our products. It's embedded in our workflows. We spend a lot of time showcasing it at Connect. There was a lot of buzz around what we're doing and really the trust we have with our clients. And they trust us to move forward with AI. And so I like where we're positioned. We're making the right investments. Our clients are partnering with us on it, and I like where it's going.

Our next question comes from the line of Matthew VanVliet with Cantor.

You mentioned in the prepared remarks you put up that RFP activity continues to improve and you're seeing a lot of momentum there. Curious in terms of what you're seeing coming out of that in terms of deal execution win, like win percentage? And then also, are customers looking to land a little bit bigger now that they're going to be moving into the cloud and bolting things on is maybe a little bit more palatable upfront. So just curious on how deal sizes are and how win rates are looking.

Yes. I think, Matt, the market dynamic is, I think, pretty steady. RFPs continue to be steady. Our win rates are steady. I think the market right now is just good. As it relates to deal size, every time we flip to the cloud, it's an opportunity for us to upsell and that continues. We're also seeing some increasing deal sizes by adding on things like AI and things like that. So I'd say, overall, the market is good and steady.

Our next question comes from the line of Ken Wong with Oppenheimer.

Fantastic. Brian, a question on the guidance. Nice to see the strong quarter and the raise. Any way to help us dissect some of the drivers of that increased raise, whether it's For The Record, the increased demand, timing of SaaS deals? Any color you can give would be fantastic.

Yes. This early in the year, not any major changes to the guidance other than the biggest factor is the addition of FTR, which is now included in our guidance for the year. So that accounted for a meaningful amount of revenue raise, along with the outperformance in the first quarter, particularly around transactions. FTR adds somewhere in the neighborhood of $30 million of revenues to the full year and a modest amount to EPS. So it's kind of a combination of the outperformance in the first quarter as well as the addition of FTR.

Our next question comes from the line of Joshua Reilly with Needham & Company.

Great. After seeing some of the Tyler Foundry use cases at Tyler Connect and the packed room for the customer overview of the agentic capabilities, clearly, the demand is there for the AI products. How quickly can you ramp to market the roughly 40 to 50 use cases that you plan to release for the initial kind of agentic use cases at the conference? And how is the sales and implementation process going to work for those kind of initial use cases on the agentic side?

Yes, Josh, you're right. The buzz at Connect was strong. I think our message generally around AI really resonated with our clients. And I can't overemphasize how much our clients put their trust in us to deliver the AI solutions for them in the future. Buzz doesn't always translate to deals immediately. We are getting deals. As you mentioned, these use cases, we have some of those already in the hands of clients and in the market. But I would generally say it's going to be a slower ramp. Our sector generally moves a little slower than the private sector. A lot of receptiveness, a lot of excitement. I think still TBD to see how much it's going to impact near-term financials.

Our next question comes from the line of Saket Kalia with Barclays.

Okay. Great. And I appreciate the new format as well. Brian, maybe for you. I'd love to dig into maybe some of the moving parts within the higher SaaS revenue guide. I think that part -- the $30 million from FTR is adding to that a little bit. But maybe you could just talk us through how that SaaS revenue guide is changing both organically and inorganically, just so that we're all on the same page.

Yes. Somewhere around 30% of FTR's revenues are -- I'm sorry, around 70% of FTR's revenues are software revenues, so a combination of SaaS and maintenance and the rest is in the hardware. So they are the biggest piece of that increase.

The other thing is really driving the increased SaaS is just a little bit around the timing of our -- how some of the bookings come online. So it's really sort of some fine-tuning. There's no fundamental change from the outlook we entered the year with. Obviously, strong bookings in the first quarter give us more confidence around that. And there's a modest contribution from the acquisitions last year, but those have been built into our guidance for the year from the start. So really some modest tweaking around timing combined with the FTR acquisition.

And I think I would just add on the FTR acquisition, we noted this in our prepared remarks. They are in the midst of their own SaaS transition themselves. And as we look out over the next few years, we expect that SaaS to accelerate in their business at a rate faster than Tyler's overall rate or comparable or above as hardware and maintenance will continue to decline over the next few years.

Our next question comes from the line of Alex Zukin with Wolfe Research.

I guess maybe on the -- a couple of really nice wins and a really seemingly strong bookings quarter for you guys and it feels like even some of those wins aren't fully reflected in the bookings number. So maybe what's driving the strength competitively here? Were there any onetime items? Or is kind of there's -- are we pulling forward bookings from later in the year? Just help us gauge kind of how that ebb and flow should come in this year.

Yes. I don't think there's anything pulled forward, anything unusual. It actually was a quarter in which there weren't really any large deals, a handful of deals with ARR of -- SaaS deals with ARR of more than $0.5 million a year. So no kind of multi-million dollar SaaS deals. As you know, bookings can be kind of lumpy with respect to big deals. We've talked about the pipeline still containing a normal amount of large deals. But this quarter, there really weren't those. What was one of the biggest software deals is a transaction-based deal, a statewide digital motor vehicle titling solution. And so it does not appear in SaaS bookings. It's one of those deals where we're providing software as well as payment processing and other services under a transaction-funded arrangement. So it doesn't hit SaaS bookings, doesn't hit, well, bookings at all this year.

Revenues really won't start for that until next year, but that's a deal that would -- that we estimate will generate in excess of $20 million a year in transaction revenues when it's at full ramp. So it's one of those software under a transaction arrangement that will -- that doesn't really impact the current bookings. And that would have had a significant impact on what was already a really strong reported bookings number.

Otherwise, as we talked about going into the year, we expected to see a good rebound in bookings. There were certainly some unusual events that impacted last year's first quarter. So made the comp a little bit easier. But notwithstanding that, it was a very strong bookings quarter without any major onetime events, just a good solid volume quarter.

Our next question comes from the line of Jonathan Ho with William Blair.

One thing I wanted to understand a little bit better is how do we think about the cadence of your on-premises flips this quarter? And how do we think about that maybe progressing over the course of the year? Especially as you start to implement some of these cloud-first changes?

I mean, we don't focus too much on the short-term cadence of flips. We've talked about our expectation over the next several years of getting to by 2030, a point where 80% or more of our on-premise customers have moved to the cloud. We've said we're still on track for that. We expect the peak of that flip activity to be in the '27 through '29 time frame.

So at a high level, we expect the volume of flips and focused on dollars rather than number of flips for that to be higher this year than last year. But the quarterly cadence is a bit hard to pin down. And as long as we're making appropriate progress towards those longer-term goals, we don't worry about the quarter-to-quarter as much. So we expect that volume to be up this year. It's in line with our expectations, and we have a high degree of confidence, as Lynn mentioned earlier, from conversations with clients that it's a matter of when and not if, and we're on the right track to achieve our goals.

Our next question comes from the line of Rob Oliver with Baird.

Lynn, my question is for you. Coming out of Tyler Connect, I'd be curious to get your view on kind of the product per customer motion for you guys. I guess, another way to ask the cross-sell question that Matt had earlier. I think, your prepared remarks mentioned that you saw some really good progress internally. I know you guys have driven a lot of those initiatives. I think you said that average customer has around 3 products, and that could go to 7 to 8. Just if you could help us put some color around what you saw out of Connect and how that appears to be trending now as customers move to the cloud.

Yes, Rob, I'd actually say we're looking for 3 products -- average of 3 to go to 10 to 12, not 7 to 8, but I'm not going to quibble. Yes, I think the momentum is there. We're also seeing a lot more momentum coming out of our state and federal group, getting more of our local products into the state hands. We're seeing it with things like with our document automation product and our priority-based budgeting product. I think the initiatives that we've been talking about for the last 1.5 years or so around improved client set, improved efficiencies and optimization in the cloud, making the cloud experience better for our clients is only going to help grease the wheels and help us make that cross-sell motion go faster. So it's a lot of things that we're doing, not only the competitiveness of our products, putting AI in our products, but it's the whole basket of our strategic initiatives that will help drive those cross-sells and upsells as we head towards our 2030 goals.

Our next question comes from the line of Allan Verkhovski with BTIG.

Can you just share how you're thinking about potentially including AI capabilities for your on-premise customers? And just really quick on the strong free cash flow in the quarter. What drove that? Any onetime items we should be aware of and kind of the level of prudence in the updated guide considering the strength you saw in the quarter?

Yes. Allan, as it relates to AI, I think as we look out over time, there's been a few questions around flips and getting clients in the cloud. And over the years, we've talked about carrots and sticks. I wouldn't be surprised if we look out in the future that AI will be something that will become more and more available only in the cloud, but we're not quite there yet. But that is something that we're looking at really hard.

And Allan, on the free cash flow side, it was mostly around working capital improvement. So we had strong AR collections. We had -- and some of that is around timing. There's not really any onetime thing in there, but the timing of working capital changes, particularly around collections. CapEx was a little bit lower. And then improved operating margin as well flowed through to cash. But mostly timing events. Our expectation for the full year around free cash flow margin hasn't changed at all. So nothing particularly unusual to point out there, but just good execution.

Our next question comes from the line of Clarke Jeffries with Piper Sandler.

Just a clarifying one for me. You did raise the midpoint of maintenance revenue by about 2 points. I just want to confirm that, that was entirely driven by For The Record. And you've made reference to the time line being a few years for the SaaS transition. Is that at all impacted by the contract length or just the comfortable pace that you want to go through that model transition?

Yes. Most of the maintenance increases For The Record, our expectation around flips and that impact on maintenance changes hasn't changed. So that would be the primary thing there. On the longer-term pace of flips and the impact there, there's not really a contract length factor that's impacting that. It's really around a lot of complex issues that vary from client-to-client about when they're ready to move internally, things like their -- how hard their replacement cycles for hardware in their own data centers, their concerns about cybersecurity, their overall IT road maps and how they can pace moving multiple products to the cloud. All of those things kind of drive that long-term trajectory or cadence around flips and it's a pace we're comfortable with. We can accommodate that. We'd love it to be faster, but we can certainly accommodate it while also serving our new customers and new implementations as well.

Our next question comes from the line of Charles Strauzer with CJS Securities.

Can we talk just a little bit more on FTR and just your thoughts on the addressable market for that product line and client overlap with current plans?

Yes, sure, Charlie. FTR, they've already made a big splash in their space. 45% of the U.S. courtrooms are using it. We look at it as the combination is something that we're able to create something powerful, we call judicial intelligence, something that doesn't exist today, something that can sort of bring together what's right now disparate manual systems between the judge, the clerk, the court reporter.

Right now, as we look at the market, we look at Tyler's current SAM using our client base, we think it's about a $200 million market. But then when you sort of expand that and beyond, just again with their core offerings, that goes up to about $500 million.

One of the things we also are excited about it is it opens up the door for some other revenue opportunities. I don't want to get too carried away with these because we got to bring it in. We got to execute on our own SAM and then execute on the TAM. But there's a lot of things that we think we can do in terms of monetizing the audio and transcript data that actually will increase that overall TAM well north of $1 billion, maybe $1.5 billion. And I'm talking about things like attorney remote access and third-party data sharing, online transcript certifications, attorney insights, even going international.

So there's a lot of other layers that we see playing out in the future, which really fits in well with our overall M&A strategy around trying to expand in new markets, things that can grow faster than we can, avoid gaps in our offerings that are adjacent to our core fundamentals. It's something that I'm really excited about this acquisition. It's going to take time, like all our acquisitions do, but the runway is out there and being able to leverage our strong position in courts, coupled with their offering makes it pretty exciting.

Our next question comes from the line of Adam Hotchkiss with Goldman Sachs.

I wanted to ask Rob's question on cross-sell in a little bit of a different way. I know you mentioned the success and execution on the dedicated state sales team side of things. Could you just maybe help us understand what's happening on the ground with the state and federal initiatives and how that sort of differs from the strategy and the resource allocation you've had historically on that front?

Yes, Adam, we talked about it going back about this time last year. We've really created a whole new state sales team that's just dedicated to the space, something that was different than what was there before. And part of that is new strategic account plans, new strategic account managers, actually targeting states where formerly NIC didn't have state enterprise contracts. So expanding our footprint there.

We're also doing things within the states to try to transform sort of the way historic NIC's business model was. Historically, a lot of their state contracts were funded through DHRs, and we're moving to more of a funded solution type contract. And we've already seen that take -- get some traction with Oklahoma and Kansas. So there's a lot of exciting things going on there. We continue to look at sales all the time and how we can tweak and make it better, and those are just some of the things we're doing in the state space.

Our next question comes from the line of Mark Schappel with Loop Capital Markets.

Lynn, in your prepared remarks, you discussed the goal of getting every client on a single code stream for each product. I was wondering if you could talk about how far along you are in that journey. I suspect it's still early, but also which business segments such as maybe courts or ERP are furthest along there?

You're right, Mark. This is what we call sort of Phase 2 of our cloud transition and what we call as cloud moving. We're going to get a lot more detail on that at the Investor Day in June. And it is trying to get all of our core portfolio of products down to that single release stream, continuous improvement, continuous delivery, coordinated releases across all of our product portfolio. We've been working behind the scenes towards that. And again, we'll give you more details at Investor Day.

Obviously, part of that process is getting everybody to a single version, getting to the cloud version. And each of our divisions is at different stages of that, but they're all making solid progress. It's something to me that's really exciting. It's where we're really going to start seeing some leverage in the gross margins of our cloud delivery.

Our next question comes from the line of Alexei Gogolev with JPMorgan.

Brian, I wanted to ask about the R&D step-up. Obviously, remember how you're migrating some of the costs from COGS to R&D. But where is the investment concentrated in? Is it the agentic AI versus core ERP, courts or some implementation tooling? And what are the clearest milestones to watch out this year?

I think the R&D investment is pretty balanced across the things you mentioned. There is increased -- as you noted, there is an ongoing migration or movement of R&D resources or development resources from the cost of sales line to the R&D line as we continue to evolve along that cloud transition. So that's just a geography change. We also have reduced the amount of R&D that's being capitalized as some of those capitalizable projects have wound down. And so more of the same resources are being expensed now that we're formally being capitalized, so that's not really a change.

But when we look about the true increase in development spend, it's kind of balanced across investments in innovation across our entire portfolio, those things that improve our competitiveness, drive higher win rates and add more value to our existing customers, which has always been a hallmark of Tyler as well as the newer investments and growing investments in AI. We are continuing to move resources that are already on board to the AI side as we do things like execute on version consolidation and free up more internal resources. So it's not a huge hiring push on the AI side, but we are dedicating more of our development resources to those efforts.

Our next question comes from the line of Bill McNamara with Evercore ISI.

This is Bill on for Kirk. On the $20 million state digital motor vehicle titling and electronic lien win, can you provide more detail what differentiated you on that deal? And how should we think about the implementation time line and revenue ramp as we look out to 2027?

Yes. That's an area where we have had a fair amount of success in the last couple of years in providing those solutions. We have a partner in that space that we work with. And we have deployed that solution in a handful of states already as those states move from paper titles to digital titles, create a lot of efficiency in how they manage motor vehicle titling. And those have been typically funded by transaction revenues. So it's been a nice growth area for us. We continue to see a number of opportunities in our statewide client base. And I'd say the solution we're deploying is certainly a leader in that space. That implementation will take place over this year. We expect revenues to start in the first half of next year. Again, there'll be transaction-based revenues, and we expect those as they ramp up to reach north of $20 million a year of transaction revenues.

Our next question comes from Parker Lane with Stifel.

As you partner with your clients on their own AI journey, I'm wondering if you could provide some of the main points of feedback they're giving to you on the current feature set, the road map and the pricing model around that.

Yes, Parker. I think the most important feedback we've gotten is really the point we've emphasized a lot over the last year is trust. And our clients really trust us to be their partner more so than anybody else. They're really concerned about their data and the fact that while -- and the protection of that data, which is something that we do. We talked a lot about the AI Foundry. We mentioned it in our notes. And that really includes all that security we have around it around their data, around their processes, being embedded in their workflows and really helping them do their business and make their jobs more efficient and free up their time from sort of more manual tasks so that they can accomplish other things. That's the message that I think gives me the most confidence going forward.

Our clients have high switching costs, and that plays to our advantage as well. So we do have client focus groups. We had a client advisory board when we spent time talking about AI. Our ERP solutions has their own client AI working focus groups. And the feedback and working with our partners and making sure that we're doing the things that are most meaningful to them is something that really resonates with our clients.

As it relates to the pricing model, it's going to be priced differently. Some of these are going to be priced SaaS. Some AI features will be just part of our competitiveness added into our features and some will be priced as separate modules.

Right now, I think we're still early, but we're getting wins in deals that are validating our models. For example, this past quarter, we won a couple of document automation deals, one in Miami-Dade. I think we mentioned that in our prepared remarks. That's a client where their existing maintenance and support agreement was a little over $0.25 million, and we sold a document automation SaaS deal for upwards of $800,000. So that product is getting a lot of traction in the market. So right now, all the feedback we're getting is positive, and I like where we're sitting and I like our trajectory.

And just to add one thought to that example that Lynn mentioned with Miami-Dade. It's really a value-based approach because with that uplift from the AI-driven document automation, they will generate really significant labor savings. So there's a very strong ROI to that purchase from Tyler.

Our next question comes from the line of Austin Williams with Wells Fargo.

This is Austin Williams on for Michael Turrin. I just wanted to follow up on the AI efficiencies internally that you're seeing. Any color on how you're leveraging AI and any cost savings that you're able to drive there? And as a follow-up, any thoughts on the pace of the buyback going forward?

Yes. On internal AI efficiencies, I would say we're seeing them, but it's still anecdotal at this point. Brian answered a question before about R&D. And the way we really think about internal resources is we really focus on capacity. And so what we're seeing, for example, in the R&D world, it's increasing the capacity of our developers, which allows them to do more, which is great. We are seeing some anecdotal efficiencies in the service delivery area. For example, one of our clients in our appraisal and tax is doing a data conversion.

In the past, this was a conversion that would have taken many months that was down to a couple of weeks. Still early to say that we can apply that across all of Tyler Solutions, but the things that we're seeing are positive and something that we're continuing to focus on.

I don't remember what the second part of the question.

The share repurchase.

The share repurchase. Yes. So we've -- obviously, we've repurchased 2.5% of our stock this year. The average price has been around $315. We still have another $650-ish million under our authorization. When I look at our share repurchases and generally our capital allocation, I've made a lot of comments about our Tyler 2030 path and our goals and the increasing confidence we have in that and the increasing confidence we have in our free cash flow generation that will go -- exceed $1 billion in 2030, and we believe we will continue to extend far out in the future. And when I look at that and have the confidence in our 88% recurring going to plus 90-plus percent, it makes me think that today is a good value. And so, we're going to continue to buy our shares when we think it's a good value.

Our next question comes from the line of Terry Tillman with Truist.

Yes. The part of my thunder was stolen here with my follow-up on the AI-driven deals. I was going to focus on document automation. And I think both Lynn and Brian shared some perspective on that, but there was a lot of deals mentioned here. Did something happen or inflect in terms of maybe just go-to-market and kind of the sales playbook? And with these kind of deals on document automation, does this go beyond kind of where maybe the sphere of influence you had, whether it was courts or back-office ERP and it's like a broader document automation kind of use case that could go well beyond what you typically were doing?

Yes, Terry, I don't know that there was anything more specific. It was just more the timing of these deals. We had 2 big document automation deals. I mentioned one was about $800,000 deal. Another one was Harris County that was pushing $1 million. Brian mentioned the ROI selling point, which I think is something that we focus on, and it's a message that resonates with our clients. As it relates generally to that acquisition of CSI and document automation, absolutely, we think it's applicable across more parts of our portfolio. Our initial focus has been in the court space. That's where their bread and butter was, and that's where we have a really strong presence. But it is something that I expect to be rolling out across other Tyler portfolio products.

Our next question comes from the line of Matt VanVliet with Cantor.

I guess, I wanted to drill in a little bit more on the raise of the revenue guide for 2026. I presume it now includes For The Record, curious on what the contribution was there. And if there was anything else that were sort of puts and takes in terms of raising the guidance?

Yes. For The Record is the biggest contributor to the revenue gain, and that added in the neighborhood of $30 million of total revenues. In addition, we continue to see a little bit higher volumes around our transaction-based business. Some of that reflected this quarter in the actual results. And so to the extent our expectations have changed at least modestly around that, we factored that into the guide for the year. But again, the vast majority of that would be the result of the FTR acquisition.

At this point, that concludes our Q&A session. I will now turn the call back over to Lynn Moore for closing remarks.

Thanks, John, and thanks, everybody, for joining our call today. If you have any further questions, please feel free to contact Brian Miller or myself. We look forward to welcoming many of you to our June Investor Day in person or on the webcast. Thanks again, and have a great day.

Ladies and gentlemen, this concludes today's conference call, and we would like to thank you for your participation. You may now disconnect your lines.

All right. I think we'll get started. Thanks, everyone, for joining us. We have the pleasure of hosting today, Brian Miller, the CFO of Tyler Technologies. I'm Matt VanVliet, the Application and Software analyst here at Cantor. I'll kick it off with a few questions, but would love to have some audience participation. If you have any questions, feel free to raise your hand, and we'll get those answered as well.

But I guess maybe we'll start off from kind of the high level of software is not much in favor these days, especially the application layer with investors. But I guess if we take a step back in terms of what you're actually hearing from your customers, how much demand are your customers asking for on AI? What's maybe the impediment to adopt it more quickly? And maybe for those a little less familiar, Tyler primarily sells to the public sector. So think of your local governments, school systems, things of that nature. So maybe not the fastest adopters of technology ever, but how is AI changing the discussion you're having with your customers?

Yes. So you're right. We're exclusively in the public sector market, and that's really different from the private sector or enterprise market in a lot of ways, but especially around how they acquire technology, what drives them to do that, how they operate.

And rarely our government is looking to be the first to implement new technology. We've seen that with a very long transition to the cloud and their reluctance to embrace the cloud for a long time. And they're risk averse. They're not -- they don't have competition. So that often governs kind of how they look at new technology. They don't like change. And so they typically wait until they see things really proven elsewhere and see other governments to use something successfully.

And it seems to be the same around AI. We're having a lot of conversations with our clients. It was a big topic last year at our user conference, and I'm sure it will be again in May at our user conference this year. But in terms of new business like RFPs or new business conversations, AI is really not a topic much there. They're curious. You can't help but hear about AI every like 2 minutes somewhere. So they're curious, they kind of want to understand more, but they're not asking for it right now or saying it's got to be in new purchasing decisions. They're not allocating a lot of budget to AI. And it's not the kind of thing that they'll do themselves.

So Tyler is investing in AI around our products, looking for things that really solve practical real-world problems that our customers have. A lot of those stem from staffing shortages. Governments for the most part, don't have enough workers. And often, that's because their processes are really inefficient because they have old technology, paper-based, don't have online access for citizen self-service, that sort of stuff. So AI can kind of continue to help solve some of those problems.

But as far as why we think we have the right to win and the opportunity to bring AI to our customers around our solutions is really kind of 3 main things. One is the domain expertise that we have deep domain expertise in these very complex workflows and processes around things like public safety, 911 systems, Courts & Justice, licensing and permitting, property taxes. So very specific but very complex operations. So we've built the system of record. We have years or decades of experience around those, really deep expertise in our people and in our products.

The second is the trust and the relationships. So we often have decades-long relationships with these clients, and they trust us, and they look to us to bring them new technologies and show them how to use that around the systems that they have that operate mission-critical, essential functions of government. So they typically -- again, they don't trust kind of new entrants. They're not taking a chance very often. So that trust is important.

And the third thing is around data that we have data from thousands of customers. We've got about 45,000 installations of our products across 15,000 different jurisdictions. So millions of transactions that are flowing through our systems that we have the data to be able to build models and incorporate into AI effectively. So there are -- we have some products today that are AI-driven. Some of those came from acquisitions, but those products are live solving problems being used fairly widely.

One is a product in the courts area that called document automation that automates data entry, so a pretty simple process, but solves a bottleneck that the courts have. So taking data out of a document that comes into the court system and creating the case style electronically or digitally rather than court having to do that. We sold that to a large county in Florida in Q3, just an idea of kind of the revenue there.

The customer is paying $750,000 a year in maintenance for their on-prem court system. They're paying us $950,000 a year for the document automation for the AI add-on, but saving $2 million a year in labor costs. Application reviews of product are an AI add-on that we currently are piloting around our licensing and permitting system. So we're one of the -- probably the largest provider of those kinds of systems for governments across the country.

So think about a building permit where a lot of places, it might be a 6-month backlog to get a building permit approved because there aren't enough clerks to do the work. So using AI to automate that process and do something in a few minutes that might take clerks days to do. So those kind of applications, often -- we're even finding that customers are taking this -- the funds for these out of labor budgets rather than IT budgets because they do see it as a replacement for people that they otherwise are struggling to find.

I guess the other area really is around agents. So resident engagement, we've deployed resident engagement portals now in 6 states. So again, building on the relationships we have with the state governments and the deep understanding we have of how a state government works and all the complexities there. So building resident engagement portals to answer questions and help citizens find information.

We just signed in Q4, our first county level customer for the resident engagement portal in Fairfax County, Virginia. So those are kind of an idea of some of the things we're investing. And we have some things in -- as I said, some things that are already out there, some that are in pilot that will roll out more broadly this year. But again, I think the adoption will be probably slower than you would think, but consistent with what we've seen in the past in the public sector.

Very helpful. And maybe, I guess, as you think about planning for '26, even into '27, how are budgets for your target customers looking? How much growth is there annually? How much visibility do you have in that? And then how do you build that into a go-to-market plan and forecasting out?

Yes. Generally, the budget backdrop for governments, and we're about 75% local governments and cities, counties, school districts, local agencies, 20% to 25% state and less than 5% federal. And generally, at the state and local level, especially the local level, budgets are pretty solid. We've said for the last several quarters that the level of activity we're seeing in the market has been stable at elevated levels. So really solid number of RFPs, new sales demos, the way processes are moving. So the pipelines are strong.

Our win rates are consistently very strong. We're generally a leader in those areas where we have core products. And a lot of the demand -- the core demand is driven by aging systems that have to be replaced, people that had a system that's 20, 25, sometimes 30 or 40 years old that is at end of life. And so replacing that is a fairly nondiscretionary decision. And that creates a stable kind of never explosive, but very stable level of business.

And then on top of that, I think we're seeing some incremental demand that's being driven by this increased focus on government efficiency. So DOGE obviously, was a big topic a year or so ago. But even before that, governments were starting to look. I mean we saw a number of states that had efficiency commissions or something like that. And governments are really starting to maybe look at how they use technology differently and seeing technology is really the way they get more efficient. So governments have always had a need to do more with less.

They never have enough money or enough budget even when times are great. So they're starting, I think, at some level to say, yes, I could use the system for another 10 years. But if I replace it now, I'll get these benefits and actually kind of look at it almost on an ROI basis that is not how they've typically looked at acquiring the technology. So I think that's providing some incremental level of activity.

So yes, our market is good. I think we're expecting to see solid bookings growth this year and our guidance is for overall growth in the low double-digit range and SaaS growth north of 20%, which would be that our SaaS has been growing more than 20% in the last 3 or 4 years.

And maybe on that topic, we're kind of in the middle -- probably the middle innings now of this cloud migration. You've re-architected a lot of your products on the AWS infrastructure. Maybe talk about, one, from the demand side, what that's unlocked moving to the cloud. You talked about shortage of not only staff, but maybe budget in general to do hardware refreshes. What is that influencing on the demand side? And then on your end, how is that helping reduce OpEx or changing the economics of your product when you move to the cloud [indiscernible]?

So yes, we're in, I guess, the latter stages of the cloud transition that's gone on for several years actually, not because we haven't been moving fairly rapidly, but because our market has moved slowly. So really going back to 2019, we moved from sort of a hybrid model offering either on-prem or cloud to offering just cloud in the new business market. But the migration of our decades worth of on-prem customers to the cloud has continued to move kind of gradually, but has accelerated really in the last 4 or 5 years.

If you look at our overall customer base today, again, the high 90s percent of our new business is cloud, but our customer base overall in terms of sort of a revenue equivalent is like 53% cloud and 47% still on-prem. We previously hosted our cloud customers in proprietary data centers. In '25, we exited the last of those. So now our clients are fully hosted in AWS. And we continue to migrate the on-prem customers to the cloud. We've said that by 2030, we expect that, say, 80% or 85% or more of our customer base that was on-prem in '23 will have moved to the cloud. We're on track for that.

Last quarter was the highest number, both in number and dollar value of flips or on-prem migrations that we've had to date. We said the peak of the flip still will be kind of in the '27, '28, '29 time frame. We see it as a bell curve and kind of the top of that curve is over those 3 years.

Our on-prem base is still a bit more heavily weighted towards large customers, the statewide court systems, large places like New York City's property tax system that tend to move even more slowly. But it's really -- I think virtually all of our customers now, it's not a question of are they going to move to the cloud and trying to convince them why they should, but just when our customers all understand the benefits that they get. And not only it's good for Tyler, but it's good for them. It's a better client experience.

Local -- and so as we move those customers on-prem customers to cloud, we're typically getting on a like-for-like basis, a 1.7x or 1.8x uplift in revenue moving from maintenance revenues to SaaS. We're also seeing growing opportunities to upsell or cross-sell, sell more products to them as they move to the cloud. So they may be moving a Tyler court system to the cloud, but don't have our jail system or our prosecutor system. So we have a chance to add those on. And in some cases, adding payments processing on as well. So it gives us a good chance to have discussions about other things that they could get from Tyler.

From a margin standpoint, a significant part of the margin expansion we've talked about through 2030 is coming from the cloud transition. It's kind of 3 drivers or 3 main drivers. One is version consolidation. So on-prem, we have historically -- we not only have a lot of products, but we have supported multiple versions of many products, which has been expensive from both a support standpoint and a development standpoint.

Ultimately, we will have one version of each product in the cloud that everyone's on and everyone upgrades at the same time. So really a true SaaS environment. And as we move towards that, we've been sunsetting older versions, consolidating down to now where we've made a lot of progress with that in most of our major products, almost all of our customers are on 1 of 2 most recent versions. So that puts more customers in a position to move to the cloud.

Product -- cloud optimization of products. We've been continually working on optimizing the architecture of our products to take advantage of the features in the cloud and specifically at AWS. So that lowers our hosting costs and improve margin there. We've released a lot of those cloud optimized products and continue to make progress there. So that will help drive some of the margin expansion we expect through 2030.

And then part of it is just scale. So the more capacity we use with AWS, the lower the unit costs get. Right now, we still have some -- what we refer to as bubble costs associated with the transition from our data centers to AWS. Those -- a lot of those will roll off after this year. So we've talked about a 30% plus operating profit margin by 2030. We're actually a bit ahead of track on that. But a lot of that's coming from the cloud transition.

Very helpful. And you talked about the ability to upsell in the cloud. Obviously, putting together multiple products is a little easier when it's all kind of on one similar architecture. I guess from the product development side, though, you have this connected communities idea out there of you've made acquisitions in payments, you've made acquisitions in some of the kind of point solutions that sit on top of core systems.

As you think about that, what has been the biggest challenge of getting, say, a local community to buy onto the Tyler platform, understanding that each little department has their own little fee. There's no CEO necessarily who dictates from the top or a CIO. So what's sort of the challenge in the market, but then what benefits does that give you from a competitive standpoint with a more connected system across departments?

Yes. It's a big opportunity for Tyler. We've talked about cross-sell and upsell as a very important growth pillar. We have, by far, the broadest product offering of anybody serving the public sector market. Most of our competitors, it's still a really fragmented market, historically been served by a lot of point solutions, some of which were companies that were not only narrowly focused from a product perspective, but also narrowly focused from a geographic perspective. So we have the biggest customer base, and we've got the broadest product offering.

But we still have a relatively modest market share. If you look at the whole -- all of local government and state government software, we've probably got maybe a mid-teens kind of a market share. Some products are certainly well above that, but just shows you how fragmented it still is. So our average customer has 2 or 3 products from us.

And I think of that as like a suite of products. So at a county, they might have our court system and our ERP system, but they could also have our public safety system, our licensing and permitting system, our property tax system. So the average customer could have 8 to 10 products from us. So there's still a really significant opportunity just within our customer base.

And then as you said, we've got a really robust payments platform now since the NIC acquisition. It gives us the ability to layer payments on top of that where a lot of our systems like utility billings or traffic cord or property taxes are processing a lot of payments so for us to add that service on top of it. There are -- I guess the biggest limiting factor is just the way that governments buy software is that we historically kind of have to wait until that next system gets to end of life.

And then we think we should have a really -- or we know we have a significant advantage in winning that next system. Some of these are very closely integrated like property taxes and courts. That's sort of a whole process. You think about from a 911 call through a police officer being dispatched. So there's a computer dispatch system, there's a records management system. They take the guy to jail. So there's a jail system. Prosecutor files charges. There's a prosecutor system. There's a trial, so there's a case management system. There's a jury system, a probation system.

If you think about that whole process, a lot of places that might be 8 different systems from 8 different vendors, maybe 2 of them are homegrown. Some of them are integrated, some of them aren't. So they start all over with data entry along the way. So we're the only company that can provide all of those systems. They rarely would buy all of those at once. But as each of those needs to be replaced, we have a big advantage there because we have a fully integrated system.

The data already flows through those -- the interfaces are the same. So it's a fully integrated suite of products. Others like maybe property tax and courts aren't really integrated, but we have common foundational elements like security and sign-on, workflow engines, payment engines, the dashboards, so things that create more value from having more of those systems from Tyler.

So we do think that the cloud, as I said, cloud transition gives us an opportunity to accelerate some of those add-on sales. And I guess one other thing that we've -- that we're currently investing pretty significantly in is really around continuing to improve the client experience and provide a more uniform client experience across Tyler products because Tyler is the product of a lot of acquisitions.

And as we've evolved and as we have more customers that have multiple products from us, it creates some themes in the client relationships that they may have three 800 numbers they call for support for different products. They may have different professional services teams with different products that have different processes and different back-end systems.

So we have -- we created a new position about a year ago, Chief Client Officer, and he's really tasked with really creating that unified experience. So standardizing systems, standardizing processes make it easier for someone to do business with Tyler as they add more products. And that's a very active process right now that we've made a lot of progress with, and I think our customers are seeing that.

And maybe on that front, historically, you've made some of these acquisitions to get into maybe adjacent subverticals. But a lot of times, those were still sold by kind of a dedicated product team. But over the last couple of years, you've really layered on this cross-sell motion and gotten that muscle trained better. What have been sort of the biggest findings? And maybe how have you tweaked that model to understand there's a client relationship and who you can leverage there to sell more products and how has that been sort of a growing pain within Tyler in the last couple of years?

Yes. I think as we have more products and the ability to cross-sell more products, we've had to refine kind of how we go to market and how we do that, where we do have multiple sales teams that are very much product focused and they're experts in that. They have relationships in that, but how we tie those together. And so we've made -- a lot of things we've done, we've changed compensation programs so that making sure everybody is getting paid that's involved in the sale.

We've got more -- we've created the kind of the go-to-market strategies about, for example, layering payments onto a software product. So we have a utility billing system or we're selling a utility billing system or we have an existing customer that uses that, and we want to add payments on to that so that we're doing the processing around those payments.

So we have a utility billing software sales team we also have -- that's part of our public admin group, but we also have team that's focused on payments. And so how those work together, who kind of takes the lead on that, who does the implementation. And all of that has been standardized and sort of optimized to make sure we're taking advantage of those opportunities.

In some areas like with state governments where we have these very deep relationships with 28 states from the NIC acquisition that gave us -- we have these statewide enterprise contracts where we provide a wide range of solutions under a transaction-based model. So it's funded by convenience fees. So it's not -- doesn't have to be budgeted, doesn't have to be appropriated funds. And so we have these deep relationships with CIOs and state governments, but we have many Tyler products that we could sell into state governments through those relationships.

But sort of bridging that gap and making sure we're taking advantage of that, there was sort of a need there. And so last year, we created a new state-focused sales organization with sales leaders for each state that bridge between all these Tyler products and these deep relationships we already have at the state level so that there's one sort of point of contact that can kind of manage that. And we're seeing success with that even in the kind of early months of that where that's proving to be effective.

All right. I have one more maybe here. And if anyone has in the audience questions or we can go now. I'll come back to another question...

[indiscernible]?

Yes. So how our business is sort of organized and how it breaks out by revenue. So about somewhere around 30% is what admin. So that would be ERP systems, accounting, human resources, payroll. There's a wide range of applications within there, things like parks and recreation and even down to cemetery management. So they're very specific things for government. And that really differentiates ourselves from a horizontal ERP player like Workday, which doesn't have a utility billing system or a parks and recreation system, those sorts of things.

We've got property tax. We're the leader in property tax systems, mass appraisal systems, billing and collection systems. Those are somewhere around 10% of our business. Public safety around the same level. So public safety, we do 2 major parts to it, computer dispatch, which is 911 and records management. There's some other ancillary applications there.

Courts & Justice is between 10% and 15% of our business. That's by far our most dominant product. We have about a 55% market share of courts in the U.S. that use our case management system. But we also have jails, prosecutor, probation, jury, all -- that whole suite of products there. Licensing and permitting, community development is kind of less than 5%. In schools, we do some -- in addition to ERP for schools, we have school bus transportation solutions. We're the leader in that space. We have -- and then what we call platform solutions, but it's basically our payment solutions and our state enterprise is around 1/3 of our business.

Any other questions out there? I guess maybe coming back to the one you talked about security. Obviously, building something over the weekend with Vibe coding, getting a product out there is maybe more capable, but what people, I think, sort of lost over is the governance, the cybersecurity, the compliance elements of it. I guess how important is that to differentiating your product? And how is -- how have security incidents actually driven more demand for whether it's the cloud migration or net new products?

It's certainly both. Governments, just like private sector enterprises face a lot of cybersecurity concerns. I think, in general, governments and especially local governments are probably often less sophisticated and less comfortable with their ability to be protected and especially where they're using technology that may be decades old, homegrown mainframe systems that may have a lot of vulnerabilities.

And so we see an awful lot of ransomware attacks and cybersecurity incidents in our customer base and throughout our space. So that is a major factor in both customers considering replacing systems and maybe replacing systems even that might have some life left in them, but another concern they have as well as customers flipping to the cloud. We often see customers who aren't planning to move to the cloud in the very near future, have a ransomware attack and move immediately. That's their recovery. And we also then see typically their neighbors and peers, the counties around them, see what happens and have a greater interest in moving.

So for example, a little over a year ago, Fulton County, Georgia, which is Atlanta, a big customer of Tyler. Their large courts -- they use our court system, our property tax system. They're our largest jail customer. So a number of systems from Tyler had a county-wide ransomware attack that locked up all of their on-prem systems. And so we were able to actually bring them up in the cloud in a matter of days on a sort of a light version and then move them to the cloud, even though they weren't planning to move in the near future. So we were able to get all of those systems up and running.

You can imagine that the jail system is down and they're doing everything manually there, that's a problem. And they were a public safety system or any of these mission-critical systems. So that is a big driver of customers having a greater interest in moving to the cloud. That, coupled with general staffing shortages, governments, especially in IT, have a lot of aging workforces. There's this, I guess, grey tsunami, they call it, the people that are -- this retirement that they're in the middle of and facing more.

They lost a lot of employees during COVID, a lot of the workforce that they've had trouble getting back. And especially in IT, they struggle with hiring or replacing people that retire that have a lot of -- wear a lot of hats and have a lot of skills. They have trouble paying market rates for a lot of those skilled people or just generally attracting them to go to work for the county government.

So even if they want to keep running these systems, maybe a mainframe homegrown system in-house, they don't have the skills to keep doing that. And so that continues to be a big factor in customers either replacing aging systems, but moving to the cloud at the same time.

All right. Well, I think we're at time. So I appreciate everyone joining us. Brian, thank you for joining us. And on behalf of Cantor, enjoy the rest of the conference. Thank you.

Thank you.

All right. Good afternoon, everyone. I'm David Chen with Morgan Stanley, and I'm very pleased to have Brian Miller here, Chief Financial Officer of Tyler Technologies. Brian, welcome.

Thanks. Great to be here.

All right. So why don't we just kind of get started with, for those of you that are possibly maybe new to the Tyler story. Provide -- just kind of give us the quick sense of the company and the products.

Sure. vertical software company focused exclusively on the public sector market. So we provide a wide range of software applications that manage essential mission-critical functions of government. More of -- most of our focus is the local government level. So cities, counties, school districts, local agencies make up about 70% to 75% of our business. Another 20% to 25% is at the state level and less than 5% federal. So not much exposure there.

We have, by far, the largest, broadest product portfolio in the industry, which is a very fragmented space historically as well as the largest customer base. So we've got about 45,000 systems installed across about 15,000 different jurisdictions. Revenues will be about $2.5 billion this year. Market cap is around 15%. And we also have a growing transactions business as well. So we do a lot of things about processing and transaction-based services, especially for state governments, but we're driving that down into our local government base through integration with our software products. So we have a really -- the transactions are about 1/3 of our business today.

I thought maybe just bring it to something that everyone can relate to. Just maybe pick one of your flagship customers that are using a wide variety of your products across public admin, public safety, and just bring to light what that customer is actually using Tyler for across kind of the core software categories?

Yes, sure. We have some customers we call total Tyler customers that have jumped on the bandwagon fully. And one of our big growth drivers over time is our ability to cross-sell and upsell. So the average customer at Tyler has 2 or 3 products. And when I say products, I mean like a suite of products or products in a suite or an office like public safety or courts or property tax or public admin, ERP. So the average customer has 2 or 3 of those products, could have 8 to 10 with most customers. And then even within a suite of products, we have opportunity to -- they don't necessarily have everything. We have -- some of them have our court case management system, but not our jail system or our jury system or our probation system.

So there are a lot of different cross-sell opportunities. But a customer like Mobile, Alabama is a really good midsized kind of right down the middle, total Tyler customer. They have our ERP system, utility billings, public safety, municipal courts, licensing and permitting. So really almost all of their core functions are run on Tyler. They were also one of the early clients to move to the cloud. So they were one of the first clients to have all of those products in the cloud. So they've been kind of a flagship customer.

Another bigger customer where we're located in Plano, Texas, Collin County, just outside Dallas, started with our ERP system years ago, added our Courts & Justice system, our jail system, and has continued to expand their relationship with us. So still a really big cross-sell opportunity in front of us and now we're laying payments on top of those software products.

Yes. So bring to life, it might not be just intuitive if you're a typical software investor that looks at more horizontal categories, Salesforce, CRM, sales and marketing service, that's very intuitive. Like in your space, I guess my favorite example is like if I get arrested by a cop, he or she can then book me into the court room faster. Give me a sense for some of the natural linkages between your...

There's a lot of value created by having more and more Tyler products. They all get sold based on stand-alone features, functionality, references and reputation. Our presence in the market is a big thing. Governments are risk averse. They don't like change. Take a lot of comfort in buying something that works really well in peers and also problems also are really well known because they don't compete with each other. They talk to each other a lot. But if you think one of the great examples is the integration of public safety and courts. So those are bought by different decision-makers. Public safety system would generally be, say, the police chief and the court would be a courts administrator. And they're obviously adjacent markets.

We're the only company that has products in both of those suites. So we compete with all a bunch of companies in public safety, like Motorola, CentralSquare. In courts, we have a different set of competitors, but those products are tightly integrated. But if you think about that whole, an incident or a process from start to finish, so there's a 911 call that's dispatched through a computer-aided dispatch system. The police officer responds, he arrests somebody. There's a record management system where all that data is captured and reports are created. He takes the guy to jail.

The jail may not be in the city, it may be in the county. So you may be now crossing a jurisdiction, but they're booked into a jail through a jail system. The prosecutor files charges through a prosecutor system. There's a trial. So there's a court case management system. There's a jury system that manages the jury and then say the person is put on probation so there's a system for probation. Along the way, there's an electronic warrant system as well, and there's other things. Maybe you think about that, I don't know what that was like maybe 8 different...

Different things, yes...

A lot of places that would be 8 different systems from 8 different vendors, maybe 2 of them are homegrown. Some of them are integrated, some of them aren't. So a lot of those points along the way, they start all over with data entry. The biggest example is when that police officer, he's arrested somebody, captures a lot of information. Who's the guy, what did he do? And that goes into an arrest report on the terminal in his car. But he takes the guy to jail and they start all over, who's the guy, what did he do? And it might take 45 minutes to book someone into jail.

If those are both systems from Tyler, even though one may be in the city and one is in the county, they're integrated out of the box. So all of that data kind of pre-populates or prebooks the guy. So it takes 15 minutes instead of 45 minutes. And so you get 30 minutes more. The police officer is back on the street 30 minutes faster.

And so those are the kinds of advantages that you get from being able to buy more and more products from Tyler. And we are, by far, the largest provider of court systems. About 55% of the country uses our court case management system. So as those jurisdictions need a public safety system, we should have a very strong advantage in being the vendor selected there.

Yes. That naturally -- like question on just like go to market. Just how do you take -- a typical enterprise software company has a field sales person and then product leads in different functions that -- and that's just a coordinated -- this is one person who sells to the entire organization. Like how does that work?

That's a little different. Within each of these functions, they're typically a different decision-maker. It's typically not a top-down decision. They may have IT sort of some standards or -- but generally, it's not like a CIO making the decision, and it's not like a city manager making the decision across all this stuff. It's the functional leaders, some of whom may be elected, some may be not. But -- so they each buy based on features and functionality and reputation. But they understand the advantage, and we show them the advantage.

So we have a different sales organization for each product. But they work in a coordinated manner. And one of the things we've done more recently to help us drive more cross-sell and create a more unified customer experience because it becomes also they get more and more products from Tyler. It has become more complicated for them because we have different support organizations, different professional services team. And so we have a new client -- Chief Client Officer, who's really driving a lot of standardization to create a unified client experience with the ultimate goal of being able to have much happier customers that want to buy a lot more stuff from us.

Yes, to make sure the left hand is talking to the right hand.

Exactly, one door to Tyler, those sorts of things. But we also have kind of account executives now, starting with the biggest clients, but where there's just one overall account executive who's responsible for helping them develop their long-term road maps across multiple products, but also just being their single point of contact and then they bring in their appropriate resources.

So you are...

We actually are rolling out more of the...

Software model.

Yes.

How big of a customer would that be to get an account executive?

Yes, to have a dedicated one or to have one who has a handful, probably the top 25%, 30% of our customer base, and we have a lot of really small clients. And the other thing we've done, last year, we created a dedicated state sales organization. State is a newer market for us. We established a big presence in the state -- government space through the acquisition of NIC about 5 years ago. And one of the strategies around that was that these relationships we had with NIC on the transaction side, would give us a leg up and sell software to state governments where we didn't have relationships, didn't have sales organization.

So we've more recently created a dedicated state organization that is sort of a bridge between those relationships we have and all the Tyler products that we could sell in there. So there's like one primary account rep, and then they bring in the product specialists when they need to.

I'd say. So within any given state, you could have account execs for different jurisdictions. And then you have a state -- and overall representative. Yes, I see. That's interesting. And all of that is relatively new for Tyler.

Yes, a lot of it's evolving.

A couple of years...

Tyler is grown as we've done acquisitions and broadened our product portfolio and had more of those opportunities. The business model needs to evolve to make sure we're taking advantage of all those opportunities and the structure needs to continue to evolve as well as some of the back-end stuff.

Yes. Big question would just be just in terms of just the overall demand drivers. Just help us make sense of just, you've got expectations of citizens. You've got ARPA, which was a big driver, but then it's obviously come down, just like workforce pressure, just -- heads and tails, just like...

The basic demand driver. At the core for most of the demand is just, they've got an old system that's reached end of life. And it's sort of...

Half paper and pencil or just...

Yes, or just an old system. So governments, again, because they don't have competition, because they're not profit motivated, have historically, they don't like change. So they've historically used software until it's like on its deathbed, right. About -- it may be from a vendor who's no longer supporting it, it maybe runs on old hardware. We're replacing systems that were purchased in 1999 because of Y2K. It could be an in-house system written in COBOL in the '70s.

So for whatever reason, they've decided that now I really have to replace it. And that sort of creates this very stable consistent demand, it's never explosive, but it also never goes away. And we still think that well over half of the systems that governments use fall in that category. So that -- it's a little bit hard to accelerate that demand or to create demand, but it's always there. The more -- the things that kind of on top of that are some of the things you mentioned.

Workforce is a big problem. Governments, especially local governments have aging workforce, people retiring, big percentage of their workforce retiring in the next few years. Struggling to hire people, to attract them to work for public -- in the public sector. To pay market rates especially on the IT side. That's one of the big drivers of our customers moving from on-prem to the cloud because they just struggle with running their systems in-house, even if they want to.

There is a -- I think what we're seeing more recently, though, and it's -- I mean, you could sort of associate it with DOGE, but there was really a lot of focus, an increasing focus on government efficiency even before there was a DOGE. Governments constantly have to do more with less. It's a common theme. It's nothing new. They never have enough resources to do everything they want to, but they've normally been insulated because they don't have competition. You don't really have a choice. Where -- it may be cumbersome to go down to the DMV and you don't like it, but you don't -- there's nowhere else to go get your license plates.

So they have typically not used technology to move forward. But now with this growing focus on efficiency as well as pressures from the public, I mean, the public does want better service and says, "Why can't I get the same experience I get as a consumer with the government." But there is a growing awareness and focus on efficiency. And ultimately, the way they get more efficient is using technology. It's -- a lot of times, their processes are inefficient because they're really driven by the technology limitation.

So they have an old system that doesn't provide for online access. So there's no ability to provide citizen self-service. They may be very paper-based. So we replaced a lot of court systems that were entirely paper-based with -- Cook County, Illinois, had 10 people whose only job was to push shopping carts of case files to the courtroom every day and stack Manila folders on the judge's benches. That system now is entirely digital. There is no paper in the courts. Documents are filed electronically. The judge has an electronic bench. And there's massive amounts of storage. It's kind of a green story because all that paper isn't used anymore.

But those are examples. And so I think what we're starting to see is -- and there's sort of some incremental demand or some pull forward of demand. It's not a flood of anything today, but there is some incremental demand around people saying, yes, if I make the effort now, spend the money now, I actually do get a return that is valuable to me.

Yes. Makes sense. All right. Got to hit the big topic. So I mean kind of related to what you just said, we have Sam Altman tomorrow, we had Anthropic yesterday. What's it like at a local police department or local city office, where they're seeing this AI craziness. Are they saying "Hey, I'm going to go try to Vibe code my own technology." Or are they saying, "I don't get into that?" Or are they saying, "Hey, maybe I need to get some of the benefit from that through some of the vendors outside."

Closer to the latter. Governments are never -- rarely, I'd say, want to be the first with anything. There are a few governments that are more progressive than others. But generally, government is not the first to adopt any new technology, and that's certainly been evidenced by the very slow pace at which they've moved to the cloud. They -- and AI is, I think, right now, the same. They're very curious about it. They obviously hear a lot about AI, just like all of us do. But they don't want to be the first. They're certainly not going to do it themselves, Vibe coding or something. They really are interested in how AI can solve real-world, real practical problems that cause them tax and toil all day long.

So they're kind of pretty simple sorts of things that are the kinds of use cases they're interested in. And that's where we're focusing or prioritizing our investments. We have some products already that some of them have been acquired that are discrete products that have AI at their core. So we have a product called priority-based budgeting which uses AI to help a government align their budget with their priorities, and they basically find places where they can reallocate funds to a higher priority topics.

We have a product called document automation that came from an acquisition of a partner of ours in the court space that automates data entry in the court system. And so instead of a clerk having to look at a lawsuit that came in and create a case in the system and extract data. That can be done with AI to identify all those data elements, pre-populate -- populate the case file, so they need fewer clerks. We sold that to a large county in Florida. It was paying us about $750,000 a year in maintenance for the court system. They're paying us $950,000 a year for the document automation piece, but they saved more than $2 million a year in labor costs. So clear value, something they're willing to pay for and that they can solve the problem that they have. They don't have enough clerks.

One of the things you talked -- you mentioned the report writing. So police officers spend a lot of their day writing reports 2 or 3 hours a day on average. So integrating AI capabilities to help them assist with that. I think what governments are looking for and what Tyler can provide is that it's not part of current buying processes. We're not seeing it in RFPs or current requirements. Say, but what we're bringing to them are things that solve those kind of real problems. The things that give us an advantage there and why they -- we believe they'll continue to want to buy those from us is the domain expertise. So each of these things like report writing in the public safety system, they could use ChatGPT. I guess, the police officer to write a report, but this has to be right.

It has to be integrated with the whole law enforcement process. It has to be ready to go into a criminal case or whatever. So there's a whole layer of domain expertise around how that's embedded in the product. We have another product, one of our early development efforts is around application reviews. So another kind of simple subject, but we're a big provider of licensing and permitting systems, like building permits. A lot of places, there's a really big backlog to get a building permit. It might take 6 months because there's just not enough clerks to review those applications.

So AI can review that application in minutes and replace the work that a lot of clerks do. But it needs to be -- we've got the domain expertise because we built the underlying system of record, which is a really pretty complex workflow around licensing and permitting. So customers trust us to have the domain expertise and to integrate it with those products.

We have the relationships. So we've got decades-long relationships with a lot of these customers. So they have that trust factor that they don't have with a start-up or a company that doesn't have a lot of experience in the public sector. And the third thing is really around data. So we have not just the data from that customer system and their transactions, but we've got the data from hundreds of licensing and permitting customers and thousands or millions of building permit applications over time that can help train those models and make them more effective.

So that combination is something that others can't match, and it's what governments are looking for.

So in many cases, you're actually the system of record?

Yes, yes. So we've provided that under -- that court system or we provided -- so just like someone else could write an application, could use AI to do data entry. But we fully understand how that court process works and what court documents look like and they get it from us. It's not -- they don't have to have another vendor. And as requirements change or processes change, it will stay up-to-date.

And the last piece would just be the idea of a -- not a nationwide network effect, but there are some really interesting localized network effects with...

Yes. Around data, there is some -- that's another one of the advances you can get from working with Tyler. So not necessarily completely AI driven, but we have the ability to create networks or regional networks or in some cases, particularly national networks using data in Tyler systems. So one good example is -- and we talked about kind of a concept of connected communities. So things that don't necessarily stop at a city limit or a border.

So in the court space, again, there are outstanding warrants for people that are wanted for something. Those are typically -- although TV might have you believe that there's a big nationwide database of all of these kinds of things. There's really not. And so those warrants are typically at a county level and are contained in the county court system.

So in North Texas, where we're located, there are probably 10 or 12 counties in a region. So a police officer could have one -- someone stopped in Collin County. Literally across the street is Dallas County and they could be wanted for something there and have a warrant out for them, but that officer wouldn't see that.

Wouldn't see it, yes.

So where those counties are all Tyler customers, they're all on their own system, in their own instance of the software. But we have the ability to publish different data elements that are important to a private cloud and have that shared amongst them. So they all have access to outstanding warrants for anyone in that group of counties. So we're able to provide that access to that data through our presence there without someone trying to build individual interfaces across these lines.

Right. Excellent. One of the key strategic focus areas for the company over last several years has been the SaaS migration. So just give us a sense for where you are in that journey and how is it going?

Yes, it's been a long process. Again, very representative of government. So originally long ago, we were completely an on-prem license model. Then for a long time, we had a hybrid model. So we offered a cloud, actually a private cloud or a hosted model in Tyler data centers, paid for us a subscription, but really the same software just hosted a Tyler data center. And we were cloud neutral or cloud agnostic. We didn't care how people bought it. And then really going back, I guess, 2019 was kind of the tipping point we said we were cloud first. We're going to stop selling on-prem licenses for most products. We're going to do what we need to do to encourage customers to -- on-prem customers to move to the cloud more rapidly.

Is it carrot, stick?

Today, it's more carrots. So -- and that process of customers moving has been slow, but has accelerated in recent years. But still, if you look from a revenue perspective, if you put all of our revenue -- our maintenance revenue on that cloud equivalent. I think we're 47% on-prem and 53% cloud. So we still have a ways to go. We expect that -- we've said...

Just roughly 53 -- just give us a sense of where just maybe a few years ago, where was that...

When we -- in I guess 2019, we made the shift. It was probably 25% of cloud, maybe even less, maybe 20%. We've said that by 2030, we had an Investor Day a couple of years ago, set a certain number of targets for 2030, some interim targets for 2025. But we said, by 2030, we expected that of that base that was on-prem at that time that 80% to 85% of that would convert by 2030, and we're well on track for that.

Still on track...

The peak is really going to be, if you think about a bell curve, kind of the top of the curve is going to be in that '27, '28, '29 time frame, somewhere in there. The on-prem base is still more heavily weighted towards large customers, not surprisingly, it takes them longer. They've got more things to manage.

So we still have the impact of a lot of large customers to go. But carrots and sticks, today, I think the biggest carrot we're using, obviously, they know that we don't sell on-prem anymore. I think with virtually every customer, it's not a matter of why they should move to the cloud or are they going to move? And I think we'd have almost no customers that say, I have no plans to ever move. And that was different, like 3 years ago, convincing them why, but it's more about when, how, what the process is and how it fits into their priorities.

We have increasingly told customers that new features will only be available in the cloud for our court system, for example, last year, at the beginning of '25, we told customers that the '25 release was the last one for on-prem customers that wouldn't have any new features. Further down the road, maintenance pricing can be used to create more of an economic incentive, and we haven't really done that at this point. There are some other gating items like version consolidation. We have a lot of -- we have historically had a lot of clients that weren't on the current version of the software. We supported multiple versions. So we've been putting a lot of effort into sunsetting older versions and getting customers current. So that they're in a position to move to the one cloud version.

So there's a number of things. We couldn't move everybody next quarter if they wanted to, but the trajectory has been strong. The fourth quarter was both in terms of the number of flips of on-prem customers and the dollar value was by far the biggest quarter we've ever had, and we're still a ways away from the peak. Typically getting a 1.7 to 1.8x uplift on a like-for-like basis as customers move from maintenance to SaaS. And then starting to see more examples of upsells and add-on sales expansion as they move to the cloud. So they might move a Tyler court system to the cloud, but have other products that from another vendor like jails maybe that doesn't have a cloud option. And so that gives us an opportunity to bring those to the cloud through Tyler.

Great. So if anyone in the audience has any questions, let me know. So you -- on the back end side, I see you made a big switch from your own data centers to AWS. Just give us a sense of where you are on that evolution?

We're done with it. So that was a multiyear process. We had 2 major data centers and a few satellite ones, but 2 main ones where our clients were hosted. And back in '23, we said that by the end of '25, we would be out of those data centers. So big effort. We have a really strong partnership with AWS that we renewed about a year ago. Really, really good relationship with them.

And on a gross margin basis, I know initially, it was a slight hit just because you have to actually maintain both systems. Are you through that?

Yes. So we've had a bubble cost or duplicate costs because there are a lot of fixed costs around running the data center, and they don't go away until you actually get out of it, and you're also spending money with AWS. We're through a lot of that. There are some of those really that run through the end of this year. We had some tooling and some other -- some VMware costs that continue through this year that kind of help facilitate that move, but all of the customers are now out of our data centers. And I think we'll see a little bit more margin uplift next year as we get the last of those bubble costs drop off.

Right. Any questions from Brian? There's one.

So you're 100% U.S., right? So any ambitions to [indiscernible]?

Sure. The question is about international expansion. And do we have plans there. Yes, we're about 98% domestic and the 2% is mostly Canada. We have a few court system in Australia and a few cats and dogs, but mostly domestic. And I think that's where the focus will primarily stay for the foreseeable future. There's still an awful lot of runway in the U.S. And -- so the international business has been sort of targeted. Opportunities that are really good fits, mostly former British Commonwealth countries that have a similar justice system or in the case of Canada, we have a number of property tax systems in several provinces there. So their property taxation process is very similar to ours. Australia has a very similar justice system. So we have a court system there. But really, our focus in the foreseeable future is pretty much domestic.

Having said that, we have an acquisition that we announced about a month or so ago that is currently pending HSR approval of a company that has -- works in the courtroom, around court reporting and digital court transcription, and they're an Australian company. And we -- so they have some international operations in a very narrow niche, but probably not something that we're really looking to expand a lot in the near term. We just have a lot of runway left in the U.S.

Thanks -- are there any overlaps with Axon's cloud offering [indiscernible] or you have spoken to [indiscernible] a lot of overlap?

Yes. The question is about overlap with Axon. Yes, we do compete in the public sector space, so every public safety space. So in public safety, there's kind of 2 major areas. The computer-aided dispatch, which is the 911 system and records management, which is kind of everything else. And then there's some ancillary areas there.

We have the full suite of public safety applications. We're probably one of 2 or 3 leaders in that space. We compete a lot with Motorola. So there's a lot of opportunities where Tyler and Motorola would be the 2 finalists, it's probably the most common thing you see. CentralSquare has a presence in the space, Intergraph. Axon has been sort of moving into the software side to, I guess, leverage their body cam and Taser business, the relationships they already have. They are in the records management side, not in the computer-aided dispatch side. So they are -- just I'd say that compared to our offering, it's, I'd say, not as deep in terms of functionality and not as broad in terms of what they offer.

Motorola leverages their hardware presence with software. We leverage our presence in courts and other areas of public sector to drive public safety business. We have -- public safety has been an area that has really been growing nicely for us. We've been, I think, at the forefront of leading that space to the cloud. And we've also seen a lot of success in terms of moving up into larger opportunities. We've got, I think, 5 or 6 state police agencies, all of which we've signed in the last couple of years. And so we've seen -- that's a really nice growth area for us, although it's a very competitive market.

Importance of the payments business [indiscernible].

Yes, around the payments business and transactions. So yes, payments is almost 1/3 of our business today or transactions. We have a lot of different flavors of that. But one of the big things we're doing, we have a lot of software systems that have payments embedded in them, utility billing, licensing and permitting, property taxes, courts, traffic tickets. So now we have, through the NIC acquisition, a very robust payment platform that we've integrated to our software products to kind of create an end-to-end payments integrated with the system of record that produce the bill. So that is a more valuable system to the customer because it automates reconciliations, provides better analytics, better reporting and they're willing to pay more for that than a commoditized payment.

And so we're seeing a lot of growth around that, improving our payments margins as a result of that. And it just gives us a nice -- another layer of recurring revenues on top of the core software revenues. We are seeing some instances where we're selling software under a transaction model. So providing, say, an outdoor recreation system like we did for the California State Parks, but rather than charging a SaaS fee, we're getting paid by convenience fees that are levied on campground reservation or a kayak rental. So it's self-funded. The state doesn't have to budget SaaS fees. It's paid by user fees. And we're in a position that we're able to do that.

That was one of your big deals last year, right?

That's actually the biggest software deal Tyler has ever done, even though it is not -- in software, California. California State Park is about a $200 million deal over 8 years. But it didn't show up in SaaS bookings or SaaS revenues, it's showing up in transactions.

Yes. Great. One quick one.

Just a segue [indiscernible].

We'll see. Obviously, multiples have changed. Ours has changed quite a bit. Most of the companies we look at acquiring are private companies, a lot of them are small and valuation is always a big factor. And it's been somewhat frustrating to us over the last few years that especially PE firms have been paying multiples that often we thought were not reasonable. We'll see how this all resets. I think it's a little bit early, especially around some of the PE owned assets, the bigger things. But we do think it will be an opportunity to acquire some things at more reasonable valuations.

All right. Brian, thank you very much.

Thank you.

Good morning, everyone. Welcome back to the Day 2 of the Citizens Technology Conference. Good to have you all here this morning. Really my pleasure to host Brian Miller, the CFO of Tyler Technologies here for us today. Welcome, Brian.

Thanks, Trevor. Nice to be here.

We're going to run through just kind of the basic fireside chat, and then we'll open it up to the group here for questions for Brian. So again, thanks for being here and let's take it away. Brian, I'll spare you going -- jumping right in to the AI topic because I think that's probably the knee-jerk reaction. So let's talk numbers.

I'm sure we'll get there.

Yes, we will get there.

So last year, 2025 ended non-GAAP operating margins 26%. What's your -- the target margin is 30-plus for 2030? Can you maybe just walk us through sort of how you're envisioning the pathway to get there and the different kind of aspects or avenues for that journey?

Sure. Yes. At our Investor Day in 2023, we set out those targets for '25 and 2030, with the operating margin target being 30% plus. And certainly, 30% isn't a ceiling for us, but that's sort of an interim target for us. We're well on track with that. '25, we actually exceeded where that sort of interim step we thought we would be at. We said it -- we always said it wouldn't be a straight line, so we need to average about 100 basis points a year, and we've gotten more than that in the first couple of years. We laid out a number of things. It's not one thing that drives that operating margin expansion, but a lot of it is related to our ongoing cloud transition, so underneath kind of the cloud transitions as we move. We have moved really from new business almost entirely away from licenses, but we still have a big, not quite half, but by revenue, about half of -- a little less than half of our customer base is still on-prem.

So as those customers move from on-prem to the cloud over a multiyear period, that generates a significant revenue uplift and improves our profitability.

Underneath that, we have moved from our own proprietary data centers to pretty fully utilizing the public cloud at AWS. We closed our last data center in the -- late in to last year as we planned. There are still some bubble costs associated with that transition that will continue through this year. So we'll get a little bit more margin uplift next year from that. There's a very active process of version consolidation going on. So not only do we have a lot of products for the public sector, but we have historically supported multiple versions of a lot of those products. So it's been very expensive from a development standpoint and a support standpoint.

As we move towards being fully in the cloud and having all of our customers hosted in AWS and ultimately, everyone on one version of software, everyone upgrading at the same time, really kind of taking full advantage of the cloud, not just where they're hosted, but how we manage the software and how we manage the customers. Customers who aren't on the current version of the software need to upgrade either before or when they migrate to the cloud.

So we've been encouraging that by sunsetting older versions of products and moving customers along towards that most recent version so that they're in a position to move to the cloud, but also seeing margin benefits as we accomplish that, and there's still some of that work left to be done.

We've also been releasing cloud optimized versions of our products, so products that are architected to fully take advantage of the public cloud and the features in AWS and lower our hosting costs, and we continue to -- we'll continue to see progress on that.

I guess lastly, there's just a lot of scale. As we move more of our customer base into AWS, the pricing is very much scale-driven than capacity driven. So the more capacity we buy, the lower the unit costs come and we continue to become more efficient. Those are really the vectors around the cloud transition and those are responsible for a lot of what will be both gross margin and operating margin expansion.

We're also continuing to improve the margins around our transaction business. We've -- certainly, the margins there aren't the same as software margins, but we have the opportunity to continue to grow those margins primarily as we move away from more sort of commodity type payment processing that we, through NIC, which we acquired about 5 years ago, did a lot of. And we're really -- our model now is really payments that are embedded with a software product like a utility billing system or a traffic court system. So we're able to provide significant incremental value to customers, and we're able to get premium pricing for that. So for example, we -- our contract with the State of Texas for payment processing ended in the fourth quarter. We've known about it for a couple of years. We didn't bid aggressively on the renewal. That was a commodity type low-margin -- 8% to 10% margin business that really didn't have the same connections and opportunities to expand business that really all of our other payment relationships have. So that's one of the things that's contributing to that.

But we do expect that we'll continue to see as we put more and more customers -- software customers on the payment platform that, that will drive margin expansion around our transaction business.

And then lastly, there is OpEx leverage over the long term. We've been, I think, very successful at continuing to improve the efficiencies around both sales and marketing and our G&A costs. R&D, there is a bit of an expansion right now, mostly around AI, but we can still do that within the framework of the operating margin expansion.

And I guess the last thing I'd talk about is in our mix. Professional services is part of our revenue mix. We typically do the services related to an implementation of one of our software systems with our own professional services staff. That is low or negative margin business typically. And we've been working really hard to reduce the level of services that it takes to implement a new system. There is some use of AI there that we expect to expand going forward around data conversions, but also just discouraging a lot of customization and the cloud being a little bit more efficient about deployment. So this year, for example, we've said pro services only grow 3% to 5%. So that change in the mix or reducing that in our mix also is positive to margins.

Great. That's comprehensive. Thank you. So it seems like 30% plus then is kind of just, as you said, a ceiling and -- or not a ceiling, it's really just kind of the start. That's great. Since you brought it up, let's talk a little bit about the transaction part of the business, 5% to 7% growth there, exiting out the Texas piece, it's back up to double digits, 10%, 12%. How durable is that double-digit growth rate? How do you see that? Again, once we sort of lap the effects of Texas kind of throughout this year, how does that look when we're sort of exiting that piece out fully?

Yes, without Texas, yes, it's kind of 10% to 12%. Again, back at our 2023 Investor Day, we said that we expected growth kind of in the 10% to 13% range CAGR over that 2023 to 2030 time period. So we're kind of right in there that -- and that's what we're very comfortable with kind of at least that low double-digit growth. We've been a bit ahead of it over the last couple of years, part of that because we've been really successful in the early days of selling payments into our local government software customers. There's still a lot of runway ahead of that. We've also benefited from some pricing increases from some of our third-party payment partners that we have revenue shares with. We think that's largely played out at this point, and that's not an area where we really dedicate new business.

But -- and then I think the third thing that's contributing to -- or has contributed to a little bit higher transaction growth is around the model where we occasionally sell software, but get paid for it through transaction fees rather than SaaS fees. For example, we -- the largest that we've done there was with the California State Parks for our suite of outdoor recreation solutions. So SaaS solutions that manage all the aspects of the parks like campground reservations or tours, retail, every aspect of running the parks. But rather than California, which does have budget challenges, rather than trying to appropriate funds to pay for that SaaS fees, we're getting paid by convenience fees. So if you make a campground reservation, you might pay the state $15 and there's a $5 fee that goes to Tyler. If you tour the Hearst Castle, maybe there's a $3 fee that's tacked onto your ticket. So that way, the state doesn't have to budget funds. We get paid at least as well as we would have under a SaaS arrangement. It can be kind of seasonal and not necessarily pro rata revenue recognition, but is a very good model for us and the customer. And we've seen more instances of that.

It's not the primary way we sell software, but we've done that with -- how we did in the fourth quarter with a motor vehicle registration, digital motor vehicle titling system for a state. And so there's a little bit of that in our -- that actually SaaS growth would be higher, but transaction growth is benefiting from that same impact on margins.

Great. Cool. Well, without further ado, maybe we'll slide into some AI discussion here. Actually, I wanted to start maybe AI, but also talking about flips maybe kind of together almost a little bit. So you guys -- it seems like you've had great visibility kind of quarter-over-quarter on what the flips look like. You've got kind of a good kind of sales team doing a good job of saying kind of what's coming. And so you've got that, again, you have that line of sight. And we talked about a little bit of this after your earnings call most recently.

Can you tell us a little bit about when you do that flip and they're transitioning over to the cloud, is that a -- is there a room for a competitor to come in and kind of essentially since the person is already migrating -- the customer is migrating over, is there for them to just kind of come in and say, let's just see what else is out there aside from Tyler. Can we maybe talk about that dynamic, especially in this new AI world we live in, there's potential disruption. Is that a trend or a thing that happens?

Yes, not really. That almost never happens. Generally, the decision to flip, and flip is our term for migrating from on-prem to the cloud. That is -- it's changing where the software is hosted and ultimately changes the way we manage the software in terms of how we deliver releases and upgrades and how we manage the customer, all designed to make it a better client experience as well as a more efficient experience for Tyler. But from the user's perspective, there's not really a change. You don't have to retrain people or convert data. So the decision to flip to the cloud is really kind of stands on its own. I just can't think of any situation that I know where the customer has taken that as an opportunity to think about changing.

What it has provided for us is an opportunity to sell more stuff to them because they may have a core system from Tyler that they're moving to the cloud and there are ancillary products either that they don't have today or that they have from other vendors and maybe those vendors don't have a cloud solution. So we've been more intentional about trying to take advantage of those or look for those upsell opportunities. So for example, they have our court case management system, which the hub of the courts, but they might have someone else's jail system or someone else's jury system. So this is an opportunity. Maybe they're not looking to replace those right away, but this is an opportunity to say, okay, you're taking this system to the cloud, obviously, you don't want to leave -- you probably have some long-term strategy about moving those others, but this is an opportunity to move those with Tyler to one integrated system.

Our biggest flip last quarter was Los Angeles County, which is our largest permitting and licensing customers, so the system used to manage all the licensing in the county like building permits and business licenses that sort of stuff. They flipped to the cloud, went from paying us, I think about $950,000 a year in maintenance to a little over $2 million a year in SaaS fees for the same product, but they also added a product we have that -- a SaaS product that we acquired a few years ago for fire prevention, fire inspections, and that added about another $750,000 of ARR. And they signed up to do payments with us. So we'll be processing all the payments for all the licensing and permitting in LA County. So a very significant -- ultimately, when it's all kind of at full run rate, a pretty significant uplift in revenues. And we think that it's much more of an opportunity to expand our relationships with customers as they move to the cloud and bring more of their products into Tyler.

As far as AI, just in general, in sales processes, we were not really seeing it be a factor in new sales processes or really in flips. Public sector, not really surprisingly, is slow to move, slow to adopt new technology, risk averse, like things that they already see working somewhere else. And it seems to be the same with AI. There's certainly a lot of curiosity. We talked about a lot last year at our user conference. We have talked to our clients about, with each major product, with our road map for integrating AI into those products are. But -- and customers are curious, they want to know more, but they're not really looking for AI in a big way right now.

They want very practical kinds of applications that solve real-world problems, that have -- provide value, have a return and they're still learning a lot about that. We believe that Tyler will be the company to provide that around our products. We're not seeing in new sales -- people pause a new sales process because they want to get AI into the ERP system or the public safety system. We're not seeing people going out and hiring, either doing it themselves. That's not something you're going to see, especially at the local government level, or bringing in third parties or start-ups to kind of drop AI on top of an existing Tyler product.

When we talk about why we think Tyler shouldn't have the right to win the opportunity to bring AI to our clients, not necessarily every last AI application, but certainly around Tyler's mission-critical applications, there's kind of 3 things. One is the domain expertise that we understand. These are typically very complex workflows that we have a deep understanding of. And so being able to integrate AI into those, they trust us to do that because we understand that.

The second is the relationships and trust. As I said, they really -- relationships, references are really important. Trust is important. So these things have to work really be right, and they have to trust who they're getting it from. And so doing -- expanding the relationships with Tyler and getting AI around our products from us is something they're comfortable with. And we have decades-long relationships with many of these customers. So we're not a startup. They've known us for a long time.

And the third thing is really around data that we have data not from one customer, but from hundreds or thousands of customers running these systems. So we really believe that that's -- those are the keys to the opportunity for Tyler. And we have some products that are currently fairly widely in use. Some of them came from acquisitions in the last 2 or 3 years that are kind of use AI at their core. And then we're doing development around adding AI sort of features or add-ons to a lot of existing products. So they're typically pretty -- at the early days. It's very kind of boring, very kind of basic things that we're using AI to do. So going back to the licensing and permitting system, a big pain point for local governments is around application reviews, especially around building permits. So in a lot of places, there's a many month wait to get a building permit because there aren't enough clerks to review those.

It's a manual process, and they have a lot of backlogs. That impacts development, that impacts property taxes and citizen satisfaction. And so application review is something that is one of our early things that are in pilot right now and expect to be more widely available this year to use AI to automate that process and solve a problem, clear value. And it's not necessarily that they'll go hire a lot of clerks, it's that they don't have enough to start with. Staffing shortages are a big problem for governments, especially at the state and local level.

Report writing in our public safety system, our records management system. The average police officer, I'm told, spends 2 to 3 hours a day writing reports. So integrating AI into that system to assist them with writing those reports, creating a lot more time to be more productive and on the street. Data entry, using AI to automate data entry in the court system. We have a product there called document automation that uses AI to enter data in the system and solve the problem of not enough clerks in the courts and backlogs of cases waiting to be entered.

Great. It sounds like -- and I'll open up for questions in the last few minutes here. It sounds like the use cases you went through are very important, but almost niche to the point where it wouldn't necessarily be a viable business model for one startup just to do that particular application review, right? But you having the knowledge, you're already there, like it's most like kind of a walk -- crawl, walk, run type of approach, which is almost a moat in and of itself compared to others coming in, right?

Exactly. I mean, from a technical standpoint, someone could come in and drop it on, theoretically they could do it themselves. But then they got to take care of it. And we've got -- again, we have thousands, hundreds of thousands, maybe millions of building permits that are going through our system. So we get the data to train that. We understand the workflows. As those processes change over time, laws change, processes change, we can manage that for them. So there's just not a reason for them to go somewhere else and to create more complication and uncertainty. And these are things they need to get right. I mean, for that function, permits need to be right. So -- or police report writing needs to be right. So yes, I mean, we believe that's just -- we liken it a bit to the transition to the cloud.

When the earlier days of the cloud, when we were mostly on-prem or all on-prem, there was a narrative that cloud-native competitors, there'd be lots of start-ups that would emerge and develop software really quickly and create lots of new competition that would take market share. And some of them did emerge, but generally, they didn't have sales channel. They didn't have the relationships or references. So it's a long, slow go. Even though they might develop software quicker, they didn't have the deep domain expertise so the software wasn't as deep in functionality.

Some of those little narrow point solutions became really good acquisitions for us that we could then grow within Tyler. And some of those just never really -- a couple in the public safety space that kind of made a splash for a little bit, but then really stalled out. Meanwhile, Tyler was able to move to the cloud and move our products to the cloud and bring our customers to the cloud. And so we sort of see a similar situation here as opposed to being real deep threat.

Great. All right. I'll open it up to the group. Sir.

[indiscernible]

Yes, it's primarily cost reduction. So they're looking for something that has real value. So I'll give you an example with the document automation solution I talked about. So we're the biggest provider of court case management systems in the country. Our systems are entirely digital. So there's no paper in the courts anymore. That's one of the big advantages to the new -- to replacing that technology. But a clerk still -- when a case comes in, the lawyer files a lawsuit, a clerk still has to set up a case in the system. And so it's a manual process. So document automation uses AI to identify all those data elements in the document and populate the case file. So they can have a really clear understanding of how many fewer clerks they need. And again, usually, those clerks aren't there already. There's just not enough of them. So they may have a budget for that, the labor budget, but trouble finding the people.

So we saw that last year, one of our deals was Hillsborough County, Florida, which is Tampa, so one of our good-sized court customers. So they're paying us -- they pay us, I think, about $750,000 a year for maintenance for their court system. They're paying us about $950,000 a year for the document automation AI add-on, but they are comfortable that they're going to save well over $2 million a year in labor cost. So it solves the problem that's a real problem. They can really understand the value. There's a relationship between what they're paying and the value that they're getting.

I think over time, some things will become more embedded in solutions and not necessarily separately priced SKUs that will increase the value of a solution. But we have another product called priority-based budgeting, which uses AI to help a government, once they identify sort of their priorities in their budgeting, helps them identify places in the budget where they can reallocate funds. And so high value, solves problems, practical problems they have pretty quickly implemented. So we've seen really good uptake with that. But usually, it's around a very practical problem that's recurring pain point for them.

To solve problem and AI is a tool that does that. They're not saying, "I just -- I keep hearing about this and so I want a bunch of AI here." They don't have AI strategies typically now, maybe some bigger places, state government. The other thing we're doing is a lot of resident engagement portals. So to your question about better service to citizens, so we now have 6 states and then just last quarter, signed our first County, Fairfax County, Virginia, where we're providing resident engagement portals, which use AI agents to answer citizens' questions. So rather than having to call around and find the right office, call the tax office and get a question answered or search the web, it uses AI agents to answer questions and working really successfully. That's -- again, that's something that is not a unique concept to us, but we have this deep understanding of how state governments work and how county governments work and how all the -- where all those answers need to come from, how they need to be right. So that's something someone else could theoretically provide, but we think we have an advantage there.

Yes. Great. Maybe one quick one.

Do you have any strategies internally since you have all the [indiscernible] knowledge to actually automate some of your customer support? [indiscernible] down there or...

Yes, good question about internal use of AI. So 3 primary areas, development where we're already using it, and we will continue to expand the use of that, but we're getting efficiencies around developers. Still a little hard to measure exactly. And we don't have fewer developers so we're getting more work from the same developers, and we have to decide whether we want to cut the cost by that amount or do that much more work. It's probably a blend somewhere in there.

Support is certainly a big area. We're using AI agents internally right now for our customer support reps to answer -- to find the answers to questions and to work with each other. We have not widely deployed AI agents for direct customer interaction, but I believe that is coming at some point. And the third area is around professional services, which is a lower, no-margin business for us. And using AI to automate processes like data conversions, which is a manual labor-intensive thing that we have to do in every implementation. And so we're expecting to broaden the use of AI there.

Great. Thanks, Brian.

You bet.

Appreciate it. Thanks a lot.

Ladies and gentlemen, hello, and welcome to today's Tyler Technologies Fourth Quarter 2025 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. [Operator Instructions]. As a reminder, this conference is being recorded today, February 12, 2026.

I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, Abbie. And welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer; and Brian Miller, our Chief Financial Officer. After I gave the safe harbor statement, Lynn will have some initial comments on our quarter and then Brian will review the details of our results and our annual guidance for 2026. Lynn will end with some additional comments, and then we'll take your questions.

During this call, management may make statements that provide information other than historical information and may 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 would refer you to our Form 10-K and other SEC filings for more information on those risks.

Also, 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. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We have also posted on the Investor Relations section of our website under the Financials tab and judgment to the financial information, including information about our quarterly recurring revenue and bookings.

On the event of Presentations tab, we posted an earnings final slides deck to supplement our prepared remarks. 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. Lynn?

Thanks, Hala. Our fourth quarter results provided a solid finish to 2025. And a year that demonstrated the resilience of our business and end markets. Throughout 2025, we demonstrated what decades of disciplined execution look like, navigating shifting macro sentiment while advancing our strategic priorities and delivering on key performance metrics. Recurring revenue growth and free cash flow are 2 key metrics, both surpassed expectations in the fourth quarter.

Recurring revenues grew 11%, led by SaaS revenue growth of just over 20% and transaction-based revenue growth of 12%. Free cash flow was a fourth quarter record, up nearly 10% and with our free cash flow margin expanding to an exceptional 41%. Public sector market fundamentals and the demand environment remains strong. Generally healthy budgets are supporting an active pipeline and RFP and sales demo activity remain at elevated levels as agencies prioritize modernization of aging mission-critical systems, essential to their digital transformation, workforce optimization and efficiency initiatives.

Our sales organization delivered solid execution in the fourth quarter as total SaaS bookings grew 9.6%. In particular, we saw strong momentum from flips of on-premises clients to the cloud. Both the number and the value of clips signed during the quarter represented new quarterly highs. Annual contract value from flip signed this quarter rose 64.5% over last year and 54.8% sequentially. We are well positioned to capitalize on the significant opportunities ahead, supported by a proven business model and clear competitive advantages.

Our 4 key growth pillars guide our execution, completing our cloud transition leveraging our large client base, growing our transactions business and expanding into new markets. Our transaction-based business continues to be a significant growth driver, and I want to highlight the progress we made during 2025. We consolidated our payments operations across Tyler under our new industry-proven leader, Ryan O'Connor, executing a unified payment strategy that positions us to capture greater value and drive operational efficiencies.

We are focused on value-added transaction services that are deeply embedded in our software solutions across multiple use cases like utility billing, municipal courts, licensing and permitting, property taxes and parks and recreation. This full end-to-end integration provides significant value for our clients by streamlining operations and improving citizen experiences, while also creating a differentiated competitive position for Tyler.

Now I'd like to highlight a few fourth quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We expanded our relationship with one of our major state enterprise clients. signing contracts for digital motor vehicle titling, which will be transaction funded and SaaS contracts for a state-wide cash steering solution as well as our recreation dynamics and Data & Insight solutions.

In Alabama, we signed SaaS contracts for our enterprise ERP solution with 2 of the state's largest school districts, Jefson County Schools and the Huntsville City schools. We also signed a SaaS agreement for our Enterprise GL solution with Riverside County, California, an existing court software client. I mentioned earlier, it was 1 of our biggest quarters ever for flips. Contracts signed in Q4 for flips of on-premises clients included L.A. County, California, flipping their enterprise permitting licensing system while also adding our fire prevention mobile solution in the cloud as well as payments.

Enterprise public safety flips with the cities of White Plains, New York and Beverly Hills, California, our first public safety flip in California, 2 of the 6 largest counties in Texas Travis County and Collin County signed a contract to flip their enterprise Justice solutions. Contra Costa County, California, also is flipping their enterprise justice solution, while adding traffic court, including payments to their portfolio of Tyler solutions.

And enterprise ERP flips with Marin County, California and Madison, Wisconsin. We also continue to see sales success in transactions with key wins and an active pipeline of opportunities that reinforce the strength of our unified payment strategy. Key fourth quarter wins included a payment contract with Multnoma County, Oregon, an existing appraisal and tax software client. We also signed a contract with the State of Maryland Administrative Office of the Courts, an existing enterprise justice software client for payments and disbursements.

Finally, our state sales team is building early momentum, opening new doors and advancing strategic statewide opportunities. Through strong internal alignment and collaboration, we signed a statewide contract this quarter with a New Mexico Department of Corrections for our inmate services financial suite and warehouse management administration suite.

Now I'd like Brian to provide more detail on the results for the quarter and our annual guidance for 2026.

Thanks, Lynn. Total revenues for the quarter were $575.2 million, up 6.3%, during the quarter, we recorded a onetime noncash loss reserve related to a contract dispute with a state government client. In early 2022, we received a notice of termination for convenience under a software license contract with that client.

Upon receipt of the termination notice, we ceased performing services and sought payment of contractually owed fees in connection with the termination for convenience. This type of dispute is very unusual for us, and we have disclosed its existence in our financial statements since 2022. Since then, we have attempted to resolve the dispute and filed a lawsuit to enforce our rights and remedies under the contract.

Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, at this time, the matter remains unresolved. While we are continuing to pursue our claims, we have no remaining balance sheet exposure.

The reserve resulted in the reversal in the fourth quarter of approximately $8.8 million of license revenues and $900,000 of professional services revenues. There is no impact on recurring revenues or cash. Excluding the impact of this reserve, revenue growth in the quarter would have been 8.1%, and our operating margin would be 120 basis points higher and EPS would be $0.17 higher.

Subscriptions revenue continued to exhibit strength and increased 16.1%. Within subscription, SaaS revenues grew 20.2% and eclipsed $200 million in a quarter for the first time. As we've discussed previously, there is often a lag of 1 to several quarters from the signing of a new SaaS dealer flip to the start of revenue recognition.

Because of this, as well as the timing of SaaS renewals and related price increases, SaaS revenue growth in SaaS bookings, both year-over-year and sequentially, may fluctuate from quarter-to-quarter.

Transaction revenues grew 12.1% to $196.7 million, driven by higher transaction volumes for both new and existing clients, increased adoption and deployment of new transaction-based services and higher revenues from third-party payment processing partners. As previously discussed, revenues under the Texas payments contract ended in Q4.

Actual revenues from the contract in the fourth quarter were approximately $3 million which is almost $4 million less than we anticipated going into the quarter. Total bookings in Q4 were solid at $601 million, essentially flat with last year's fourth quarter against a very difficult comparison.

For the full year, total bookings grew 1.4%. Total SaaS bookings, including new SaaS deals flips of on-premises clients, expansions and renewals grew 9.6% year-over-year. As we've discussed previously, last year's fourth quarter bookings included an unusually high number of large deals, including a $25 million 8-year agreement with the state of Maine as well as some pull forward of deals because of deadlines for the commitment of federal ARPA funds.

Bookings growth this quarter was driven by strength in flips, expansions and renewals coupled with solid new client activity. Total SaaS bookings for the full year grew 4%. We Annual contract value from Flip signed this quarter was $28.1 million, up 54.5% over last year and up 54.8% sequentially from Q3. Our total annualized recurring revenue was approximately $2.06 billion, up 10.9%.

Our non-GAAP operating margin was 24.1%, down 30 basis points from last year. For the full year, our non-GAAP operating margin was 26%, up 150 basis points from last year, reflecting a continued positive shift in revenue mix towards higher-margin SaaS and transaction revenues and efficiency gains across our cloud operations. Cash flows from operations and free cash flow were both robust and reached new highs for a fourth quarter at $243.9 million and $236.9 million, respectively.

For the full year, free cash flow was $62.8 million with a free cash flow margin of 26.6%. We ended the quarter with cash and investments of approximately $1.16 billion and $600 million of convertible debt outstanding, which we expect to repay when it matures in March.

Our annual guidance for 2026 is as follows: We expect total revenues will be between $2.5 billion and $2.55 billion. The midpoint of our guidance implies growth of approximately 8.3%. We expect GAAP diluted EPS will be between $8.36 and $8.61 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate.

We expect non-GAAP diluted EPS will be between $12.40 and $12.65. Our estimated non-GAAP tax rate for 2026 is expected to be 23.0%, youp 0.5% from 2025. We expect our free cash flow margin will be between 26% and 28%. We expect research and development expense will be in the range of $242 million to $247 million. Other details of our guidance are included in our earnings release and in the Q4 earnings deck posted on our website.

I'd like to add some additional color around our revenue guidance. We're pleased that our SaaS and transaction revenues are growing in line with or ahead of our 2030 objectives and that lower margin revenues like services and hardware are growing at a slower rate. Subscription revenues in total are expected to grow between 12% and 15%.

Within subscription, SaaS revenues are expected to grow between 20.5% and 22.5%. Transaction revenues are expected to grow between 5% and 7%. As we've discussed for some time, our payments contract with the State of Texas ended in the fourth quarter of 2025. Transaction revenues from that contract totaled approximately $36 million in 2025. Excluding the impact of the Texas contract, our expected transaction revenue growth in 2026 would be between 10% and 12%, and our expected total revenue growth would be between 9% and 11%.

Maintenance revenues are expected to decline 5% to 7%. Professional services revenues are expected to grow 3% to 5%. License revenues are expected to grow 15% to 17%. Excluding the impact of the contract loss reserve recorded in the fourth quarter of 2025, license revenues would be expected to decline 30% to 32%.

Hardware and other revenues are expected to decline 17% to 19% and as 2025 included revenues associated with deliveries of hardware under 2 large contracts for our student transportation and enforcement mobile solutions. Also note that our guidance does not include the impact of any potential acquisitions in 2026, including the recently announced pending acquisition of for the record. While we expect that transaction to close late in the first quarter, it is subject to regulatory approval and the timing is therefore uncertain.

Now I'd like to call -- turn the call back to Lynn.

Thanks, Brian. I'm pleased with our fourth quarter performance, closing the year of solid performance that exceeded our expectations. I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our clients' digital transformation through enhanced cloud capabilities and elevated client experience at every touch point and the next wave of AI modernization.

I'd like to provide a few brief updates on AI. As we discussed during our third quarter call, there's a lot of noise in the market. But in the public sector, technology alone doesn't win. For more than 25 years, Tyler has guided clients through successive ways of transformation and our approach remains the same: Deep domain expertise, trusted client partnerships and disciplined execution. We're seeing that approach translate into real adoption.

Over the past year, the Tyler resident AI assistant has gone live in 6 states, Alabama, Hawaii, Indiana, Mississippi, Nebraska and South Carolina, strengthening our broader resident engagement portfolio and making digital government more accessible and responsive. Indiana continues to be a strong proof point with approximately 17,000 residents using the assistant each month, generating nearly 50,000 questions directed to government services. That level of sustained usage helps agencies manage a high volume of routine questions through self-service, reducing the need for manual responses and freeing staff time for higher-value work.

We also saw continued commercial momentum with our AI-enabled solutions in Q4. Highlights included contracts for priority-based budgeting with the Alabama Department of Corrections in the city of Plano, Texas. We also signed a contract with Fairfax County, Virginia for our AI resident Assistance solution, our first resident assistant win at the county level.

On the product side, we are transitioning agenic-AI from concept to disciplined deployment. In Q1, we will initiate early access with select customers, integrating agent capabilities directly into our enterprise permitting and licensing and supervision platforms. By embedding AI into the operational workflows that drive daily decision-making, we expect to unlock significant efficiency and service improvements.

Following validated performance with early adopters, we plan a phased expansion through 2026 and beyond. Importantly, we're building this road map together with clients. Our enterprise ERP AI Client Advisory Board held its initial meeting last month, reinforcing feedback we've also heard in forums like last year's Tyler Connect, our Course and Justice Executive Forum and our state Connected forum. Clients don't want bolt-on tools that add complexity. They want practical AI that is deeply integrated to the systems they already run governed appropriately and have solve real-world problems in a dependable, trusted way. That's exactly where Tyler's deep domain expertise, trusted partnership and disciplined execution differentiates us and why we believe no one is better positioned to deliver it.

As we grow free cash flow, we remain highly focused on our disciplined capital allocation and being responsible stewards of Tyler's capital to drive long-term shareholder value. We continue to balance investments across multiple areas by making targeted investments in product development and R&D with particular focus on improving cloud operations and scaling AI solutions that demonstrate clear ROI for clients.

We're also building enhanced feature sets that advanced product differentiation and reinforce our market leadership while maintaining disciplined spend that drives both innovation and internal efficiency. During 2025, we completed 4 strategic acquisitions that deepen our capabilities and expand our addressable market.

We recently signed a definitive agreement to acquire for the record, a digital court recording pioneer with over 30 years of experience as a trusted category innovator. We've had a minority investment in further record since 2015. And a natural extension and significant addition to our Courts & Justice portfolio for the record elevates agencies with an advanced platform, including AI-powered multilingual transcription technology that perfectly complements our own court room technologies, solving a critical need for a court reporting industry that faces growing challenges.

Its proprietary cloud-enabled software is specifically designed for the complexities of today's courtrooms and will help create a seamless courtroom ecosystem, expanding efficiencies for judges, clerks and attorneys. By bridging the data courtrooms generate every day with the digital case file and accelerating task that data can inform through AI. These solutions offer a new category of judicial intelligence to our offerings.

We look forward to welcoming the team after closing and to working together to drive our shared mission of improving access to justice through transformative technology and deliver a truly comprehensive solutions that benefits the industry. Last week, we announced our board's authorization of a new share repurchase program of up to $1 billion, replacing our previous repurchase authorization. This announcement underscores our confidence in the trajectory of our business and reflects our view that Tyler shares represent an attractive value at current levels. Our reliable cash flow generation and extremely strong balance sheet enable us to opportunistically return capital to shareholders while continuing to invest for sustained growth.

Each year, we become foundationally stronger and better positioned to execute on our long-term growth strategy, and we remain on target to achieve our 2030 goals. We look forward to updating our progress toward our 2030 objectives and providing additional insight into our purpose-built AI strategy and broader strategic initiatives during our upcoming Investor Day scheduled for June 9 in Frisco, Texas. We hope to see you there.

Now we'd like to open up the lines for Q&A.

[Operator Instructions]. And our first question comes from the line of Matt VanVliet with Cantor.

I guess kind of a multipart question on SaaS flips. I guess, how should we think about the level this quarter on a go-forward basis? Is this kind of a new baseline, given the success you've had and the ability to help do those flips quickly and efficiently for customers?

And then the second part with that, how should we think about any upcoming renewal cohorts. Anything to call out from a size or quantity there that might influence a greater success on the flip side? And how tight has that been so far?

Yes, Matt, on the first part, we don't guide to a flip number. We have said that we expect flips to continue to grow from the level they're at now. They certainly can vary from quarter-to-quarter. And we've said that we still expect the peak, especially with respect to large clients to be in the 2027 through 2029 time frame. But I guess it would be accurate to say that this is the base that we expect to continue to grow from.

I don't think there's anything particular to call out around renewable cohorts. We obviously have very high renewal rates. The timing of renewals varies across the year. we are having continued success and Lynn mentioned a couple of those flips that had add-on components to them. So we are having continued success with selling additional products and services to existing clients as they flip to the cloud, and we expect to continue to expand that opportunity.

And our next question comes from the line of Joshua Reilly with Needham.

All right. Great. As we think about the ACV from new SaaS deals, can you remind us the comp issues for Q4. It seems like that was a good number adjusting for the large deal activity a year ago. And I know you don't guide to it, but should we expect growth of that $53 million figure that you did in 2025 and 2026.

Yes. We don't guide to specific bookings numbers, but we do expect bookings to grow SaaS bookings to grow in 2026.

And we've given some commentary on the market conditions that support that expectation. And Q4 was a really good solid sales number. Last year's fourth quarter as a reminder, had a number of large deals, especially deals that were multimillion-dollar SaaS deals. The biggest was a $25 million 8-year deal with the State of Maine for resident engagement portal. We had an $11 million deal with Kenosha, Wisconsin for ERP and 3 other deals that were over $4 million. Also, those deals last year had a longer duration.

This year, the average duration of a SaaS -- the new SaaS deals was closer to sort of standard at 2.3 years. Last year, it was 3.7 years. So there was a duration component to last year's bookings as well as just an unusually large number or a high number of large deals. This year, the mix of deals, the number of large deals was, I'd say, more normal.

I'd say too, Josh. The individual factors that still go into a client's decision to still exist. But I do think 1 of the factors, one of the things I talk about, whether it's flips or other things around Tyler is momentum builds momentum and the more success that clients see their neighbors and peers having help with that decision. But there's still sometimes budget concern budget issues or technology issues or version issues that we're still dealing with. But clearly, the more success we have, it will continue to build and create more success in the future.

And our next question comes from the line of Terry Tillman with Truist.

It's a 2-part question. I saw on one of the slides on some of the deal activity. It was the state sales team in New Mexico did a corrections deal. I know you've all been working on building out some of the kind of state-focused sales teams more to get more out of the opportunities you have there. So maybe if we could double-click into that?

And the second part of the question, somewhat unrelated is -- when we look at the SaaS revenue, you gave the guide for 26. Is there any way to think about sequencing each quarter? I mean could there be quarters where it's sub-20, some quarters where it's well above 20%? Just anything more you could share on kind of the flow.

Yes. Sure, Terry. I'll start. Brian, I'll let you take the second one. Yes, our state sales team, this was an initiative we really started a little over a year ago. It's taken some time to sort of build out, and we're still in the early stages of it. But we're pretty excited with the results that we've seen so far. The collaboration across Tyler, the ability for that state sales team to leverage their relationships to get Tyler products in through those connections.

It's one of the reasons we acquired NIC to begin with. That deal in New Mexico is a deal that doesn't happen without that state sales team and its collaboration across them and a couple of other divisions. But the state sales team also had really good sales success in Q4. We don't often talk about -- we don't really actually don't know it. We don't talk about awards. We only talk about bookings. But generally speaking, the success of that sales team had in Q4 was really encouraging, particularly with some larger deals, over $1 million in ARR. Some that take time to ramp up, some that can expand over time.

But we're excited about where it is, but we're early innings with that. And -- but it's something that I think we're going to continue to leverage over the upcoming years.

And yes, the midpoint of our guidance for SaaS growth is 21.5%. I don't think there's anything in particular that stands out with respect to any single quarter being varying a lot from that 20-plus percent range. It can vary with timing of that lag from when we sign something to when the revenues actually hit as well as the timing of flips. But generally, I think growth would be expected to be fairly consistent across the year.

And our next question comes from the line of Alexei Gogolev with JPMorgan.

Can you talk a bit more about the partnerships that with various ad players? You mentioned topic last quarter. Maybe you can elaborate on the recent evolution of those partnerships.

With the partners we use in conjunction with our AI development activities. We do work with Anthropic and AWS and with Microsoft and OpenAI, we have active relationships with all of those major players in connection with the development work we're doing to bring AI into our products.

And our next question comes from the line of Ken Wong with Oppenheimer.

Fantastic. You guys called out the tough comp through most of 25% due to the ARPA pull forward. As you guys look to 26 how comfortable are you that that ARPA dynamic was kind of limited to just that 12-month time frame. Any potential that there are some deals in the pipeline that came out of '26 and beyond?.

Yes, I don't -- it's obviously early in '26. I think what I would say generally, when I look at the market and the leading indicators. The market looks really healthy right now. Our win rates continue to be strong. We talked earlier last year, particularly in the first half of the year, where there was a little bit lighter bookings. And at the time, we were saying there really wasn't a change in the market.

There was just more of a delay. We talked about an ARPA hangover. We also talked to for whatever reason, some decisions just weren't being made. When you step back and you look at these leading indicators, for example, in our public administration group, 2025 saw the highest number of RFPs that we've seen in 5 years. Now RFPs take a long time to work their way through to work through an award, they work through a contract, their way through revenue, but that's a pretty good leading indicator. Our sales, like I mentioned earlier, we don't like to talk about awards but sales activity improved sequentially throughout 2025 and into Q4 of 2025.

We mentioned some things going on with the state sales team. So -- and also really, really strong sales at our public admin group. Our Justice group tends to be a little bit lumpier. Public safety has got a lot of momentum. So what we're seeing in the market is a good, healthy demand. We're not seeing anything at this point of delays on deals, and it gives us confidence in the plan that we've put out.

Our next question comes from the line of Michael Turrin with Wells Fargo Securities.

I wanted to just go back to the SaaS revenue line there. Given the initial guidance looks for a bit of a reacceleration in the coming years. So Brian, I wanted to just understand the context of that a bit better. You've mentioned flips, how big a factor are those and how much visibility do you have into that line given current bookings trends into the coming year?

Yes. And I think at the end of Q3, when we gave our sort of initial look into 2026 SaaS revenues and talked at that point about confidence that, that growth would be above 20%. And now our actual guidance is in that 20.5% to 22.5% range.

We talked about the factors that build up to that revenue growth. The majority of that I think around 13% of the growth comes from -- or 13% growth comes from things that are already booked at the end of the year. And some of those are things that we signed even going back into the second half of 2024. So whether it's the revenues from those deals actually starting and -- or those that we had a partial year of revenues for in 2025, now having a full year of revenues in 2026. So a sizable portion of that growth comes from things that are already in hand.

And as we've talked about, the bookings grew sequentially fast bookings throughout the year. And so that -- we have a high degree of confidence and there's still some movement around the timing, but those would be pretty well in hand. -- about 3% to 4% will come from flips.

We have a pretty good view of those flips based on either things are already in the works with clients or conversations we're having with clients around the timing of those slips. So fairly good confidence around the flip number. and then the balance comes from -- a much smaller part actually comes from new bookings that are in our pipeline that we'll sign in 2026 and have parcel of your revenues from.

So I'd say our visibility is similar to what we've had in prior years. But with the majority of that coming from things that are already booked, we have pretty high confidence around that growth.

Yes, Michael. I mean we take a bottoms-up approach, as Brian said, and you take your existing run rate, you've got the uplift from that. You've got full value run rate. We had some flips last year that got pushed that were in our plan that we're expecting to happen this year.

And then obviously, new clients will contribute somewhat this year and then more meaningfully in 2017.

And our next question comes from the line of Saket Kalia with Barclays.

Okay. Great. Brian, I actually thought the duration point that you made on SaaS bookings was really important. And I think that was a new disclosure or maybe just emphasize more. And the reason why I say that is a lot of us look at SaaS bookings, which, to your point, were up 4% for '25, but I think by my calculations, duration actually went down by nearly 40%. And so maybe the question is, is there a way that you think about the annualized value of SaaS bookings because I think the view is that 20% -- I mean we just heard in prior questions, the view is that 20% SaaS revenue growth is going to be tough to do given mid-single-digit bookings growth, but it feels like duration is a significant headwind. So can you just talk through that dynamic a little bit?

Yes. I mean in terms of total SaaS bookings, the duration especially in the last 2 quarters of this year was a significant headwind given not only just the number of large deals with a number of deals that had sort of longer than our standard term, we generally lead with 3 years on new SaaS deals, and we've had some of those in last year, especially the main deal, the largest deal had an 8-year term to it. So that has been a factor in the total SaaS growth.

In Q4, actually, if you look at the annual contract value from new deals and flips that grew 12% year-over-year. And so when you take out the duration factor, the growth was higher than the total SaaS growth. So you're correct in your observation and we would expect that duration sort of normalizes more towards that 3-year standard. -- but it is -- it does mask a bit of the strength in the last quarter's bookings.

And our next question comes from the line of Alex Zukin with Wolfe Research.

I guess maybe 2 for me. The first one around maybe just bookings growth expectations on an annualized basis for fiscal 2016, as you kind of sit here today, can you just give us a sense for the -- you've mentioned the buying environment improving, but are you seeing any accelerating sales cycles driven by either increased want for AI adoption or increased fear around other factors driving a faster time to SaaS conversion.

And to the extent that, again, we're not used to the SaaS revenue guidance yet relative to the many years prior being moved up this quickly. How should we think about the linearity and seasonality of the SaaS business? And is this a metric you would expect to kind of update higher every quarter or as we move closer through the year, kind of should we rein in our expectations on that front.

On -- well, we don't guide to a bookings number for next year. We -- other than the statement we said we expect SaaS bookings to grow in '26 over 2025. And as we've talked about the market conditions, the activity in RFPs, the strength in our pipeline, I'll give us confidence around that.

I think we expect the growth to be fairly consistent across the year. And that does each quarter, there's really solid sequential growth in SaaS revenues. And other than that, I don't think there's much more to add. I don't know we'll modify guidance throughout the year as we always do based on conditions. But the other thing as we pointed out in the prepared remarks, the FTR acquisition is not included in our current guidance.

We'll revise our guidance after that closes and the timing of that is uncertain, although we expect that to be towards the end of the first quarter, but it is subject to regulatory approval. So that as well as any other potential acquisitions are not included in that guidance number.

I mean, not a surprise, but we obviously have internal sales numbers, internal bookings numbers, not just for '26, but actually multiyear. The further out you get, the harder it is. But -- we have all that internally that we drive towards. But again, we don't publish that. So we don't generally publish awards.

As your question around an accelerated sales cycle, I don't think we're seeing anything that's either slowing cycles down or accelerating them at this point, I would say, in that respect, it's more of a back to normal, whereas earlier last year that might not have been the case. But I think sitting here today, it's kind of business as usual in that regard.

Yes. I think in the current year, we're not seeing any meaningful impact of AI, either driving accelerated growth or slowing growth public sector certainly has a high interest in AI, but typically are not the first adopters. So we think more of the impact on sales comes further down the road.

Got it. And then maybe just one on the free cash flow and capital allocation. On free cash flow, just maybe contextualize the free cash flow margin guide. I think there's still a cash tailwind from no incremental cash tax payments tied to the R&D impact that you lapped. But what's driving the starting guide? Is that conservatism?

And then on capital allocation, look, the buyback is one of the biggest you've ever done, certainly in the last few years. Is that also a statement in any way around tempering M&A enthusiasm? Or kind of how are you looking to balance that going forward?

You want to start off the first one?

Yes, I'll start with the free cash flow. We certainly expect free cash flow in absolute dollars to grow. We expect the margin to expand as well -- so the range of free cash flow growth is from a margin perspective, is 1 point higher than the range last year.

There are a lot of different puts and takes around it. Growth in earnings are the primary driver of that. So that's the primary starting point. Cash taxes, there's some movement around that.

I think we expect state taxes and some of the federal tax benefits to -- from a cash perspective, to be a little lower than we had previously anticipated. The cash tax is a little bit higher, I guess, is the way I should say it, but generally, the earnings growth is the biggest driver there. And -- and on capital allocation, buyback, I would say One of the things I'm actually most excited about right now is our balance sheet. Our balance sheet and free cash flow at the strongest point they've ever been that I've been at Tyler -- and that leads to 2 things.

Clearly, it leads to M&A opportunities, which we're closing on a deal that I think we announced the purchase price was north of $200 million. at the same time, announcing a significant share repurchase authorization. We closed 4 deals last year. That gets me excited. Our 2030 goal is to get to $1 billion in free cash flow. And when you think about the free cash flow we're going to generate over the next 4 to 5 years and the opportunity that creates Tyler, in our unique leadership position to invest in the things that we're doing, whether it's additional AI or product R&D or it's through M&A that's bringing new competitive stuff in or the share repurchase it puts us in a really good position, particularly in a market right now where there's noise. There's noise in the software market, and I view that as an opportunity. It's an opportunity for us to continue to show our strength. -- it's an opportunity to continue to differentiate us from a lot of our competitors, including some that have been PE owned and others that might have pay really high multiples and then have and may have some high debt and maybe wondering what's happening to the multiples right now.

So it gives us a really good spot. On the share repurchase, specifically, yes, it's the largest that we've sort of ever authorized in terms of dollars. -- but I think it's warranted given our balance sheet, our outlook, not just this year, but really looking out 3, 4, 5 years. And currently, where the stock sits, it's something that I think you'll see us take advantage of.

And our next question comes from the line of Charlie Strauzer with CJS Securities.

Picking up on the capital allocation question that was just answered. Lynn, when you look at the M&A opportunities that are out there that maybe a quarter or 2 ago weren't there because of because the valuations have basically contracted severely, are you seeing potential opportunities there that may be more intriguing in the near term versus buybacks?

I would say in a general sense, yes, Charlie, I've had that discussion, that specific discussion with some of the executive team, there's been no question that not just in the last year, but going back 5, 6, 7 years, there have been deals that we have looked at where the valuations were just getting sort of, I think, ridiculous. And it would be my sense that people have to readjust.

This is a little different than about 3, 4 years ago when we went through a rotation of capital out of software, when we're in a period of high interest rates and higher inflation. We didn't really see valuations change. And I think this environment should lead to that. The other difference is 4 years ago, our balance sheet was in the position it was. So those are the things that get me excited about the future.

We're going to continue to look at M&A just because we have real good visibility on multiyear free cash flow. We're not going to be reckless. We're going to continue our disciplined approach. We're going to look for the right deals at the right time. But yes, it's something that that again, it makes me excited about the future. And I'm really glad that we're in the position we're in today, given where the market is and given where things sit externally.

And our next question comes from the line of Allan Verkhovski with BTIG.

Brian, I just want to double click on the SaaS net new ARR growth of 12% here in Q4, which I think is great on a very tough comp. Would love to get some color on where you thought that would have been when you gave the preliminary guide last quarter for 20% SaaS revenue growth in 2026. And maybe just how much of your incremental confidence is being driven between the new bookings you're seeing from new SaaS deals versus conversions?

Yes. I mean, we've said a lot of the strength in the bookings. It's come not just from conversions and a really solid pipeline of sort of new name deals but also around renewals and expansions with existing customers. So a lot of add-on sales to existing customers. Some of those coinciding with the flip of an on-prem customers.

Good growth around renewals and pricing on those renewals. So I'd say fourth quarter bookings that inform our guidance for this year, we're pretty much in line with what we expected when we gave that early look at 2026 growth.

We even said back at the beginning of the year in '25 when bookings were a bit slow that we expected to see strong growth sequentially through the year, and we did, in fact, see that -- so the underlying market conditions continue to support that. And I'd say, generally, the quarter played out as we expected.

And our next question comes from the line of Clarke Jefferies with Piper Sandler.

I wanted to confirm if the Texas contract kind of rolled off mid-quarter or at the end of the quarter. And just generally, within the guide for transaction revenue next year, what are your rough expectations for merchant fees?

Yes. Texas didn't just end it in a single -- on a cliff, it wound down throughout the year, really starting early in the year as some of the services migrated away. And originally, the contract was -- by terms ended in August.

We extended that as the new provider wasn't fully ready to take over all of the services. And so there was some uncertainty throughout the second half of the year about exactly what the revenues would be -- at the end of Q3, we expected that Texas revenues for the full year would be around $40 million and that for the fourth quarter.

They ended up being about almost $4 million below that expectation. We ended up with revenues from Texas being around $36 million that it was a very low margin contract, so it didn't have as meaningful an impact on operating margin, but it did part of our sort of shortfall in revenues in Q4 was related to that contract producing a little bit less revenues than we expected for the year.

Merchant fees for the full year will be up more of a -- I don't think we've guided to emergency number, but we do expect those to grow as we've talked about, most of the growth in our payments business is in the gross model.

So we continue to expand the sale of payment services to embedded with our software. Those are generally provided under a gross model. We've also mentioned that we continue to expand services and grow volumes under our existing arrangements and are tending to move away from some of the third-party arrangements that have been on a net model. So more of our payments business will be on gross model, and that will drive more growth in merchant fees.

And our next question comes from the line of Andrew Sherman with TD Cowen.

Lynn, given the state of investor concerns on AI disruption to software these days, it would be great if you could talk about your barriers to entry why it would be hard to create your apps and platform with AI?

Yes, that's a good question, Andrew. At the end of the day, AI is only as good as the data it's on and the access it's got. And the data resides through our systems. It's -- we have the unique domain expertise regarding workflows. And I think we're just -- in our relationships with our clients and our trusted relationships, they're turning to us to be their AI partner.

We've outlined a number of our AI initiatives, things that we're doing currently. We've embedded AI into all our flagship products, doing things like automating repetitive workflows and things that consume a lot of time that create measurable savings for the clients. We're doing things with both with R&D and through M&A. And we have examples like AP automation, report writing assistant, Geo reconciliation.

These are all things that are deeply embedded with our systems of record that others don't have that access to. And again, the trust that our clients have, I think, is also a significant barrier. We're going to detail a little bit more of sort of how Tyler looks in the in a cloud living world utilizing AI at our Investor Day. And you will see our strategy unfold a little bit more there.

Sometimes I'm a little hesitant to talk too much about specific strategic things just for competitive reasons, but we will be providing a little more higher level at that Investor Day.

And our next question comes from the line of Jonathan Ho with William Blair.

I wanted to maybe dig in a little bit more into embedding transaction capabilities into your products. Can you give us a sense of where we are in terms of penetrating your large base of installed customers. And with this broader rollout of payments capabilities, how do we think about the cadence of adoption over time?

Yes. I think, Jonathan, it's going to depend on the product and it's going to depend on what we're doing with the product. For example, disbursements. AP automation that I just mentioned is really at its early stages and doesn't have much penetration. When you look at different product lines, it -- our utility billing client base is going to have a different penetration than maybe our ERP base.

And so it kind of varies by product, and it varies by what we're trying to do with that product. We continue to introduce new products and continue to embed more things with our products. So I think right now, it's kind of hard to give a broad brush look at it other than to say the opportunity still is extremely meaningful to us.

Our next question comes from the line of Adam Hotchkiss with Goldman Sachs.

R&D expense, I think the guide was a bit higher than our expectations. -- you mentioned products in AI on the call, but maybe any more detail on specific areas driving that and then how we should think about what peak R&D intensity looks like for this business over the medium term?

Yes. R&D as a percentage of revenue is -- will be about 8.8% -- approximately 8% to 9% of revenue, up from about 5.5% in 2024. There's -- that was the change in 2025, it rose. As we've talked about, we have an ongoing sort of migration of some development expense that is currently reported in our cost of sales. And as we continue to move our business model more towards cloud and more of our development is taking place around cloud native products. That development expense is moving from cost of sales to R&D. And there's about $20 million of that in 2026, in the guide.

The remainder of the growth is really around investments across Tyler, some of which is AI, a significant amount of AI. We haven't broken out our actual how much of our increases AI, but there is a growing investment in AI as well as investments across product innovation widely across Tyler.

So I think we expect to settle in more around the percentage of revenue that we'll see in 2026 as closer to sort of a long-term level of R&D investment.

And our next question comes from the line of Kirk Materne with Evercore ISI.

Maybe just 2 quick ones. Lynn, you mentioned you had your ERP AI sort of group together. I was curious, what are your customers asking for or thinking about in terms of monetization around AI, how do they want to see AI sort of deliver to them in terms of how they pay for it.

There's obviously a lot of discussion about seats versus consumption. I would love to hear feedback you guys have gotten so far, realizing it's early.

And then, Brian, I think last quarter, you gave us a little bit of a buildup on SaaS growth. You might have said earlier, but I think it was something like 12% was coming from book, there's some coming from soon to be booked and then some flips. So I was wondering if you still have that sort of breakdown for the updated guidance.

Yes, Kirk. I think our clients are looking for efficiencies and ROI. We don't currently plan to and don't have current plans to do seat-based AI pricing. It's more on a SaaS-type model. So what they're looking for is really -- is driving that ROI, and those are the discussions we're having. How do we make their lives better, how do we free up those resources and they're willing to pay for those.

Yes. And Kirk, on the deconstructed SaaS growth, about 13% of you say using 21.5% midpoint of our guidance. About 13% comes from prior bookings, some of which would be 24 bookings and 25 bookings. about 5% comes from bookings in 2026. That includes new logos, cross-sell and upsell and a lot of that is sales back into the existing customer base. Most of those things would be in our pipeline somewhere today and about 3% comes from Flip.

And our next question comes from the line of Pete Heckmann with D.A. Davidson.

Just had a quick question here. In terms of the amount of acquired revenue in your guidance from the 4 deals closed last year, is about $14 million, $15 million for the full year, a good assumption. And then in terms of for the record for annualized revenue, should we think about being close to maybe $45 million or $50 million?

Yes. That would be the ballpark for the record, somewhere in that range. We will update our guidance for the year to incorporate that once that closes. And yes, you're in the ballpark, it would be somewhere a little north of $10 million for the revenues from the businesses we acquired during 2025.

I would caution -- I agree. We're not in a position today to make any sort of guidance on for the record, whatever ballpark that we're talking about. Keep in mind that for the record has been going through a transformative SaaS cloud shift with their product offering.

And so that will be ongoing. And so whatever ballpark we have, it will be a mix of SaaS and less less profitable type of revenue, but that will continue to grow and replace just like a cloud transition that we went through.

And our next question comes from the line of Parker Lane with Stifel.

This is Matthew Kicker on for Parker. You mentioned 10% to 12% underlying growth for the payments and transaction segment next year. Is that something you view as a run rate coming out of 2026? And just more broadly, what would be some of the levers for midterm growth on that segment.

Yes. That range is exactly in line with, I think, that 10% to 13% we talked about as our sort of midterm growth rate for transaction business going back to our 2023 Investor Day. So that is right in the range that we expect to be kind of the run rate going forward. That's driven by our strategy of expanding the transaction business within our existing software customer base by integrating selling integrated payments to those software customers, both new customers and existing customers. It's higher volumes, driving greater adoption of online services and driving higher volumes through the existing customer base.

Longer term, there'll be more and more contribution from adding disbursements to the portfolio. And then we do have instances where we're providing software products to clients but getting paid under a transaction-based arrangement. So rather than that showing up in SaaS bookings and SaaS revenues, it's showing in transaction revenues.

One of the deals Lynn called out this quarter deal for motor vehicle, digital motor vehicle titling solution for one of our state enterprise customers is under that kind of arrangement. So that also contributes to the low double-digit SaaS growth or transaction growth.

And our next question comes from the line of Keith Housum with Northcoast Research.

Just trying to unpack the bookings number a little bit. I know we've been talking about the SaaS bookings primarily. But if I look at your services and other bookings year-over-year, it's down about 2%. -- down significantly in the fourth quarter. Can you perhaps just unpack why that is for the year-over-year decline, how to think about that going forward?

Sure. Probably the biggest factor there is the contract reserve, the $10 million contract reserve we took in Q4 impacted bookings. So it created basically negative license revenues. Most of that was a reversal of license revenues, so that also effectively comes out of bookings, that's the biggest factor there.

And that was, I think, $8.8 million of licenses and a little less than around $1 million of professional services. In general, professional services, which we have talked about for a long time as being very low margin or negative margin business for us, while we have a number of initiatives to improve our efficiency and profitability around the pro services business.

We also don't want to grow that segment of our business at the same rate the rest of our business grows. So we're having success in delivering software more efficiently with fewer services really actively trying to limit the amount of custom development work we do that falls in professional services.

So part of that is by design that we don't want to grow services at low margins at the same rate, similar to hardware. So that positive change in the revenue mix is reflected in lower bookings in those categories. So really focused on the higher growth in the more valuable revenue lines in SaaS and transactions.

And that concludes our question-and-answer session. I will now turn the call back over to Lynn Moore for closing remarks.

Thanks, Abby, and thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian Miller and myself.

Thanks again, and have a great day.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

All right. Well, good morning, and welcome to the Needham Growth Conference. My name is Josh Reilly and I'm an analyst on the enterprise software team. This morning, we are excited to have Tyler Technologies, which I will note is my top pick for 2026, and we're excited to have Brian Miller, the CFO today for a Fireside chat. So Brian, thanks for taking the time today. Maybe you could start with maybe a quick overview of Tyler. I think probably most people are familiar with what you do. So maybe a little bit more focus on the operational highlights that you achieved in 2025 because there was a number of those to note.

Yes, thanks for having me. Yes, as you know, we're an enterprise software company, a vertical software company focused on the public sector vertical, narrowly focused on that vertical, but it's a really big vertical. We provide a wide range of essential software applications that manage mission critical functions of government, things like property taxes, courts, public safety, ERP, licensing and permitting. So a wide range of products. We've got by far, the broadest set of solutions for the public sector, along with the biggest customer base in the public sector. So about 45,000 solutions installed across about 15,000 different jurisdictions. We also have a large and growing transaction-based business where we process payments or provide software under transaction-based arrangements, getting paid through convenience fees or other service fees, and that continues to be a growth driver for us. And yes, as we look back on '25, we did complete a lot of milestones. We continue to make a lot of progress on our cloud transition.

We're in the middle of a multiyear cloud transition, where we're accelerating the pace of migrations of our on-prem customers to the cloud. There's a number of operational things around the cloud transition as well that we've made progress on releasing cloud optimized versions of products or continuing development efforts on those. A version consolidation, so eliminating multiple versions of many of our products that have been deployed on-prem. So we're well on track to achieve our 2030 revenue and margin goals that we set out at our Investor Day a couple of years ago and made progress towards that. We completed 4 acquisitions during the year. So we've become a little bit more active. All those were relatively small tuck-in acquisitions, but 1 in the school ERP space, 1 around electronic warrants in our ports and public safety space. We acquired a client called emergency networking that added fire and EMS capabilities around our public safety solution and then MyGov in the community development area. So a lot of good things going on as we exit the year. And I think the key is that we're well on track towards achieving those longer-term targets that we set out.

Got it. That's helpful. All right. So let's get right to it. So I think it would be helpful to kind of maybe set the stage discussing the new SaaS ARR, which you had a really strong trajectory in '23 and '24. And then we haven't obviously reported Q4 yet, but is likely down year-over-year in 2025. Can we just discuss maybe what drove the trajectory up and then down in 2025 and then the puts and takes to a recovery in 2026?

Yes. From a new SaaS bookings, so either new -- primarily new logos or a new complete suite of products for an existing customer. 2024 was an exceptionally strong year. 2025 was a good year but 2024 created a really tough comp for us, and there were a couple of reasons around that. One, we saw in 2024, especially in the second half of '24, an exceptionally strong number or a high number of large deals. And there really wasn't a specific reason for that. Some of it is just the lumpiness, the randomness of when large deals in the pipeline happen to get to that siding stage and there were a bunch of those in the second half of last year. And our typical sales cycles can be a year, 18 months long and in some cases, with, for example, a state-wide courts deal, it can be multiple years long. And in that lumpiness, the second half of '24 was really strong. We've said that the pipeline, the composition of our pipeline is kind of normal. So there are large deals in our pipeline. But we didn't see as many of those in 2025.

We also saw some pull-forward of deals that would have naturally fallen in 2025 into 2024 as a result of the commitment deadline for ARPA -- for stimulus funds from ARPA. Sorry, I got a blip there. So that pulled some deals into the second half of last year that would have fallen in '25, also create a little bit more of a hard comp. And then the last thing was, particularly in the first half of '25, we did see some noise and uncertainty in the market as a result of DOGE tariffs, new administration that created not a change in demand or a drop in demand, but some pauses in the market as governments, especially local governments tried to figure out if there was something that they needed to be worried about. And ultimately, I think by midyear, making the conclusion that DOGE tariffs, none of that stuff really affected them and that their processes were moving forward with Tyler. But it did create some slowdowns in the first part of the year. As I said, by the second half, I think largely, that's behind us. we're not really seeing any lingering impacts or really actually fundamental demand changes, but there was some sort of unusual noise out there.

Got it. All right. So then as we think about net new ARR for SaaS, there's 3 components, the new SaaS ARR, the migrations and then the cross-sell. Do you guys think that about the aggregate of that number in terms of building the pipeline? Or are you more focused on 1 of those categories versus another? How do you kind of think about the business operational dynamics there?

Yes, it's really the aggregate of all those. I mean, it's all about generating new ARR, and that really does come from 3 different sources, and we're focused on all 3 of those. So the migration of our on-prem clients to SaaS continues to grow. That's sort of a multiyear process. We've talked about a target of migrating more than 80% of our on-prem clients to the cloud by 2030. We're on track for that. We still think we're a couple of years out from sort of the peak of that, especially with respect to larger clients, but we expect that generally the trend is that the number of flips of on-prem customers and especially the ARR from those flips will continue to expand over the next couple of years and then hit a peak and then we'll continue to work through that base of on-prem customers. And we can talk more about kind of what the things we're doing to -- that we can control or what some of the dynamics behind the pace of those flips is that, that continues to be a big focus.

Cross-sell continues to be a major opportunity. We've talked about that as 1 of the key pillars of growth in our Tyler 2030 plan as we look to expand our footprint with existing clients from today, an average of 2 to 3 products to as much as 8 or 10 products per customer. So we've got a number of initiatives underway to facilitate and accelerate that process. One of those things last year, we established a new state-focused sales team to help accelerate our ability to leverage the state relationships that came to us through the NIC acquisition and sort of make that bridge between those relationships and Tyler software products that we can sell into that market. We continue to make acquisitions and build products that give us more things to cross-sell and we've also got some pretty significant initiatives going on around improving and unifying our client experience at Tyler to create a stronger foundation of customer satisfaction to also enable more cross-sells. And then lastly, we continue to add new logos and there's still a big opportunity there today. We serve -- we have at least a product in about 15,000 different jurisdictions, so a distinct city or county or a school district, and there are more than 50,000 of those in the U.S. So even though our customer base of 15,000 is bigger than anyone else's, it's still not anywhere close to saturating the market. And so as new opportunities arise often because an aging system, a system that may be 20 or 30 years old has reached end of life that creates more opportunities for us to gain new logos.

Got it. All right. Obviously, AI, everybody wants to know what's going on there. Maybe a couple of items. You've signaled that there's more spend coming in 2026. Maybe you could touch on that a little bit. And then just more broadly, I think 1 of the things that's a little underappreciated, and I tried to highlight this in my topic note, was that a lot of your systems are systems of record versus stand-alone applications, and you have to have a place for the data at the end of the day. How does that kind of insulate you from some of this adjacent AI risk that I don't think is well understood by investors at this point?

It's a little frustrating to us that we feel like we've sort of painted with the same brush around this narrative of risk from AI to the core business that a lot of software companies have, and we think there's certainly some differences in the public sector and in our business that inflate us from that somewhat. The short version is we see AI as an opportunity to increase the value of our products to drive higher revenue rather than a risk of replacing our products. So as you said, our systems are systems of record that manage very complex mission-critical functions like courts and public safety and taxes. These are very complex workflows, essential systems, that form the foundation of what our government clients do. The products are built on deep domain expertise and often we have been in these businesses, expanding our product functionality for decades. And there's also decades long relationships with a lot of these clients.

So there's a deep level of trust between our clients and Tyler for us to manage and provide the tools they need to manage the essential functions. And so they also have the trust, we believe, that we will bring them AI solutions that solve problems for them, but the solutions that they can trust. I think the third thing is that we have a lot of -- massive amount of data. So if you think about the millions of court filings that we're processing or the millions of utility build transactions or property tax bills we're managing. So we have a huge amount of data that provides value and provides the foundation for us to build better models and trustworthy models that they can rely on as they incorporate AI into their -- into these solutions.

So our strategy is really focused on incorporating AI functionality into our core products in many cases, to solve common basic problems they have like staffing shortages. So often across governments, especially local governments, state local governments, they have a shortage of staff. They're faced with a lot of retirements and aging workforce, difficulty competing with the private sector for employees. And so they struggle to get essential things done. And so to the extent that we can provide AI tools that enable them to sort of do more with less, they see value to that. And we believe that creates more value in our products, creates a competitive advantage and that they'll look -- again, look to Tyler to provide those things.

We're seeing good early results with monetizing products like document automation, which is a product that actually came from an acquisition in the court space a couple of years ago, basically uses AI to identify data elements in a court filing. And do the data entry rather than a clerk getting to look at the document, create a case in the system, AI does that. So priority-based budgeting is another 1 of those solutions that uses AI to assist the government with identifying areas to reallocate funds within their budget to address higher priority areas. So we're seeing meaningful incremental revenue from selling those products. In the case of priority-based budgeting or in case of document automation in the court space, we've seen new ARR streams that are higher than the existing ARR from either the maintenance or the SaaS from the core product, but that is justified by labor savings of 2 to 3x of what they're paying us for that product. So -- and I guess the last thing I'd point out is that we have very, very little seat-based pricing. So most of Tyler's pricing is tied to some measure of the size of the application. So the number of parcels of property that the county has, the number of calls -- 911 calls that the public safety agency responds to as opposed to the number of seats. So in terms of risk to the existing recurring revenue base from lower headcount, that's not really a factor for Tyler.

Got it. That's super helpful. All right. So you've made some small AI acquisitions, which are working on nicely. You mentioned the CSI document automation. But going forward, if you look at the investments, is it going to be a combination of M&A and build internally? Or is it going to be the more of the focus of continuing to do acquire AI functionality?

I think it's a combination. We're a growing amount of R&D to AI functionality or AI-focused projects., again prioritizing those things that we believe we can monetize that can provide the greatest impact to our customers and solve practical problems that they have, whether it's again, automating a routine process that they do over and over, like data entry or the review of a license application or providing agents. We've done that at the state level in a number of states we're providing resident engagement portals using AI agents that we've developed based on our deep domain expertise of how state government works. To provide access to citizens to information or to answer questions.

So a lot of that is through internally driven AI -- internally driven R&D. We're working with major providers like Anthropic and OpenAI using some of those tools, but a lot -- an elevated level of R&D certainly as we go into 2026, that's focused on AI and I'd say AI capabilities continue to be 1 of the factors we evaluate as we look at M&A candidates. I don't think we'll necessarily do a bunch of just solely AI-focused acquisitions. But I think just like we look at, is there a payments opportunity, what is the cross-sell opportunity. I think we'll look at what either the AI current capabilities or the opportunity to integrate AI into acquired product would be, so that continues to be 1 of the things we consider in an acquisition.

Got it. All right. You've highlighted recently, you've been talking about this a bit more 3 key areas of investment priorities. AI products, which we've kind of hit on, next to product competitiveness and then improved service delivery. On the product competitiveness, what's driving the increased investment there? Are you seeing any changes in the competitive landscape driving these investments?

Yes. There's not really any fundamental change in the competitiveness that's driving those investments. But we have good competitors in each of our product areas, each of our subverticals. We generally have a leadership position in our core products, things like ERP or courts or public safety. But we're constantly looking to strengthen that competitive position and to continue to innovate. AI is certainly 1 of those areas, but we always have various initiatives often based on client feedback in some cases, what we see competitors doing, but more often, where we're innovating and identifying areas where we can invest in products and sometimes solve problems that clients don't fully understand they have yet. And so that's -- this is just a continuation of that. I'd say that given our really strong cash flow position and our capabilities, especially as we look to leverage more of our R&D efforts across multiple Tyler products as we're doing with AI, this is just a time as we go into 2026, where we think there can be maybe a little bit of an elevated level of those investments to drive continued strengthening of those competitive positions that [indiscernible].

Got it. All right. So moving on to cloud migrations. I'm curious, what's your -- if you look at ultimately what you did in terms of volume of cloud migrations in '25, was it consistent with your expectations? And how have you internally kind of thought out how the dynamics of the arc of the peak in 2027 and '28, what type of internal modeling or visibility do you feel that you ultimately had into coming up with those assessments and numbers?

Yes, I'd say the high level '25 was -- was pretty much in line with what we expected. No really big surprises positive or negative around the pace or the size of cloud flips. We continue to see the average size of flips grow and none of this is exactly linear, it's certainly quarter-to-quarter, it depends on just is there a big client that flipped that quarter or just the timing. It's definitely plotting the trajectory is not a science. There are a lot of factors that go into that, that influence when on-prem clients flip to the cloud, some of which we can influence and some of which we can't. I'd say that clearly we've set out this target of 2030 that again, going back to 2023 when we had our last Investor Day, we said that by 2030, we expected that around 80% or more than 80% of that client base that was still on-prem would have migrated to the cloud by 2030, and we are on track to achieve that.

We said it wouldn't be in a straight line. It would be -- we generally envision somewhat of a bell-shaped curve to that pattern. We think the peak or the top of that curve is still a couple of years out. We know that our remaining on-prem customer base is a little bit more heavily weighted towards big customers, which is not a surprise that they have more complex IT road maps, they've got competing priorities and the process, their overall road map around the cloud may be stretched out longer than a smaller client. Some of the things we can't control are the client's budget situation. So typically, there is an uplift to Tyler, although in most cases, that's kind of cost neutral to the client because they're replacing internal costs, cost of hardware, cost of people that are managing systems in-house with hosting costs and SaaS fees to Tyler.

So generally, it's kind of cost neutral. But they may have some effort on their side, their internal IT priorities. Sometimes it's when their hardware refreshment comes up. So if 2 years from now, they're going to have to replace a lot of servers in the data center, that's when they're targeting flipping to the cloud. because they're going to run out that hardware and then not look to replace it. Sometimes cybersecurity events, ransomware attack can change that time line, generally accelerate it. If either they or one of their peers experience a ransomware attack in their on-prem systems, often they're motivated to recover in the cloud and stay in the cloud after that. We've made a lot of progress around version consolidation, so getting clients who are not on the current version of the software on the current version, which is sort of a prerequisite for moving to the cloud. And so we've put a growing number of clients in a position to flip to the cloud.

And then in things we can control, we're also in terms of incentives or carrots and sticks, we're increasingly telling clients that while we will support their on-prem products for an extended period of time, that new features and functionality will only be available in the cloud. And so for example, with our court system last year, we told clients at the beginning of '25 that the release in '25 would be the last on-prem release that had new features. In some cases, we expect that as we move forward, to use maintenance pricing to incentivize clients to move to the cloud. So higher increases in maintenance for on-prem customers to provide more of a financial incentive and while we haven't announced any end of support for on-prem -- for any of our on-prem products at this point, that does remain an option further down the road, certainly with a lot of notice to clients. And so -- but again, as I said, a lot of our larger clients are still on-prem and especially around those clients, we generally have an expectation that more of those flips are kind of 2 to 3 years away from us. But we're really engaged with, I'd say, at some level, with virtually every client around developing a road map because it's not a question anymore of if they're going to move to the cloud pretty much with every customer. They know that they will end up in the cloud, and it's a matter of just kind of how that timetable fits.

Got you. One of the things that I think has kind of led to your historically attractive multiple has been your very strong gross dollar retention. Now with AI, obviously, there's a lot of market concern that there could be some impact to that. How do you kind of think about gross dollar retention going forward? And how does service delivery ultimately play a role in that retention figure as well?

Yes. You're right. We've got a really strong record of gross retention, typically 98% or better. And we've got a lot of consistency in our ability to get annual recurring revenue increases in that 4% to 5% range. So it's also -- and then that combined with the cross-sell and upsell opportunity also leads to really good net revenue retention numbers as well. And I think with our sole focus to be fair in the public sector, we do have the benefit that our clients don't get acquired and they don't go out of business. So we kind of start out with a bit of an advantage in terms of gross retention, not having attrition as a result of those factors. But with our sole focus on the public sector, ongoing investments in innovation, we're constantly adding new features, incorporating new technologies and I think that's a major factor in retention.

Our clients are confident that we're going to continue to lead the way in providing the leading products that they use and that our products continue to get better and that they don't ever have to replace the Tyler product because we're always investing in them. We're always kind of maintaining our competitive position in the new business market and our existing customers get the benefit of that. So they really see a long-term value in acquiring products from Tyler. We also have a suite approach. So we have tightly integrated products in these suites in ERP or in public safety reports that provide lots of different applications. And that's attractive that they can get especially in midsize governments that they can get multiple products from 1 vendor and that simplifies their business. They'd rather deal with fewer vendors and have those products and not deal with one-off integrations, have those products stay in sync.

So as we continue to make acquisitions as we continue to build more products, that becomes more of a factor in our favor. But in order to protect that revenue base and to grow it through more cross-sell, we do have this major initiative underway today around continuing to improve and unify our client experience across Tyler. So we created a new role of Chief Client Officer in 2025 and Andrew Kahl filled that role and really is overseeing those efforts to create better processes, add people, add systems or standardize systems to create that standard high-level experience that in turn makes -- helps underpin strong retention but also helps drive a higher level of add-on sales to existing customers. And that's certainly 1 of the areas we're making investments as we -- both in '25 and on into '26.

All right. So as you speak to customers, curious, how are you -- how are they thinking about allocating budget for adjacent AI solutions to kind of your core system of record products. For example, the document automation, which is proving to be a strong seller, where are the customers getting the budget for a product like that? And what's your confidence that they can handle a higher level of spend as states are probably going to start to tighten up their budgets over the next couple of years given the macro dynamics?

Yes. Our focus, and I think our clients' focus is really on AI solutions that have a really clear ROI, that really provide a value and that solve problems that are top of mind for the clients. There's not kind of theoretical things that this would be cool to have and it's really where we can demonstrate like with document automation that if you add this product and pay us $500,000 a year for it, you're going to save $2 million a year in labor costs and it's not necessarily that they're going to fire a bunch of people and say that it's that they may have budget for that already, but they're having -- they don't have -- they can't get the people or retain the people, and so they're not getting work that's essential. They're not getting that done. So those are the kinds of things or AI agents that can enable, replace the need to have somebody answering the phone to answer questions or and free up workers to do more productive things or reviewing a building permit application using AI rather than having clerks and having backlogs of billing permits, which in turn impacts tax revenues and community development efforts.

So all of these things are things that they find high value for and one of the interesting things is that we're finding that increasingly, clients are paying for these out of personnel budgets or staff budgets rather than IT budgets, so they're actually viewing these as providing a replacement for staffing and taking it out of those budgets or viewing it, which is a bit of a -- certainly not a bit of a change, a fairly significant change in how governments look at technology. And that's really kind of where our focuses are. We've talked about, for example, in public safety, integrating AI into our records management system to where the average police officer spends 2 to 3 hours a day writing reports to free up that time by using AI to assist with report writing and free up time to do the kinds of functions that they're really there for. So that's really kind of how we believe we can both monetize AI features and functionality but also demonstrated a clear value to customers. And those are the kinds of things they're really looking for.

Got it. That's a really interesting point on the personnel versus IT budgets because that theoretically significantly increases your TAM right, if you can tap into those budgets versus strictly the IT budgets. So one of the areas I'm pretty excited about is the trajectory of the cloud migrations for your Courts & Justice suite, that's the area I've done work in that area, obviously. And I think you probably have the strongest competitive position arguably in that product suite versus any of your other ones. And there's an opportunity now to kind of cross-sell the 15 states that you do need to migrate to the cloud as well, which I know you did successfully with Idaho. Any thoughts on the trajectory? And then maybe how you're thinking about the cross-sell as well given Idaho was such a big success on the cross-sell?

Yes. Courts is certainly one of the areas where we have some -- certainly not the biggest in terms of number of customers, but some of our biggest customers, and we have, I think, it's 18 court-wide -- state court-wide systems -- state-wide court systems, 2 of which were cloud native from the start. One Idaho was an on-prem customer that has already migrated to the cloud and the others are still on-prem. And some of those are some of our biggest customers. I think the peak there is still likely or a lot of the activity there is still likely 2, 3 years out. There's a tremendous amount of planning that goes into these, when you think about like the state of Idaho, it's 1 customer or any of these states, it's 1 customer in Maine, that the systems are deployed at the county level across the state. So you have multiple CIOs, multiple courts administrators, you've got integrations to other products at the county level in each of these systems, all of those things have to be planned for and taken into account.

So often, these are long planning runways. And I'd say we're engaged in discussions with pretty much every one of those customers, but still probably 2 to 3 years out before you see the bulk of the activity. I think we'll see some movement this year. I think we'll like -- I know it was a big success in terms of the movement, and it serves as a good proof point, so -- and reference. So I think we'll probably see some activity there this year, but still a couple of years out from seeing more of those migrations. We have seen -- we have talked about cloud migrations across all products, but particularly in courts as an opportunity to sell more things because often a customer has our court case management system that they might have someone else's jail system or jury system or probation system, those products or those vendors may not have cloud options. So it gives us a chance to sort of have a bite of the apple of bringing those products under the Tyler umbrella in a unified integrated solution when they move to the cloud.

Idaho was one of those where we saw our typical uplift from a cloud migration is 1.7 to 1.8x. Idaho, I think, was almost a 4x uplift because of add-on products and services. So that is something we're focused on as an opportunity around our flips across all products.

Awesome. All right. As we think about the potential for big deals returning in 2026, maybe we can just review where would these come from besides Courts & Justice and where do you typically see these kind of 7-figure ARR opportunities kind of come up?

Yes. Courts & Justice is certainly where we've seen our largest ARR deals continue to be opportunities in the pipeline in that market. I think tax appraisal is one of those areas where we also do statewide or large county deals where we've seen 7-figure deals there. We're a pretty clear leader in that market, especially at the high end. We do have a growing focus on the state market. I talked about our -- our implementation or building out a state-focused sales organization in 2025 that is now in place to really bridge those NIC state enterprise relationships with the -- all of the Tyler products that we can sell in the state governments and we've seen some opportunities there.

For example, like we did in California with the outdoor recreation solution, we've seen several resident engagement portal deals and a product that's founded in AI that have been in that 7-figure annual ARR range. So there are opportunities across the board, but those are kind of the areas that where we really see the biggest large deals and I'd say the pipeline has a pretty good mix of large deals. It's not that they all get pulled out of the pipeline back in '24, but they certainly can be lumpy in terms of the timing.

All right. I think we've got time for 1 more question. So I'll move to a financial one. As we think about the free cash flow margins for 2026, you still have a net benefit from the Section 174 tax credit reversal and then I know some of your working capital benefits may not be incrementally up higher again in '26 from '25. Is the net impact then at the 25% to 27% margin that we're kind of looking at for the last couple of years here is still kind of the right way to think about the number going forward?

Yes, the short answer is yes. We start -- in '25, we're clearly ahead of pace to our 2030 target and our guidance for '25 implied about a 200 basis point free cash flow margin improvement or operating profit margin improvement in 2025, which is ahead of that kind of 100 basis points a year that we need to get through 2030. There are a lot of puts and takes around 2026 free cash flow but I think that's kind of a fair range for the free cash flow margin.

Got it. All right. Well, with that, I think we are out of time, and I want to thank Brian for the time today and look forward to staying in touch. Thank you.

Thank you.

Okay. We're good to go. Excellent. Good afternoon, everyone. Welcome to Day 2 of Barclays Tech conference. My name is Saket Kalia. I cover software here. Honored to have the team with us from Tyler. We've got Brian Miller, Chief Financial Officer. We've got about 30 minutes together. Let's take the first 20 or 25 minutes to go through some fireside chat here with Brian, which I know is going to be fun.

And then we'd love to make it interactive. So if anyone's got any questions, just pop up your hand, we'll get a mic out to you for the benefit of the webcast. So with that, Brian, thanks so much for being with us here today.

Sure. Happy to be here.

Yes, absolutely. Brian, maybe just to start out for -- just to make sure everybody is on the same page. I think we're all familiar with Tyler. But can you just maybe recap some points from last quarter that you were particularly proud of, just to kind of keep us all on the same page?

Sure. Well, we raised guidance again for the second...

Going to be proud of absolutely.

Third straight quarter, actually, I guess. So largely on track to achieve or exceed the objectives we had at the beginning of the year. as well as continuing to show progress towards those long-term objectives. As you know, at our Investor Day in '23, we set out some targets for '25 and some targets for 2030, first time we'd ever set targets that far out.

And so our results this year have continued to support in general for the '25 targets, we've exceeded -- achieved or exceeded them, and we're well on track to achieve all the stuff we laid out for 2030 and continue to make progress there. So after a little bit of a slow start to the beginning of the year with some of the noise around Dose and federal government largely worked itself out, and we've been showing good bookings growth and certainly good financial performance.

Yes, absolutely. I agree there. I think one of the highlights from last quarter was we got an early look at SaaS revenue growth in 2026, which I think you said we expect to be in the 20% range. I was wondering, right because that was what we got the most questions on afterwards.

Could you maybe break that down and give us a sense for how much of that growth maybe comes from flips to SaaS, right, which, of course, are going to be increasing versus renewals. You've got a huge renewal base versus new business, which I don't think this is as big of a part of the format, but I'm curious how you sort of segment that 20% growth into next year?

Yes, the way we broke it out, and we thought it was kind of important given the we have a tough bookings comp this year relative to last year. And so I think that optic had created some concerns around how bookings this year were going to translate into revenue growth next year on the SaaS side -- and so we talked about this 20%. This early look at next year's revenue, SaaS revenues about 20% growth.

Of that, about 12% of our growth or 12% growth comes from things that will already be signed by the end of this year, so sort of backlog, maybe think of it that way. The deals that we signed, even in the last half of 2024, that didn't have a full year impact on this year's revenues, but will next year, deals we signed this year that have had a partial year impact or in the case of deals that we might sign in the fourth quarter might have very little impact on '25 but impact next year as well as our price increases.

So typically, our SaaS -- generally, we get around the 5% annual increase, mostly that's built into existing agreements and then as we have annual renewals after that. We generally look to get that 5% increase. So that pricing increase as well. So kind of things we already have signed. About 5% growth comes from things that we'll sign next year. So next year's bookings.

And again, partial year impact from those deals given that's typically a lag from when we sign it to when we start recognizing revenues. And then about 3% growth comes from flips, so migrating on-prem customers to the cloud. We continue to have an experience where we're seeing a typical uplift of about 1.7 to 1.8x the maintenance revenues as they move into SaaS.

We said that the trend in general, is upward and to the right in terms of the number of flips and the average size of flips. Our on-prem customer base still is fairly heavily weighted towards large customers, so that can be kind of lumpy, but as they move, it has more impact. We've said that the peak of the slip curve is probably still 2 or 3 years out.

But in general, maybe not every single quarter, but in general, the trend is that the size and the number of flips is increasing. So that 3% you would expect would be a higher contribution the year after and the year after. But that kind of breaks down how we get to that 20-ish percent growth next year.

12, 5 and 3, right? I think that right? And so that's -- I mean, that's -- that must give you so much more confidence, right, because the majority of that is coming from stuff that you've really already signed. So and flips, I think the company has done a great job in terms of flipping customers just with the additional value that they get from South. So that's a really helpful breakdown.

As we think about that growing SaaS revenue base, maybe 1 of the questions that I think about is, what do you view as the best forward-looking metric for the business. I think some of us tend to look at either total SaaS bookings. That's what I use in our model or I think we also got ARR from new SaaS deals and conversions. That's something that some investors look at.

Maybe the question, Brian, is what are some of the puts and takes for investors to consider when looking at these metrics? And what do you think is the most important when kind of gauging the health of the SaaS business?

Yes. It's really how much new ARR, we're adding regardless of what source it comes from because it may be different in different quarters and different years. So whether it's coming from renewals, which is still the biggest piece of it, our existing customer areas renewing and getting those increases as well as add-on sales to existing customers.

And that is a large, but also growing part of our new sales. And a big part of emphasis going forward is leveraging the big customer base we have to sell them more and more things coming from the Flips as well as coming from just new logo sales. So regardless of where it comes from, how much new ARR are we adding. And we have historically given a lot of metrics around bookings, some are total contract value metrics, which have a term component which changes from time to time.

Some are subsets of that total number. And I think as it has evolved, as our business has evolved, it's gotten really complicated and sometimes it's hard to figure out what is the most important thing. We really focused on just how much new ARR we are adding because that's really what ultimately even there may be a quarter or 2 lag from adding it to seeing it in the income statement, that's really the biggest driver. And so I think as we look over time to simplify and focus on kind of what's important.

I think you'll see us focus more on a forward-looking kind of run rate of ARR at the end of the quarter, which might be something you're more used to seeing with other companies as opposed to annualizing a backwards number or giving various components of total bookings. I think really ARR at the end of each quarter, what's on the books now. And how that will -- what that run rate is?

And how that's growing year-over-year, right, which is just -- I imagine there's going to be much more steady growth. So that's great to hear we definitely look forward to something like that. maybe given the metrics that we've got, one of the questions that I've gotten from investors was around trying to bridge the growth in bookings in SaaS bookings specifically, right, which is maybe more -- kind of more in the single-digit range year-to-date.

I think they looked at the decline in ARR from new SaaS deals. And then kind of compare that to 20% growth in SaaS revenue expected for next year. And again, you mentioned some of them, right, duration could always be a driver. But what are some of the dynamics that might be impacting the relationship between -- I consider SaaS bookings very much of a forward-looking metric, but what might be impacting the relationship between those forward-looking metrics and the resulting revenue that you expect to have next year?

Yes. I think some of the things like the term or duration. So when you look at some of the total bookings number, that can vary. I mean, last year, we had a really strong bookings year, especially in the last half of the year and especially around big deals and some of those big deals had multiyear terms whereas our typical SaaS deal 3 years is sort of our standard, but we had some that were longer than that.

So that impacted -- gave us a bigger number for total SaaS bookings that has created a tough comp. Even though the ARR look at it might not have produced that same look. The -- and I think the other thing that kind of fits in with the 12% of our growth that's coming from things that are already signed.

Is the lag from the time we sign something to when those revenues hit. So the fact that we still get revenue growth in '26 from deals we signed in '24, whether it's because there wasn't a full year impact because there's a lag of a quarter or 2 between the time we sign it and the time revenues start or sometimes they are phased revenues.

It might be an implementation of a statewide court system that will start at a certain amount of ARR and grow as it's implemented across the state. So we don't get the full run rate in year 1. And so there's contribution in future years from prior year bookings. I think that's part of the puzzle.

Got it. That's really interesting that the ARR might be really different from kind of what the bookings are showing?

And then 1 other thing I'll mention in that context also impacts our transaction revenue bookings. We have seen the number of deals in the last couple of years where we've sold a software system, but it's being paid for with transaction-based revenues.

And so it's showing up in transaction revenues. It's not in SaaS bookings. It's not in SaaS revenues, but it's coming in transaction revenue. So an example of that was actually the biggest deal from a total contract value that Tyler has ever signed. We signed it in -- I guess we went live with it in summer of 24 in California here, the California State Park deal. So we provided a complete suite of outdoor recreation -- this is a core product of Tyler's to manage all the aspects of the California state parks.

And so we replaced multiple software vendors as well as the payments vendor. So we're also processing all of the payments associated with revenues through the parks and providing some other services. But rather than California have to appropriate money out of their budget to pay for SaaS fees, we're getting paid by transaction fees that are levied on charges that people incur with the state parks.

If you reserve a campground, you pay a fee, there's also a convenience that goes to Tyler. To the Horse Castle, there's -- you buy a $20 ticket, you pay -- there's an add-on fee to Tyler. Renya, all those sorts of things. So it's sort of self-funding.

They don't have to appropriate budget for it. We still get our SaaS at least the equivalent of revenues that we would have gotten under a SaaS arrangement. They're not totally pro rata, so they can be seasonal. We still get the same margins that we would have gotten, but it just shows up in a different place on our income statement. And we're somewhat uniquely positioned to be able to offer that model because we have the payments capabilities. We've done that in other instances. So we're comfortable with it and it provides us with a competitive advantage.

I wouldn't say it's the primary way we sell software, but there are situations. We've done some digital motor vehicle titling systems for states, so they can when you pay a titling fee when you buy a new car, they can add on a convenience fee to Tyler and pay for that solution that way. So it sort of artificially I guess, reduces SaaS revenues and SaaS bookings and increases transactional revenues, but the underlying business is really the same as...

It also that with the comps too, I imagine, right, like Yes. Interesting. -- and thought about that. I want to talk about sort of the -- one of the points that you made just on the difficult compares, right, that we've seen this year on ARR from new SaaS deals, or on total SaaS bookings, right? Because to your point, there were some really healthy big deal activity in 2024.

I don't know, if there's a way that you've talked about how to quantify that tough comp like in terms of 2025 growth versus a more normalized 24%. But really, maybe the more important question is, do those compares ease in 2026. And while we're talking about the subject, I mean, how does the big deal pipeline look currently and hopefully.

We have commented that the -- well, for one, even going back to when we were a license-based business. licenses, new deals, especially big deals have always been kind of lumpy in the public sector. The timing of -- we have really long sales cycles and the timing of when that things just get across the line can be somewhat unpredictable and especially on big deals can be lumpy. And that the case in the SaaS world as well. It doesn't affect revenues.

Revenues aren't as lumpy as licenses were, but the bookings can be. Last year, just especially the second half of the year happened to be a year, where there was a lot of we had an extraordinary number of large deals that kind of got to that point at a similar time frame. We had a statewide court deal State of Kentucky that signed in Q3. That was the first statewide court deal that has been in the market in like 3 years. This happened to happen in that quarter.

There are a couple of those in the pipeline. Hard to tell exactly. Sometimes these are multiyear sales processes, but there are some of those in the pipeline. We had, I think, 4 deals last year in Q3, just SaaS deals, there were more than $10 million of total contract value. This year in Q3, we had 1. 1 would be more normal, but 4 would be extremely strong.

And so not really a particular reason you can point to. So this year has been a good bookings year. Just against the tough comp. So we would expect that next year, the comp would be certainly easier -- but also, we've commented that the pipeline has a normal mix of large deals and mid-sized deals. And so I would expect that next year is it sort of evens out towards the mean that our view is there are probably more larger deals than there.

Got it. Got it. Very helpful. Maybe just 1 last question just on kind of this 20% SaaS revenue growth for 2020. apologies, you were nice enough to give it to us in Q3, and of course, we're all going to scrutinize it. But should we kind of think about that 20% or around 20% as a floor?

I mean 1 of the questions that I've gotten coming out of that was well second, that's a really healthy guide. Has Brian changed this guidance philosophy? And I don't think you have, but I want to make sure the question is out.

No, our guidance philosophy is very consistent other than we don't typically give guidance for next year in Q3, but we thought it was important given the -- the questions we were consistently given to try to clarify where our expectations were. The -- sorry, what was the first part of it was around...

Whether the guidance approach has kind of changed or whether we should think about it the floor .

Yes. We have said -- again, we gave that guidance or the targets through 2030, we said we expected from 2023 to 2030 to have high-teens SaaS growth CAGR over that period. Not in a nice linear fashion. And the flips or the incremental revenue from the migrations of on-prem customers really creates that above just the core growth rate is really that incremental growth, which is what's had it kind of in that 20% range for the last several quarters.

There can be periods where it's above that 20% as we move more towards the peak of the flip. And then I think as we get on the downhill side of the flip curve, that incremental revenue from the flips will start to narrow and will move back towards maybe a low-teens number. And so 20% isn't like the standard forever. It's where it is right now, but still within the context of that kind of mid- to high teens growth over a 5- to 7-year period.

Yes, absolutely. Since you brought up kind of the concept of flips, I mean, that really -- to your point, that's kind of the incremental delta for what the business is growing versus kind of the 20% that we've talked about, right, or the high teens, right, kind of looking forward. You've talked about sort of a bell curve around flips, right? I mean can you just talk about sort of how you think about the pace and size of flips over the coming years and really as part of that path to Tyler 2030.

Yes. The whole subject to flips, obviously, gets a lot of attention. It's a significant part of our growth there. It's not there's a terrible amount of precision around how we see that progressing. What we are very confident in is that the $450-ish million of maintenance revenue we have will turn into over the next several years, 1.7 or 1.8 that in SaaS revenues because while we said that we expect 80% to 85% of our on-prem customer managed to move to the cloud by 2030, we ultimately expect 100% just like almost 100% of our new business is SaaS now that over time, we do expect to get to 100%.

That's 1 thing that has progressed nicely in the last few years is the conversations with our customers have moved from why they should move to the cloud, why our future is there, why it's good for them. And in government, it took a lot longer than in the private sector for people to embrace the cloud. But that has moved much more rapidly in the last couple of years, and we've been able to move to where we're in the high 90s in terms of new business in the cloud and accelerating the pace of the migrations.

There are some things around the pace of the migrations that -- so I'd say that at this point, with virtually all of our clients, it's not are they going to move to the cloud -- or do we need to convince them to. It's more about when and how they do it. There have been some gating items, 1 of those being the need for clients who aren't on the current version of the software to upgrade to the current version when or before they move to the cloud because our goal is to have 1 cloud optimized version of every product in the cloud that what we refer to as cloud living when everybody just isn't hosted in the cloud, but everyone is on 1 version upgrades time, get all the benefits of being in the cloud.

But -- so we have made a lot of progress with version consolidation and sunsetting old versions, getting customers in a position to move to the cloud. through that upgrade process. They'll have some work to do there, but we've made a lot of progress in the last couple of years.

Some of the things, sometimes just how does it fit into our clients' overall IT plans. Sometimes it's when is their hardware need to be refreshed. In '19 -- in 2028, they need to -- they're looking at replacing servers in their data center. That's probably the point where they're saying that will be the catalyst to move to the cloud.

We're going to run our stuff until we fully depreciate those assets. Sometimes, it's just how does it fit in with other IT priorities. And then on the flip side, sometimes a cybersecurity event or a ransomware attack can accelerate that process. They might be thinking they're going to do it 2 years from now and they or a neighbor of theirs has a ransom or attack, and they said, I'm a little more concerned about the security of my own data center.

So there are a lot of different puts and takes, but we're very confident about the ability to move those clients and have some various carrots and sticks that we can use and will increasingly use as we move down that curve. But today, we see it as sort of a bell-shaped curve with the peak really being out 2 or 3 years from now.

Yes, absolutely. Very helpful. I want to move away from the SaaS line. I know we've talked about it a bunch I really want to shift to another part of the story that I'd love to see, which is the profitability, right?

And I think that you've talked about being ahead of plan on operating margins, again, as we think back to Tyler 2030 targets, but you've also said that, that path to the 30% plus margins in 2030 won't necessarily be linear.

And so maybe the question is, how do you think about some of the moving parts of the puts and takes to that path from here? Particularly because 1 of the things I'm excited about in 2026 is that second data center closing. So how do you kind of think about the path from here to 30% plus?

Yes. the targets that we set for a 30% plus operating margin by 2030 really implied was about 100 basis points a year on average from 2023 to 2030. And -- we've gotten more than that in the first couple of years. And a fair amount of that is kind of the OpEx line. Most of what's left to come is more at the gross margin line. And a lot of that is around broadly around the cloud transition in cloud operations.

So it's the version consolidation and eliminating the expenses associated with supporting multiple versions of multiple products. product optimization. So releasing cloud optimized versions of our solutions to run more efficiently in the cloud. Some of it's scale. So our AWS costs go down as we buy more capacity and move more customers into the cloud.

So all of those are kind of factors. The improved profitability of customers as they flip and we get that revenue increase. It's not all margin, but there is higher margin as customers move from on-prem into the cloud. And so there are a number of things around the cloud transition and closing our data centers.

So we formerly had proprietary data we're now 100% of our customers are in AWS. We've now closed the second data center, which was scheduled to happen before the end of the year. And the benefits of closing the data center really kind of play out over 12 months or so. It's not January 1, there's a switch that hit flip that cuts off a lot of costs.

There are some things that run on out, some of the vendors, some of the equipment, some of the people actually will move into other roles, but that will a little bit of time. So that benefit is part of that. So as we look at that average of 100 basis points a year, we've done better than that in the first couple of years. Still, we said we're very much on track to achieve those targets.

But 2026 is likely to be a year, again, it's not linear, but 2026 is a year that we've said you won't see the kind of margin improvement that we've seen this year. Some of those cloud things really kick in a little bit further down the road. Also we have a sort of a heightened level of investments.

We're making investments in AI technology, certainly in our products and some in internal use, but a heightened level of investment around that around some competitive initiatives in our products as well as investments we're making we've talked quite a bit around the client experience and creating a more consistent, unified, better client experience and that involves systems, people, processes.

So those things here, we're making investments in, but still in the context of achieving that 30% plus margin, but this is the year -- the year coming up as the year there won't be quite that same bump and then more of that will come at the gross margin line for the demo road?

That's helpful. I appreciate that. I want to shift to free cash flow. I mean you've talked about several drivers there. with the shift to SaaS and the transaction business along with kind of the margin expansion that you have seen so far, which we've talked about.

And now we've got the reversal of Section 174 playing a role here as well. Remind me, what have you said around your expectations for free cash flow free cash flow, free cash flow margin expansion, whatever you want to talk about here in '25. And anything on sort of what that looks like as part of that path to 0.

Yes. That also is not linear, and that is 1 area where we've clearly outperformed certainly the 2025 targets and well are on track for the 2030 target, which was high 20s, 30%-ish kind of free cash flow margin.

So we've been able to achieve a lot of that -- some of that just through the hand-in-hand with the improvement in the operating margins. some of it through working capital improvements, especially around receivables as we continue to move towards more either transaction-based revenues or SaaS revenues, where they're paid in advance or paid at the time of the transaction, the cash flow characteristics are better, so less receivables and more cash flow.

So all those things have contributed that really being well on track or ahead of track to achieve those targets. We did -- we will see some short-term improvement. It won't really change the whole 2030 target. But in the short term, we're getting the benefit of the change back on Section 174 and being able to expense R&D for tax purposes rather than having to spread it over multiple years.

So we get that benefit partially in '25 and partially in '26. So yes, the headline is just we're well on track and feel really good about the cash flow. We've talked about having a -- creating $1 billion of free cash flow annually by 2030 and then what do we do with all that cash?

Which is a great segue the last question. So just around capital allocation. I think Tyler was an active buyer of the stock, right, this past quarter. I think we've got to convert coming due in the next couple of quarters.

And M&A has always been an important part of the Tyler strategy, your story as well. So maybe the question is, how are you thinking about kind of prioritization or pecking order, right, in capital allocation around debt repayment, M&A, share repurchase going forward?

Yes. For the last couple of years, debt repayment, historically, Tyler hasn't had a lot of debt, but we did a large acquisition of NIC in 2021 and had term debt in the convert. The term debt, we paid off -- cash flow is very strong, we paid off well ahead of schedule and completed that early last year.

So we got that out of the way. The convert is due in March, and our plan is to repay that. It's $600 million. We have about $1.1 billion in cash on the balance sheet today. We also have a undrawn revolver. So plenty of liquidity and we'll generate certainly more free cash flow between now and then.

So having deleveraged and having the debt out of the way, then that creates moves M&A up in priority. And we've said that over the last couple of years, the bar has been kind of high on M&A, partially because of focus on repaying debt, but more so because of management bandwidth capacity as we've had a lot of these big initiatives around the cloud and around payments and around client experience, things that require a lot of management attention that we didn't want to jeopardize achieving those things by -- with a lot of acquisitions on top of that.

So we've been -- we've done some acquisitions, mostly small tuck-in things. But we're kind of at a point now where we're sort of through that and we're more open for more M&A and certainly have the capital and the balance sheet capacity for it. So I think you should expect us still with the same criteria, strong criteria around strategic fit, around cultural fit and discipline around valuations.

But I expect that we'll be more active over the next couple of years. And then buybacks, we've always been opportunistic about. We did -- we were more active in Q3 than we have been in some time. And so on dips that we think don't reflect the long-term value of the company, we've tended to be more active to the extent that, that fits in along with our M&A priorities and other priorities. So I think you'll see both of those going forward.

Got it. Very helpful. I think that's about all the time that we have -- we've got left. Brian, thanks so much for being with us here today. Is that okay?

Yes. Perfectly.

Okay. Hello, everyone, and good morning. Welcome to day 3 of the UBS Tech Conference. My name is Taylor McGinnis. I head up coverage here of the SMID Cap application SaaS names. And in this session, we have Tyler's CFO, Brian. So Brian, thanks so much for joining us.

Good. Thanks for having me.

Yes. Brian, maybe a good place to start would just be at a high level in terms of what you're seeing in the demand environment. I know you guys talked at the start of this year that there was some disruption on your most recent earnings call. It sounds like you didn't see any big impacts from changes with DOGE or the government shutdown. So maybe you just could give a state of what you're seeing today.

Yes, absolutely. As you know, we serve exclusively the public sector. So we're really focused on what's going on in that market. And we've seen a pretty stable demand environment over the last several quarters. We've talked about really for the last I guess, almost 2 years, an active market that demand as we look at leading indicators like the number of RFPs we're seeing each quarter, how those deals are progressing through the pipeline, all are at least stable at kind of elevated levels. So we're seeing a really consistently strong demand. There was some disruption, not really affecting the actual demand, but the timing in the first quarter. There were a couple of things specific to Tyler.

We saw some pull forward of demand of bookings into the fourth quarter of last year because of the expiration of the federal stimulus, the ARPA funds. And then we saw around all the noise around the new administration, around Doge, around tariffs, all the things that were going on in the first quarter, there were some pauses in processes as our customers or prospects try to figure out did any of this really affect them. Ultimately, I think the conclusion was, for the most part, no. It didn't really change what they were looking to do with Tyler or currently doing with Tyler. And that's all pretty normalized by now. So -- and then the federal government shutdown even in the most recent quarter had no material impact on us. So less than 5% of our business is with the federal government, and there really wasn't any kind of trickle-down effect. So whatever disruption was in the beginning of the year has really seemed to have kind of worked its way out, and it's a good demand environment right now.

Perfect. And how are you thinking about those demand trends going into 2026? So as we wrap up 2025 and you're speaking with your customers, how would you characterize state and local government willingness to modernize next year onset what are you hearing around spending initiatives compared to what we saw this past year?

Yes. I think it really seems to be more of a continuation of the same. The -- again, all those leading indicators, the number of RFPs we're seeing each quarter continue to be very consistent. There does seem to have been -- when we think back about Doge and this increased focus on government efficiency does seem to be starting to have a bit of an impact on potentially accelerating some demand. Ultimately, the way governments get more efficient is to use technology more effectively. Often, their processes are inefficient because they're governed by very old technology that doesn't allow them to have online access or citizen self-service or support remote work. And so as this focus continues, whether it's specifically around DOGE, but just this general focus at really all levels of government on getting more efficient.

It's a bit of a change in thinking of how governments have historically looked at replacing technology or buying new software. They've historically waited until the old system dies. And that's been the catalyst for buying a new system. Today, there's a little bit more of an emphasis or a view from an ROI perspective and how this can help them get more efficient. So we're seeing signs that some governments are much more willing to replace systems sooner than when they actually are on the verge of death. So that's a positive, and we think that will -- things move slowly in government, but we think that's a subtle shift in their thinking that they're very -- still very early in the modernization cycle, certainly lagging behind the private sector, and we're seeing -- often we replace systems that are more than 20 years old. So a lot of runway for us.

Yes. I want to talk about that runway. But before we get there, I think if I reflect on 2025, in my conversations with a lot of investors, I think there was greater appetite to own vertical software players over horizontal fee-based SaaS companies where there's a lot of concern on potential AI disruption. There's concern on where are we in the maturity curve. So maybe on the first part on AI, I'm curious for how Tyler is evolving its product strategy to make sure it's keeping up with the trends that we're seeing in AI. So one common frame that we hear in our conversations is that in order for AI to be effective, it has to be domain specific, right, and tailored to specific use cases. So is that something that Tyler's experience in its own development of AI? And maybe you could just talk about like whether or not that gives Tyler sustainable moat as these trends continue to emerge.

Yes, absolutely. We've got a lot going on with AI. And we would agree that to be effective, it does need to be domain-specific. And we think that's where in the public sector, that Tyler has the opportunity to really be the leader for our clients in bringing them to AI. Really to get the value from AI, we see -- initially, it's around automating repetitive tasks, things they do every day over and over again that are labor-intensive. And so to really be effective around that, you need deep domain expertise in those complex workflows. And the things we automate are mission-critical. They're essential functions for government, things like public safety, 911 systems, courts, property taxes, licensing and permitting. So all these things are really essential functions for government.

And we have the decades of deep domain expertise that's built into our software that's delivered through the people that support the software and implement the software. And so we believe we can bring that domain expertise to create effective AI tools within those products. So we have that deep domain expertise in these complex workflows, and we can combine that with the models. The other thing is reliability and trust. They really see that the agents really want to please people and give answers and sometimes those answers can be wrong. And so we have the deep domain expertise to make sure that, that doesn't happen. And we've seen that in some competitive models we've seen in some areas like resident engagement, answering questions from citizens. So again, I'd say that deep domain expertise is really key, and that's where we really shine.

With respect to a moat, it's really a couple of things from Tyler's perspective around governance and trust. So we have really strong processes in place with government-specific evaluations to make sure that the solutions can be trusted. And then we have a lot of data. So we've got 50,000 solutions installed across 15,000 different government customers. So they produce tremendous amounts of data that we have access to that can build better insights in those solutions. And then lastly, I think in terms of our longer-term view around building a moat, our customers don't compete with each other. They work together. It's very different than the private sector. So they like to share information. And so we really see a path towards building an ecosystem for agentic development. And as our customers -- as we build solutions for customers and our customers build agents on their own that this can create an ecosystem around Tyler solutions with AI that can provide more of a competitive advantage for us.

Perfect. And of those use cases that you mentioned earlier, I'm curious which ones you think are getting the most traction or which areas is the government prioritizing to automate? And maybe as a second part to that question, I know it's very early days. And as you mentioned earlier, the government is slow to modernize. But just in terms of when you think we could start to see more widespread adoption of AI, just what are your thoughts there?

Yes. I think, again, those use cases are really currently focused on low-risk, highly repetitive types of operations, so things like data entry, permit reviews, but they really span kind of all aspects of the public sector, things that can provide real time and labor savings. So governments are really looking for very practical things that they understand that can solve the actual problems they have and Staffing shortages is a big problem at government, really all levels of government, but particularly local governments where our focus is. We really see a high interest in AI, probably at a speed that's kind of faster than we've seen in other areas like even the move to the cloud. But they're typically not wanting to be the very first to do anything.

So we really see it accelerating over the next 1 to 2 years. We have some products already in place, so around the sort of highly repetitive path. We have a product called document automation that came from an acquisition a couple of years ago that was a partner of ours in the court space that automates data entry in the court system. So while our court system is completely digital, there's no paper in the courts anymore. Documents come into the courts electronically and stay digital throughout the life of the case. But a clerk still has to do data entry and create a case in the Tyler court case management system. So document automation uses AI to identify those data elements, create the case automatically. And so tremendous labor savings.

That's a product that we're currently selling to our existing customer base and new courts customers, and they're getting a lot of value out of it. We're seeing, in some cases, savings of Tampa, Florida, Hillsboro County bought it last quarter. They're going to pay us about $950,000 a year SaaS fee for the document automation AI application, but they believe it will save them well over $2 million a year in labor costs. Beyond that, sort of higher risk scenarios require or will require more complex changes to workflows. And so we see those probably evolving over many years with the normal pace of things in the government space. But we really do see a lot of momentum over the next couple of years.

Perfect. And I would imagine with the introduction of the cloud, you already started to see the competitive landscape shift. I would imagine there's going to be a next evolution of that with the emergence of AI. So could you talk about just what you're seeing in the competitive environment in terms of AI, who do you see as the biggest competitors today? Would that be the government creating their own in-house solutions? Is there native AI companies that you guys are tracking closely? Maybe it's just the incumbent SaaS firms themselves. But what are you seeing in terms of the competitive landscape and how that might be shifting with AI?

Yes. We really see probably a pretty limited amount of governments creating their own solutions, and they want simplification. They typically don't have a lot of that expertise, especially when you get into small and midsized governments that make up the vast majority of our client base. New entrants really kind of lack that domain expertise, and they don't have the long-term relationships and they don't have the sales networks. We've got, again, the largest customer base of anyone in the public sector that are using Tyler products throughout their operations. So we believe we're kind of the best positioned to deliver that. We probably see the most -- or view the biggest competition as being other SaaS providers like the large ERP providers.

Across most of our products, we compete with other vertical companies generally that are narrow. So in courts, we compete with a set of companies that just do court software. In public safety, we compete with a set of companies that do public safety software. So public admin or ERP is the one area where we see horizontal providers. And so occasionally, we do see the large ERP providers like Oracle and Workday and SAP, so those would probably be the ones that we would see is probably that we keep our eye on the most to look at what they're doing as well from a competitive standpoint.

Yes. That makes sense. Let's shift to the non-AI opportunity. So as I mentioned earlier, I think another key investor debate is just where we are on the maturity curve. So I'm curious if you believe that your focus on public sector and government lends itself to more runway ahead. You mentioned earlier, governments are slow to modernize. So maybe you could just talk about the opportunity that's still sitting ahead of Tyler in terms of cross-sell and upsell and where your base is in migrating to the cloud as well, too.

Yes. They definitely move at a slower pace than the private sector. Cloud migrations and modernization definitely are not mature yet in the public sector from -- and we've had a long-term transition to the cloud. We're really almost 100% there in terms of new product sales. Almost everything is sold in the cloud today, very little new licenses being sold. Public safety is probably the only area where we still see some of that. The rate of adoption or migration to the cloud has really increased over the last 24 months as clients increasingly understand the benefits of moving to the cloud and are moving further along that maturity scale.

From a broad perspective in terms of the penetration of the market, we think that's still well over half of the government -- half of the systems being used by governments broadly across the U.S. would be considered kind of legacy systems, systems that are either homegrown or systems from a vendor who is no longer competitive. So when those systems get to the point where they need to be replaced, there won't be an upgrade for the existing vendor. It's an opportunity for Tyler. So that's still well over half the market that's out there that turns over relatively slowly. As I said, often we're replacing systems that are 20, sometimes 30, sometimes 40 years old. So in terms of the on-prem base moving to the cloud, if you look at our total customer base today, it's about 50-50 on-prem and in the cloud.

And so we're continuing to accelerate the pace at which our on-prem customers move to the cloud. We really see that peaking probably 2, 3 years out from now, probably more like 3 years out. And then it will tail off. It's a little bit different for each product. Public safety is one that's probably the earliest in that migration time line. Other areas like ERP are much further along. We've talked about an expectation that by 2030, that 80-plus percent of our customer base will be in the cloud, and we're well on track to achieve that.

Yes. And how would you characterize the current pace of migration activity compared to what we've seen in the past? Because you mentioned you're at this 50-50 split. And I think typically, when you get to that point, there's this concern of, okay, if you had a lot of the low-hanging fruit that's moved, right? And might this next tranche take a little longer. It sounds like you guys are pretty comfortable that you could continue to see a good pace of migration for the next 2 to 3 years. So maybe you could just tell the audience like what's giving you that comfort? And if there's any catalyst to push things a little bit faster versus what we've seen?

Yes. Really, a lot of our expectation is around conversations with clients. I mean we're talking to every client about their road map and when they see the move to the cloud. It's definitely changed over the last couple of years from those conversations being more around why they should move to the cloud, what the benefits are for them as opposed to now it's really when are they going to move to the cloud? How does it fit in their overall IT road maps. It's influenced by hardware replacements. A lot of times, it's when do they see the depreciation of their existing hardware in their data centers running out. So when are they going to be facing a hardware refreshment cycle. And that's kind of the point at which they say, okay, then we're going to move to the cloud. Sometimes it's around staffing challenges as governments, especially on the IT side, face a lot of retirements, difficulty hiring and retaining skilled IT workforce.

So a lot more difficulty just maintaining their own internal networks, and that often is a catalyst for moving to the cloud security challenges, ransomware attacks can often accelerate the time line for moving to the cloud, either when a client experiences it or when they see it in one of their peers or neighboring jurisdictions. So all those things kind of affect it. I'd say that our customer base -- our on-prem customer base today is still more heavily weighted towards large customers that tend to move more slowly. So that's really why we see that peak probably 3 years out from now in that kind of time range because more of when those larger ones are currently sort of talking about making the move is more in that kind of time frame. But that can change. But we feel pretty good about this trend of continuing to see both an increasing number of flips from on-prem to cloud as well as the average size of those trending upward as we see bigger clients move.

Yes. And as you approach this tranche of customers that is larger, more complex, could you talk about how the learnings you've had in the past have now influenced how you're approaching this next tranche of customers in their own migration path? So I guess, how is your value proposition evolved from just security benefits? You guys have talked about driving this consistent, let's call it, like a 2x revenue uplift. So maybe you could talk about how you see that trending going forward as well.

Yes. The revenue uplift, 2x is probably a little generous for a like-for-like. We're pretty much averaging 1.7 to 1.8x, maybe closer to 2 with upsells and add-on sales. But that's been very consistent, and I think we see that holding true. The initial value proposition was really more around security. It was around leveraging our staff to fill in where they have staffing problems and improving performance around hardware and the data center performance. Going forward, more of the value is coming from accelerating innovation. So clients being able to have a better client experience, not experience disruptive large upgrades that might happen on an annual basis that we've had many clients that skip upgrades. And so that has resulted in a lot of version sprawl for us. So all that kind of gets fixed as everyone moves to one cloud version.

But for the client, it creates a better client experience with much more seamless upgrades and release of new technology. So a much faster time to value from when we release new features and functionality to when the clients actually benefit from that. And then the ability to provide more proactive support to see things that are going on in their systems and reach out to support those rather than waiting to hear from the client. I think the lessons we've learned really are around really a very proactive planning process with clients, and we're engaged in that.

The actual process of flipping a client from on-prem to the cloud can be relatively short, but often the planning process is many months long of making sure that they're fully planned for all the things that change and integrations to other solutions, getting all the users trained, all that sort of stuff. So planning. And then I'd say, we -- as we've evolved, we've been able to automate more of the processes around the migration to speed up that process and make it easier, less of a lift on the client and less of a lift on Tyler. And we believe we can apply those lessons as we continue to move through bigger clients.

Yes. You mentioned version sprawl, and I know that's been a strategic priority. So could you talk about how version consolidation is trending amongst your customer base? And under what time frame do you expect to sunset most of the older versions?

Yes, that's been a big focus for us. Version sprawl occurred for a lot of reasons, but mainly that sort of inertia in a lot of customers. And part of it is generated that releases would have bring a lot of change sometimes, and so people would pass on those. And so we get customers that are on older versions of the software that we're supporting, very expensive from a support perspective and from a development resource perspective. So spending a lot of our resources on -- focused on products that aren't our current version. And then clients not really all using our best software. So that's been a big focus of us. That's been one of the sort of the gating items around the pace of migrations because as customers move to the cloud and ultimately, we get everyone on one version of the software in the cloud, they need -- if they're not on the current version, they need to upgrade.

So we've been really over the last couple of years, sunsetting older versions, continuing to reduce that sprawl and get more and more customers on the current version, which then gets them in a position to be able to move to the cloud. We've made a lot of progress on that over the last couple of years. And with some of our biggest products like our Enterprise ERP solution, our Enterprise Justice solution, we're down to where almost all the customers are on 1 of 2 most recent versions as opposed to maybe 3 years ago, 7 or 8 different versions. So we're starting to see that improvement have an impact on margins, but more of that yet to come over the next couple of years. I think it's still probably a couple of year time line before we're really down to one version in the cloud of basically every product. But we've made a lot of progress there, and that's one of the margin drivers that we expect to see over the next couple of years.

Perfect. And let's talk about the cross-sell opportunity. So you've talked about ambitions to get from 2 to 3 products to 8 to 10 per customer. So does Tyler have any initiatives in place to promote that? And what time line are you thinking around that?

Yes, we really do. When we go back to our Investor Day in 2023, one of the key pillars of growth is expanding cross-sell and upsell opportunities. As I said earlier, we've got the largest customer base of anyone serving the public sector with about 15,000 different jurisdictions, about 45,000 solutions installed across those jurisdictions. So the average customer has 2 or 3 products from us. In most cases, they could have 8 or 10 products. When I talk about products, I'm really kind of talking about a whole suite of products. Within each suite, there are cross-sell and upsell opportunities as well. So one of the big initiatives around that has been a focus on improving client experience because to sell clients more things, you need to have really happy clients. And we think we do a really good job and have high client satisfaction, but we think we need to be even better to help support faster cross-sell.

So we created a new C-level position at the beginning of the year, Chief Client Officer, which is new to Tyler and have a very experienced person that we hired into that role who has a lot of initiatives going on around improving the client-facing aspects of our business around professional services and client support and customer experience. So improving systems, improving processes, adding people. And a lot of those things are really to create a standard -- a more consistent client experience. So as customers have historically may have had a relationship with one Tyler product, and they had one support number and one support team they dealt with and one sales rep and one professional services team. And now they have 2 or 3 or 4 and want to add more. They have multiple doors to Tyler, multiple 800 numbers, multiple support teams.

And so we're really -- it's sort of a product of how we grew up, but we're really moving to standardize those things, have back-end processes that are consistent, have one 800 number for everything, and then we figure out where you need to go within the system and actually using AI to help improve that client experience as well. We've also made changes to our sales organizations and how we go to market to -- including sales compensation to more effectively support cross-sell efforts. And then lastly, I think using cloud migrations is an opportunity. When someone is moving from on-prem to the cloud, it creates an opportunity to have a conversation with them about products that may be in the same suite that they don't have from Tyler. They have Tyler's court case management system and they're moving it to the cloud, but they have an on-prem jail system or an on-prem probation system from a different vendor. So it gives us a chance to talk to them about consolidating all that with Tyler and the cloud. And we're starting to see a more intentional focus on that and seeing results around that.

Yes. I appreciate the thoughts on the client experience initiatives, and you mentioned a little bit how that's influencing cross-sell and how you guys are thinking about product strategy. But could you just give an update on how that's progressing overall? And what metrics are you tracking internally to measure the success of those?

Yes, and it's not that we just at the beginning of the year, decided that client experience was important, but really kind of an accelerated focus on that. And these are things that are moving pretty quickly. At our user conference in May, Andrew Kahl, our Chief Client Officer, talked to clients about changes they should see within the next year. And we expect that at next year's user conference that we'll be able to stand up there and say, we told you we're going to do this and this and this, and you should be seeing those things improving your experience with Tyler.

A lot of it is a focus on ease of engagement, making it easier for clients to interface with Tyler, more digital channels as opposed to telephone and using AI as part of that, better communications processes, better training and then better systems on the back end at Tyler, so -- and consistent systems where everyone is on one CRM system, for example, from multiple systems in the past. And then ensuring the service delivery teams all work in a unified manner and that they're all kind of -- it's a more coordinated effort. The metrics really, I think, around support, really kind of mean time to resolution and number of cases are things that we're looking closely at. We're seeing really good progress already in terms of reducing the number of open cases that we have in the support organization.

On services, it's kind of attach rate and our services margin. So we've talked about margin improvement targets through 2030. And part of that will come from professional services where we really don't make money or don't make much money, and we want to improve that. And part of that, there's also an AI aspect there where we're using AI or starting to use AI to automate some of the routine processes around professional services like data conversions. And then on client success, it's really looking at net revenue retention and Net Promoter Score.

Perfect. And Brian, last question for you, just to wrap this all up. So looking towards your 2030 goals, maybe you could just help investors think through how you're thinking about balancing organic investment with M&A. I know there was a call mentioned on the last earnings call about taking a more proactive approach. So maybe you could just give a little bit of color about what you meant by that. And as investors are trying to track your progression to your 2030 goals, what metrics would you highlight that they should be following closely?

Yes. M&A has always been a part of our story. We've said we've been -- the bar has been kind of high for the last couple of years because of, one, a lot of internal initiatives that have consumed a lot of management bandwidth, but also our focus on paying down the debt from the NIC acquisition. So those -- both of those things, we're further along with. We've paid off all the term debt and now just have the convert that matures next spring. So we've got a lot of cash. We've got a really clean balance sheet, and we've got management bandwidth.

So I expect that over the next couple of years, our focus with the same criteria, strong strategic fit, strong cultural fit, reasonable valuations, which can sometimes be the harder part of the equation that you'll probably see us a little bit more active in terms of M&A. Actually, we announced one deal yesterday, relatively small deal, but a new deal. And so I think as we continue to drive a little bit more capital allocation towards M&A and potentially using a little bit more of our cash flow and reasonable amounts of debt that you'll see more activity there.

Perfect. Well, we'll leave it there. Thanks, everyone, for attending, and let's give Brian a round of applause.

Thank you.

Tyler Technologies with us. Brian, thanks for making it in time.

Sure.

I'm sure you're always busy, especially heading into the holidays this time of the year. I don't want to be labor with the entire history of Tyler, which is long standing at this point in time. But maybe if you could start off with just an overview of the past couple of years for Tyler. I know cloud has been top of mind. We'll get into some of the 2030 targets, but just engaging progress and maybe where you expected Tyler to be in 2025, a few years ago?

Yes, sure. It's probably a good time frame because we had a big Investor Day in 2023 and post the acquisition of NIC, us getting into the state business, payments business, we were sort of an inflection point in our cloud transition. So we thought it was a good time to sort of reframe everything and make sure everyone was aligned with how -- where we saw the company going over the next few years. And so we set some targets for 2025 and then for 2030, which was certainly much further out than we typically talked about long-term targets. But -- so now here we are closing to the end of '25 and happy to say that we're really on track or ahead of plan to achieve all of those 2030 targets. For 2025, we've really achieved higher growth around our transaction business than the targets we originally set out. So that is going well. We've also achieved significantly higher cash flow margins than we planned. So those are the 2 areas where we've really sort of are really ahead of track. We're right on track for the flips of our on-prem customers to the cloud. That's not a linear process, but we're -- we've said we're comfortable with the targets that we set for 2030 and the progress we've made towards those. Made a lot of progress towards margin and that's on track as well. So really -- feel really good about where we are 2 years in. We plan to have another Investor Day next -- midyear next year and I expect we'll be updating, providing those [indiscernible]. One of the interesting things was in 2023, AI was not really in our vocabulary [indiscernible] so amazingly. So there really wasn't any, either from a revenue perspective or from a cost efficiency perspective, that wasn't a part of those targets. So we'll be probably looking to frame those a little bit more as we have a number of activities, both on the internal use side and in our products going on around AI. So yes, we talked about long-term margin expansion of going from a 23% operating margin in 2030 -- 2023 to a 30%-plus margin in 2030 and achieving a target of $1 billion in free cash flow by that point.

You just speak a little bit to the visibility you have as CFO into kind of framing those targets. I know Tyler has a broad customer base, but there's been a predictability to the business. And so maybe you can just provide a little bit of what you see from the CFO perspective there?

Yes. It's a good place to be. We operate in a market that's not the most exciting market in the world, not -- there's never explosive growth. It's not a super high growth market, but it's also one that provides really steady reliable kinds of growth serving -- we serve exclusively in the public sector, but we're very broad in terms of the size of governments we serve, the breadth of governments we serve and the levels of government from state and local or local to state to a very small presence in the federal government. The government market is slow moving, long sales cycle. So typically, we have -- although the timing you're never sure of, but we have pretty good long-term visibility. A lot of our sales are ultimate driver of governments acquiring software is that their old system is at end of life, and they've used it as long as they possibly can. It's about to die and they have to replace it. And that may mean they bought that 20 or 30 or sometimes 40 years ago, a lot of homegrown systems that are no longer supportable. And these things all automate, mission-critical functions of government, public safety, 911, courts, property taxes, licensing and permitting, utility bills. So these are all very sort of essential functions of government. So that sort of is the broad backdrop for our business, it gives us a good long-term predictability. We have -- we're more than 85% recurring revenues today, either from SaaS, maintenance from on-prem customers or transactions. So a big recurring revenue base in a lot of growth opportunities within that base and with new logos as well.

Yes. So this year -- and maybe it's less of a conversation point directly for Tyler, but overall, it was a bit of a different year in terms of public sector because of DOGE and some of the federal impacts. And I know you've been clear on some of the more recent earnings calls and the difference between what state and local fees and what federal government fees. But was there any difference at all in the metrics that you track this year? Was there any hesitation just in terms of uncertainty that rippled into some of your customers at all? Or how would you characterize this year relative to prior?

Definitely was some noise, especially in the beginning of the year that led to some uncertainty in our customers, but ultimately not really an impact on our customer. So there really wasn't any fundamental change in demand either short term or long term. But all the noise in -- especially at the beginning of the year, DOGE and everything that went with that, tariffs, just new administration, all of that created a lot of noise. Now our business, as I said, is mostly local, 70% to 75% of local government, cities, county, school districts. Roughly 20% to 25% state, but our state business is almost all under a self-funded model, it's a transaction-based model. So it's all -- almost all funded by convenience fees and user fees that citizens or businesses pay to interact with government. So it's not appropriated fund, so it's not driven by budgets. So that model is fairly insulated. And then only about 4% with the federal government. So it was really more of a -- in terms of sales processes that a lot of local governments at all levels sort of took a pause and said, I need to figure out if all this stuff really impact me or if something is going to change. Ultimately, pretty much came to the conclusion that no, this doesn't really affect us. But there was a little bit of a slowdown in bookings in the first quarter that, that I think we've largely sort of proven up that, that was a very short-term phenomenon and that it's really hasn't been any fundamental change. In the longer term, we really look at not necessarily the DOGEs itself, but the whole increased focus on government efficiency as definitely a tailwind because the way government get more efficient is through the use of technology, often that -- they are inefficient in part because their processes are inefficient because they are governed by old technology, so they can't do things online or they can't provide citizen self-service or they don't have AI capabilities. So they really -- increasingly governments are starting to kind of change from that idea that I'm just going to use it until it dies and then I'll replace it. So yes, there is an ROI. And if I replace this, I can get these efficiencies. Big issue with staffing shortages. Governments typically don't have enough people to do the essential things they need to do, and they have a shrinking workforce, whether it's from retirement or just people shifting into the private sector. So that's a big challenge for them. And all those things are -- technology is the solution to it.

Yes. This is what I was going to follow up on, and you kind of beat me to the punch a little bit. But just -- have you found a way to kind of shift your go-to-market message or sales strategy to now respond to some of the questions that are out there around efficiencies or reasons to use technology. And if we look at some of the major subsegments that you serve, are there specific subverticals, ERP or some other area where you think those are maybe more direct potential, just soft tailwinds for your business?

Yes. I don't know that any of the verticals or subverticals are particularly different. There's opportunities across really all of them. Yes, we -- it's always been a little bit of a point of frustration for us that it's hard to accelerate demand. So even though there is this good ROI story, and there always was, it's not just new, that you replace a paper-based system with a totally digital system, and there's cost savings there that have a very fast return. One of our Courts customers, a top 5 county in the country, had a staff of 10 people whose only job was to push shopping carts of court files to the court rooms every day, stack them on the judge's benches and take them back at the end of the day. Our system is entirely digital when they replaced it. They have those people, I don't know what those people do now, but they don't do what they did. They -- there are no paper documents in the courts anymore. The judge has an electronic bench. They massive amounts of storage space that they used to keep all this paper in has gone and there's an environmental impact as well. But there's a really clear ROI, but they still didn't do it because of that. They did it because the old system was 40 years old and they're running more [ court ball ] programmers. So it's always been a little frustrating. So now that there's maybe a little bit more change, a little bit more openness, a different way of looking at things, that excites us that there's an opportunity too because that story resonates with customers a little bit more now because they're hearing about it and they're feeling the pressure. And it does away with a little bit of an inertia. It's not like a total shift. We haven't seen thousands of RFPs come flooding in to replace old systems, but it's sort of gradual and it feels different.

Yes. That's why I said, modest tailwind. No, that's very helpful. You reported 3Q results recently and it seemed to be a bit of a stabilizing for us given you mentioned some of the questions around first quarter and bookings. And I think the commentary was fairly consistent in terms of RFP volume and deal activity in some of the indicators that you look at. But maybe just frame for those who weren't necessarily fully paying attention to 3Q, what the highlights, key takeaways of your perspective, should have been for Tyler?

Yes. As we talked about at Q2, the -- largely the uncertainties around the first quarter were behind us. We said in Q2, we saw bookings grow sequentially from Q1, and we should expect that in Q3 again, and that happened. In addition to -- there's a couple of things that kind of around bookings noise in general that we have -- what I just talked about in terms of some of the slowdowns, the very short-term slowdown from DOGE noise. We also had some bookings that were pulled into last year from -- that would have naturally occurred this year because of the deadline for ARPA for the stimulus funds at the end of last year. And then we had a really extraordinarily strong second half of last year with new logo sales, especially around large deals, and that's really just reflective of inherent lumpiness in the business, and there were just a number of large deals that happen to close in the second half of last year. So that's created a tough comp for this year. So against that backdrop, we've really achieved what we expected. And we said that as we look at completing the year, our sales for the year pretty much right where we thought they would be at the beginning of the year. So yes, hopefully, we've put a lot of that noise to bed. We've also talked about at least a preliminary look at next year's SaaS revenue growth because we heard concerns that bookings in -- especially in the first part of this year, what impact that would have on next year's growth. And we talked about an expectation that they'll still have around 20% SaaS growth next year and to try to get a better view.

Yes, that makes sense. I was going to ask why. And so just the visibility that you have into next year at this point for 20%, your confidence level in putting that baseline out initially. And then if bookings are lumpy, which I think we can appreciate they would be in your business. Is it better to look at trailing-12, 24 months? What would you encourage investors to spend time focusing on?

Yes. I mean, you really have to do it. I mean, if we think of the last 2 years taken as a whole, pretty good combined. The -- so yes, a trailing-12 or 24 months really does create this kind of wipe out some of that lumpiness and give probably a more accurate picture. There's also a lag from the time bookings are signed, a deal is signed, whether it's a new SaaS deal or a flip of an on-prem customer to when those revenues actually hit. It could be a quarter or couple of quarter. So when we kind of deconstructed that 20% growth for next year, about -- we get about 12% growth from things that are already -- bookings that have happened going -- already have happened going into '26. And those could be even deals we signed in '24 that we only had a partial year of revenues this year. Next year, we'll have a full year. All the deals we signed in '25, certainly, we have a partial year of revenue and we'll have a full year. If they're signed in the fourth quarter, we may have no revenue this year from those. And then pricing increases across our customer base, which typically kind of in the 4% to 5% range. So that accounts for 12% growth. About 3% was from flips. So the on-prem customers moving to the cloud. We typically get a 1.7x uplift on -- from maintenance revenue to SaaS. We've said that we've got sort of this bell-shaped curve over the next few years as we move towards getting, say, 85% of our customers migrated to the cloud by 2030. The peak is still a couple of years out, but -- so we have decent visibility over that, the timing always can be kind of a little bit uncertain, but we feel pretty good about the number of that percentage. And then about 5% of next year's SaaS growth will come from bookings next year. New logo sales, add-on sales to existing customers, which really are the majority of those bookings. And that the last 5%. So pretty good visibility over all of them. There's always timing around all of those things that can vary a little bit, but we wanted to kind of give that expectation that we're still in that ballpark.

Where would you say, Tyler is -- and I appreciate you you're kind of built towards this with some of the commentary around the cadence of when -- flips. And we've seen, you give more metrics than most companies around some of the moving factors in the model. If I ask you sort of to set the stage of what inning Tyler is in its cloud migration journey or where you're at from a repeatability standpoint, meaning now you have confidence, you've seen it enough time so you can go faster. Where would you say you are in terms of the Cloud journey today? And what are you embedding towards those 2030 targets alongside that?

Yes, there's kind of 2 parts to that. So there's the new business, and that really is almost entirely in the cloud now. Go back to 2019, we were about half and half, half of our new sales were on-prem, half were cloud. We were cloud agnostic. We didn't really try to push people one way or another. We let the market decide. And in 2019, we kind of changed that and said we're cloud first. We're really only want to sell software in the cloud. So today, high 90% of our new sales are cloud. We saw a little bit of licenses back to current on-prem customers and a little bit in public safety, but almost all there in terms of new business. We have decades of on-prem customers that -- and many of them are still on-prem. We've been migrating customers for a long time already. But again, accelerated that in 2019 when we partnered with AWS and made the decision to exit proprietary data centers and put customers in AWS. And that created an opportunity or the ability for us to accelerate that rather than us trying to scale data centers, which didn't make sense. So we -- as we talked about in '23, if you look at the customer base that was still on-prem at that point, we said, we expected 80% or more of that customer base to move to the cloud by 2030 that it would continue to kind of accelerate over the next several years and with a peak in the probably '27, '28, maybe '28-'29 time frame, somewhere in there. We had a number of gating items around that. One is that we supported -- have historically supported a lot of versions of a lot of software products, which is expensive. A lot of development resources, a lot of support resources spent on that. Obviously, the goal in the cloud is 1 version of every product that everyone is on, that everyone upgrades at the same time in a little bite-sized bits. So a better client experience, but much better for us. So we've been sunsetting older versions of products, consolidating versions. So reducing that version sprawl and getting down to now where most of the major products were down to a couple of versions. So we're not quite all the way there, but we've made a lot of progress, which then puts more customers in a position to move to the cloud. We've also -- we've talked a lot about carrots and sticks. And increasingly, we have -- I was told that our Accounting department was going to dress as carrots and sticks for Halloween, I'm not sure, I was out of town that day. But we have talked about initially, we're increasingly telling customers that while we'll support on-prem product for a fairly extended period of time, new features will only be available in the cloud. So you get bug fixes and legislative changes, but new features you only get if you move to the cloud. And then longer term, we have the ability to look at higher maintenance increases to help drive people. And then ultimately, we have the ability to discontinue support for on-prem products, but I think that's probably still a ways off. So if you look at our whole customer base today and if you take all the on-prem maintenance customers and convert that to SaaS equivalent revenues, we're kind of about half and half. So about half of our customer base in terms of revenue left to move. We saw about $450 million of maintenance that will turn into 1.7x that in SaaS. And so that will create a fairly steady incremental revenue growth over these next several years, and then it will peak and then it will start to tail off as we get on the downhill side. So it's kind of a good balance. Again, we're doing the things we need to do to get people in line, but excited about getting everyone to the cloud. I think the key thing really is over the last couple of years, our customers, it's changed from kind of convincing them why they should be in the cloud and why it's good for them, why it's a better experience to really, I think pretty much everybody knows they're going to be in the cloud, and they know why, and they agree with that. It's just a matter of when and what's their process to get there. But our on-prem base still is more heavily weighted towards large customers. So there's more -- there can be some lumpiness around those flips as we go forward, but there's still a lot of impact left from bigger customers moving.

Can you touch on -- I mean there were several things in that response that seem like they would be margin enhancing over time. You mentioned kind of moving away from some of the data center footprint that you're managing, the single versions of cloud, just all of the consolidation that goes into that. So just what that gives you from a predictability margin standpoint and maybe embed that with the 2030 targets?

Yes, in terms of the margin expansion we expect to get through 2030 and beyond. It doesn't end in 2030, but we talked about the interim targets. Those weren't [ ceilings ], but interim targets. A lot of that comes from the cloud transition and the things we just talked about. The version of consolidation is a really big part of it in terms of the impact on both dev costs and support costs. The scale we get as we continue to scale in AWS and the lower unit costs we get from buying more and more capacity from them. The release of cloud optimized versions of our products that are more efficient to run in the cloud, those are all things that we're well down the path with. And then just the ability to deploy software more easily, to cross-sell more easily when the customer is already in the cloud to layer on things like AI capabilities. But -- so a lot of our margin expansion from '23 to today has come at the OpEx line or lines and more of what -- some has come from the gross margin line, more of what's left to come is coming from -- will from the gross margin line. There's some at data centers as well. So eliminating those costs and especially we've had duplicate costs because we've been putting customers into AWS, but still a lot of fixed costs around our data centers. So as we exit that last data center this year, over the next year or so, those costs will bleed off and we'll see some enhancement there. So a bunch of factors there that all kind of play together. But we see really good path towards margins that start to look a lot more like a more mature SaaS company would be expected to look like.

You have a big payments business layered in our...

Well, it doesn't have the same margin, but it generates a lot of cash. So...

Yes. You're right on script. [indiscernible] you can read my not my eligible handwriting in some way, shape or form because I want to touch on NIC and the payments opportunity. Now you and I spent a lot of time talking about this after last earnings [ print ]. Transaction revenue has been a source of strength. You're marching well in stride with the target levels. I think we've been kind of watching, engaging progress in NIC to understand the cross-sell opportunity. And so I'm wondering, from your perspective, what's driving the sort of the durable transaction revenue growth and how you would characterize your progress with cross-sell between NIC and the core Tyler offerings?

Yes. So when we acquired NIC in 2021, kind of 2 big cross-sell opportunities. They brought us a big presence in the state government market with these very deep enterprise relationships that we thought we could sell Tyler software products into in state governments. It wasn't historically a significant market for us. But also taking the NIC Payments engine that is processing tens of billions of dollars of payments for state governments primarily and leveraging that into our customer base to integrate it tightly with Tyler software products and create an integrated payment solution with the system of record. So we have a lot of products that, that produce bills, have payments that are associated with them, utility billing, municipal courts, traffic tickets and fines, licensing and permitting, property taxes, parks and recreation and all kinds of systems that have payments flying around them. But we didn't typically process those payments. We had some third-party relationships where we basically are a reseller and we get a revenue share. And we still have some of those in place, although we don't sell new ones. But we have -- since we -- since the acquisition, we have done those integrations that we now have a sort of a -- it goes beyond the commoditized payment system but because of the integration with the system of record, it provides efficiencies around automating reconciliations, providing better reporting. It's a better solution for the client. They're willing to pay more for that. So it has higher margins than a commoditized payment system. So we have had success -- early success in selling that into our existing software customers. Still have a lot of room to go there. We're still in the fairly early days of that. In bundling it with new software sales so we sell a new utility billing system, we give them a payment proposal as well and having success with that. And over time, replacing other payment providers with those customers. Disbursements, so the outbound side of payments is also an area we're focusing on because we have a big presence with ERP systems, payables and we have court systems that facilitate jury duty payments. We have correction systems that manage funds for inmates that have payments associated with that. So a lot of opportunities there that we are in the very, very early stages of. So as we've talked about this sort of CAGR of 10% to 13% for our transaction revenues through 2030. We're running ahead of that. Some of that is some of the kind of early low-hanging fruits, but we do believe there's a long runway of durable growth there. We've seen some outsized growth from some of our third-party payment partners running rate changes through that's provided higher revenues to us. I think that's largely run its course. But we've also seen a lot of volume, higher-than-expected volumes. So we work with our customers, our customers try to drive more transactions online and they're having success with that. So I guess the last thing around transaction growth has been sort of a hybrid model where we have in a number of instances, sold software to a customer, but it's being paid for through transaction fees. So here in California, actually, the largest contract Tyler has ever signed in its history, estimated total value of about $200 million over 8 years. We provide our outdoor recreation in terms of the California State Parks, so managing all the aspects of running the State Parks. We -- but rather than the state have to appropriate budget and find money to pay a SaaS fee, they're paying for that through adding convenience fees to charges that they charge users. So you reserve a campground, you pay $15, it might be a $3 charge to Tyler. Towards the Hearts Castle, pay a $20 ticket, $3 charge to Tyler. Running a kayak, all that kind of stuff. So the state doesn't have to budget money. We get paid through transaction fees that are fairly predictable book of transactions. It's not straight line, so it can be seasonal. But it's a little bit not as visible because it shows up in transaction revenue, not software revenue. So our SaaS growth actually would be better, and our SaaS bookings would be better if those were pure SaaS. And we also process all those transactions as well. So we're the payment processor. So it's got a little bit of a hybrid model in there that we're sort of in a unique position to be able to offer that because of our payment capabilities and our software solutions. So we've seen that in some outdoor recreation and some motor vehicle registration systems as well. So it kind of shows the flexibility that we have, but has also driven a little bit higher than planned transaction growth.

Sounds like a win-win and I assure you, California residents aren't [ balking ] at the biggest fee relative to [indiscernible] exactly. I want to just try to touch on a couple more with the time left. M&A has always been a part of the capital allocation strategy. I think NIC, it's a bit bigger than typical, but what do you see in the private market currently from a deal perspective? How would you assess the landscape? And are there certain areas, whether it's AI or something else where your maybe have a bit more interest or intent?

Yes. We talked on our third quarter call some about maybe a little more proactive and intentional approach to M&A going forward. After the NIC acquisition, which was a $2.3 billion acquisition that included a debt component. We had debt. And typically, we haven't had debt or much debt. It still wasn't a lot of debt. We were leveraged at the peak, a little over 3x, but paid that down very rapidly, deleveraged and paid off the last of the term debt well ahead of schedule. So with that behind us, we have a convert, that's $600 million that matures next spring, and we have well over $1 billion in cash on the balance sheet today. So we will be debt-free fairly soon. So we've got plenty of capital capacity. We've also been, I guess, a little bit more constrained or we said the bar has been high on acquisitions because of management bandwidth, because of all the things I talked about around the SaaS transition and the payment [indiscernible]. And a lot of big initiatives that have consumed a lot of management time, and we said, let's not throw a bunch more acquisitions on top of the people that are running these businesses, ensuring all that. A lot of that is behind us now. And so we've said that M&A is -- we're a little bit more open today, not changing our criteria around a strong strategic fit, a good cultural fit and a reasonable valuation. So generally looking for acquisitions that could be small tuck-ins or even bigger adjacencies that fill in gaps in our portfolio, that fill in an adjacent market. The things that we can leverage our sales force, put products in the same sales reps bag that we can sell to our existing customer base to drive more cross-sell. Ideally, we -- if there's a payments opportunity on top of it, that's good. There's an AI opportunity on top of that, that's good. But I think from when we talk about a more intentional approach, it's really not just looking at things that are for sale because we do get shown about anything in the GovTech space. But also identifying and prioritizing those needs and then going out and going after going -- approaching companies that fit those needs and seeing if we can make deals. So we think there's a big, big universe of those kinds of companies, and we're prioritizing that. But I'd expect us to be more active over the next couple of years. Also, it could talking about whether we'd rather do a handful of midsized acquisitions or 1 or 2 big acquisitions and the pluses and minuses of each of those in the private market, there are a lot of PE owned GovTech business now, some of which have pretty good scale, none close to Tyler size but decent-sized businesses. And based on where they are in the PE life cycle, they'll will likely be in the market over the next couple of years.

Valuations, it's still kind of little early to see. Obviously, public markets have reset a lot of software companies valuations. And it's still maybe a little too early to see if private sellers have adjusted their expectations or if they're still kind of I think -- have something in mind that's more like looking backwards a little bit in terms of valuation. So -- but we feel good about our ability. We've done a -- I've been at the company for 28 years, and we've done more than 60 acquisitions during that time frame. And we feel like that's a core competency of the company that we're good at. And that will continue to be a part of our growth going forward.

Last 1 for you, Brian, and then you're off the stage. Just things that are top of mind for you and planning for next year. And then if we're here in 3 years, what do you think will be talking about with Tyler?

Yes. I think right now, we gave some indication, some of our revenue, not all of our revenue guidance, but some of it. We have -- but really what's to think of right now is figuring out exactly what our investments will be. We've got some elevated investments in the second half of the year that will carry into next year around some AI projects. Some product competitiveness initiatives to kind of stay ahead and still determining exactly what that level of investment will be at least in the next year or so. All of that in the -- still in the framework of those long-term margin objectives. But that's kind of top of mind right now, how -- what we do with that on the investment side. But I think 3 years from now, I think we're well along on the cloud transition. AI, I think we'll have a lot more clarity about how that's driving revenues and giving us cost benefits. And I think we'll be well on track to be kind of approaching that $4 billion company with $1 billion of free cash flow.

That's great. Thanks very much, Brian. I appreciate you joining.

Yes. [ You bet ] [indiscernible]. Thanks.

Hello, and welcome to today's Tyler Technologies Third Quarter 2025 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. [Operator Instructions]

and As a reminder, this conference is being recorded today, October 30, 2025. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead. .

Thank you, and welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer; and Brian Miller, our Chief Financial Officer. After I give the safe harbor statement, Lynn will have some initial comments on our quarter and then Brian will review the details of our results and update our annual guidance for 2025. Lynn will end with some additional comments, and then we'll take your questions. .

During this call, management may make statements that provide information other than historical information and may 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 uncertainty, which could cause actual results to differ materially from these projections.

We would refer you to our Form 10-K and other SEC filings for more information on those risks. Also, 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. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We have also posted on the Investor Relations section of our website under the Financial tag a schedule with supplemental information, including information about quarterly recurring revenues and bookings.

On the Events and Presentations tabs, we posted an earnings summary slide deck to supplement our prepared remarks. 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. Lynn?

Thanks, Hala. Third quarter results once again exceeded expectations across our key revenue and profitability measures, continuing the momentum we saw in the first half of the year. Total revenue grew by almost 10%, and led by 20% SaaS revenue growth and 11.5% transaction revenue growth. We're also pleased to report solid bookings in Q3 as total SaaS bookings grew 5% sequentially and rose 5.8% year-over-year to reach a new all-time high. Our results reflect a high level of execution across our team as we advance our cloud strategy to lead the public sector's digital transformation. Our leading sales indicators including RFP and demo activity remained steady, reflecting a healthy new business pipeline.

Throughout the year, we have not seen any fundamental change in public sector demand nor have we seen any material impact on demand from DOGE or related initiatives or more recently, the federal government shutdown. As we've discussed previously, we view efficiency mandates as a long-term tailwind for our software and services across a large replacement market of aging mission-critical systems.

We continue to operate in a resilient budget environment with allocations increasingly directed towards technology investments as a key lever for maximizing efficiency and productivity. We are executing our strategic priorities from a position of strength, grounded in durable fundamentals that reinforce our leadership position and competitive differentiators. Our 4 key growth pillars remain central to the strategy, completing our cloud transition, leveraging our large client base, growing our payments business and expanding into new markets.

Operationalizing our cloud-first strategy is fully embedded as the cornerstone of how we deliver, innovate and scale. Our cloud living approach will bring together technology and talent to drive agility and continuous improvement, ensuring consistency across releases and improved time to value for clients. Building on this foundation, our purpose-built AI innovation is amplifying the power of the cloud, creating more seamless connected client experiences, deepening relationships and expanding cross-sell and upsell opportunities across our portfolio.

I'd like to highlight a few third quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We continue to gain traction with our AI-driven solutions. Significant deals this quarter included a contract with Hillsboro County, Florida, the state's third largest county for document automation adding $953,000 in ARR and a contract with the state of Arizona for our priority-based budgeting solution.

We also signed a contract with the South Carolina Department of Administration for our resident engagement solution adding to our growing roster of state clients, unlocking streamlined government services access through our AI-powered Resident Assistant. We continue to build momentum in the public safety market with competitive wins that demonstrate the breadth of our integrated offering and market strength. Public Safety deals this quarter included contracts with Coweta County, Georgia, in the metropolitan area of Atlanta for our full enterprise public safety suite and a cross-sell win with the City of Columbia, Missouri, an existing enterprise ERP client.

We're also pleased to see market success from our recent acquisition, Emergency Networking with the first statewide win for our National Emergency Response Information System with the State of Pennsylvania serving more than 2,000 fire agencies across the state. Finally, we signed a statewide contract with the Colorado Department of Corrections for our inmate services financial suite which is expected to generate approximately $2 million in transaction-based ARR. Now I'd like Brian to provide more detail on the results for the quarter and our updated annual guidance for '25.

Thanks, Lynn. Total revenues for the quarter were $595.9 million, up 9.7%. Subscriptions revenue increased 15.5%. Within subscription, SaaS revenues grew 20% to $199.8 million. As we've discussed previously, there is often a lag from the signing of a new SaaS deal or flip to the start revenue recognition that can vary from one to several quarters. Because of this, as well as the timing of SaaS renewals and related price increases, SaaS revenue growth and SaaS bookings, both year-over-year and sequentially may fluctuate from quarter to quarter.

Transaction revenues grew 11.5% to $201.3 million, driven by higher transaction volumes from both new and existing clients, increased adoption and deployment of new transaction-based services and higher revenues from third-party payment processing partners. Total bookings for Q3 were up 2.6% year-over-year. Total SaaS bookings, including new SaaS deals, [ flips of ] on-premises clients, expansions and renewals reached a new quarterly high, up 5% sequentially from Q2 and up 5.8% year-over-year.

This bookings growth was driven by higher flips as well as expansions and renewals from our installed base. Total ARR from new SaaS deals and flips signed this quarter was approximately $30.8 million, up 8.5% sequentially from Q2 and down 3.3% from last year. ARR from flips rose [ 54% ], while new SaaS ARR declined 39% against a difficult comparison from the exceptional number of large deals last year.

As a reminder, the lumpiness of large deal timing was also evident in last year's fourth quarter, new SaaS bookings, which also included several large deals. Our total annualized recurring revenue was approximately $2.05 billion, up 10.7%. Our non-GAAP operating margin expanded to 26.6%, up 120 basis points from last year, reflecting a continued positive shift in revenue mix towards higher-margin SaaS and transaction revenues and efficiency gains across our cloud operations.

Cash flows from operations and free cash flow were solid at $255.2 million and $247.6 million, respectively, down slightly year-over-year, mainly due to the timing of working capital changes. We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $973 million. Our annual guidance for 2025 is as follows. We expect total revenues will be between $2.335 billion and $2.360 billion. The midpoint of our guidance implies growth of approximately 10%. We expect GAAP diluted EPS will be between $7.28 and $7.48 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate.

We expect non-GAAP diluted EPS will be between $11.30 and $11.50. Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%. We expect our free cash flow margin will be between 25% and 27%. We expect research and development expense will be in the range of $202 million to $205 million. Other details of our guidance are included in our earnings release and in the Q3 earnings deck posted on our website.

In addition, while we are currently in the middle of our 2026 planning process, I want to share an early view of our revenue outlook for next year while we continue to evaluate our investment priorities. For 2026, we currently expect SaaS revenues to grow approximately 20% and we anticipate total recurring revenue growth will be within our long-term target range of 10% to 12%, excluding the impact of the wind down of the Texas payments contract. Our 2025 guidance and 2026 revenue outlook reflects solid progress towards our 2030 goals, although long-term growth and margin expansion will not be linear.

Now I'd like to turn the call back to Lynn.

Thanks, Brian. We're pleased that our third quarter performance again surpassed expectations, and I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our client digital transformation through enhanced cloud capabilities, improved client experience and the next wave of AI modernization.

We remain on track to achieve our 2030 targets executing well and delivering across all key priorities. Importantly, our 2030 plan did not contemplate potential additive growth from M&A or AI, but we expect upside potential from both of those growth opportunities. Our balance sheet remains healthy, and we currently have more than $1 billion in cash and short-term investments. Our $600 million convertible debt matures in March of '26. Based on our internal modeling and interest rate movements since we issued the convert, it has proven to be an efficient component of the financing of the NIC acquisition.

As we grow free cash flow, our historical capital allocation priorities remain unchanged and include internal investments, M&A and opportunistic share repurchases. We repurchased approximately 300,000 shares in Q3 in part to offset potential dilution from our convertible debt. Following our repurchases, the stock saw further weakness to levels we believe represent an attractive long-term value proposition, but most of the decline took place after our blackout period commenced.

On the M&A front, we have closed 2 acquisitions this year, MyGov and Emergency networking and our M&A pipeline is active. We continue to follow our proven playbook adding competitive products or functionality that are adjacent to or complementary with our existing core business. We expect to leverage our established sales channels and client base to grow acquired businesses faster than Tyler's overall growth rate.

Looking ahead to 2026 and beyond, you'll see us take a more proactive intentional approach to M&A within our general guidelines while staying disciplined on valuation. Over recent years, we've discussed a higher bar for M&A. Since the NIC acquisition, we've closed 11 transactions of varying sizes for a total purchase price of nearly $400 million. The higher bar reflected both management bandwidth and balance sheet considerations. Going forward, we'll continue our disciplined valuation approach and consider management bandwidth, but I'd expect to use our significant free cash flow and if circumstances warrant, reasonable levels of debt to drive future growth through M&A and when appropriate, fund opportunistic share repurchases.

Now I'd like to make a few comments addressing some of the market noise around AI. For more than 25 years, Tyler has successfully navigated the public sector through successive waves of technological transformation. From the emergence of web browsers in the dot-com revolution, the mobile computing, cloud migration and now artificial intelligence. Each shift brought similar promises. New entrants with new technology will disrupt established players. And each time we learn the same fundamental lesson, technology alone never wins. In the public sector, durable outcomes come from deep domain expertise, trusted client partnerships and disciplined execution. That's been our edge, and it still is.

Today, we are building those same principles and expect to guide the public sector into the next era, one that's driven by AI and we are confident that no company is better positioned than Tyler to lead this transformation. AI's effectiveness depends on quality data. Our 15,000-plus clients generate vast amounts of data daily through our systems and they trust us to govern it responsibly. Through well-structured data partnerships and governance frameworks, we can leverage this client data with appropriate permissions and safeguards to build AI solutions that truly understand government operations and complex workflows.

Our clients are ready, and they're seeing results. Early deployments of products like document automation and priority-based budgeting are delivering 10% to 30% productivity gains and 2 to 3x ROI on targeted processes while maintaining the level of reliability and trust that our clients demand.

Looking ahead, I view our AI opportunities in 3 categories. First, internal efficiencies where we'll invest and set specific ROI targets. For example, we're currently scaling our investments in AI tooling for all 2,000 of our product development team members, rolling out the tooling, training and enablement required to innovate and deliver at the speed of AI.

Second, competitive differentiation with existing products to win more business and provide more meaningful upsell opportunities. And finally, new products through M&A or internal development that drive revenue growth. Agentic AI operating as a digital extension of the workforce is a natural path to monetization because it delivers clear, obvious and measurable outcomes, such as hours saved, backlogs reduced or revenue recovered.

When that value is proven, we believe Tyler can capture a fair share of the ROI [indiscernible] as a predictable annual SaaS fee tied to the value. It's also interesting to note that some of our forward-thinking clients are starting to blend in their software and labor budgets, allocating more of the latter towards their digital workforce. As digital labor shows impact, agencies can reallocate portions of labor spend to software. If this trend continues, we believe it will further expand Tyler's opportunity.

In summary, and in my opinion, some of the noise around AI and vertical software has been a bit overblown. I quip that AI itself is fueling displacement fears and there's still significant hype, reminiscent of the dotcom era. With every technology cycle or transformation, there are shifts to redefine markets and leadership positions, and yet Tyler continues to endure, thrive and lead. To me, the question people should ask is, who is best positioned to lead the public sector through this next transformative cycle? I contend it's Tyler. Now we'd like to open the line for Q&A.

[Operator Instructions] Your first question comes from the line of Alex Zukin of Wolfe Research.

Maybe just -- the first -- I'll go with a tactical question first around some of the numbers and then maybe a high-level one. So maybe, Brian, for you, just understanding and helping us bridge the decline in kind of net new annual SaaS bookings year-to-date in the quarter on tough comps from last year. But the confidence in SaaS revenue growth for next year at 20%. Maybe just help -- give us a little bit of context for when the implementations, when those conversions need to happen from that prior book business to hit that number? Like how much visibility do you have on that relative to previous years? .

And maybe some guardrails on those estimates for next year? And then why pull some of the segmented guidance for this year? I mean just help on those 2 points then I've got a big picture one.

Yes. As we look, and as we said, this is a preliminary look at 2026 as we're building out our plans. But we expect that SaaS revenues growth will be in that 20% range. It's really built up from all of the factors and our visibility into those that drive SaaS revenue growth. Part of that is new SaaS bookings, both those that will happen next year and those that have already happened. And as we've talked about, there can be a lag from one to multiple quarters.

Sometimes these deals are phased in as they hit revenue. So some of that growth is coming out of the bookings that we saw this year and the bookings that some of them even that we saw last year as those are phased in, so effectively out of our backlog. There's also the impact of flips. We've talked about the trajectory of flips continuing to be on the uphill side. So those are still growing, both in terms of number and in terms of size. So our expectations around flips next year are layered into that.

And then there's our -- the renewals, the price -- the sales to new customers, which actually reflect the majority of new SaaS bookings are coming from add-on sales to existing customers, not the new named deals that we also disclosed. And then there's the pricing impact of our annual increases that we see on renewals. So if we look at all those -- how we build up all of those, those -- we have, I'd say, at least as good a visibility as we have in any normal year. And that is what drives that confidence around that 20% range for growth next year.

And on your question about segmented guidance, I assume you're asking about the breaking out revenue guidance by line item. Given that early in the year to help with modeling in general, but now that we're down to the fourth quarter, we really don't have any significant changes around what we've given in the past. So we've tried to simplify things a bit and just go with the overall revenue guidance.

Got it. And then, Lynn, maybe for you, maybe you talked about not really seeing an impact from budgets and budget cycles and DOGE which makes a lot of sense. When -- I guess it felt like the commentary around M&A was maybe a little bit more pointed. So maybe I'll just ask a question around how much should we anticipate from an organic from a total top line contribution maybe for fiscal '26 and beyond.

Are -- is this a change in terms of the point or so from M&A that we've kind of come to expect. Are you thinking maybe more can come because the opportunity set is so much broader than it's been before because of AI? Or what's the signal that you want us to take away from that comment?

I think really the signal is, one, we've done 2 deals this year. They were relatively small. We do have an active pipeline. They're not necessarily large deals. I wouldn't expect '26 to have meaningful impact more in that sort of 1 percent-ish range, assuming other deals may or may not go. Really, the comment is based around the fact that, hey, over the last several years, we talked about the need to strengthen our balance sheet, and we've talked about management bandwidth, not just because of M&A deals, but also we have a lot of strategic initiatives going on.

And throughout this year, as you know, we've gotten to a point where we have the cash on the balance sheet to pay off the convert. We are getting past some major hurdles on some of these internal investments and strategic initiatives, even if more are spinning up. And I just feel like we're more in a place now where we can actually be a little more proactive. Whereas over the last few years, I think we've been a little more reactive, more responding to brokers instead of other types of deals.

Now to be fair, the Emergency Networking deal that we did this year, that was something we proactively went after. They were a partner of ours. That's a proven model for us. We get to know them out in the market. Our ability to close on deals when we knock on doors or we establish relationship versus a broker bringing it to us is much higher. And I think we're just in a position where I feel like we have the more of ability both again, from a balance sheet perspective and a management perspective, everything to sort of go back to more of our traditional approach pre-NIC..

Your next question comes from the line of Terry Tillman of Truist Securities.

good to see this flag on the ground on the 20% SaaS growth. I had a bunch of questions, but I'll keep it to one. And there's a maniacal focus on your supplemental information on your IR section of the website. And it is often on that new SaaS and flips SaaS bookings. I love how you brought up the idea of add-on sales. Could you maybe double-click on kind of approaches you all have been taking to be much more programmatic to drive those add-on sales and expansion? And just where are you in kind of getting the benefits of that focused effort?

Yes. Terry, it's been a focus of ours for some time. Our inside sales teams have been outperforming generally against their quotas for the last couple of years. But we're still, I would say, in the very early stages, but I think there are 20, 30 targets we talked about having that kind of 2 to 3 products per client. And our goal is to get to 10 to 12 or even more, particularly if we do more M&A and it's more opportunity. We're still pretty early in that, but it is a big factor of what we -- of how we approach the business. .

I think the other thing I want to talk about going back to Alex's question about the markets is, what we're seeing now is we've said for the last several quarters, RFP activity is steady, demo activity is steady to up. But for whatever reason, and we've talked with our sales guys in Q1 and Q2 for whatever reason, some procurements were put on pause, and we're starting to see that be released. And we feel good about our Q4 sales outlook for example, in enterprise ERP solutions. Q2 and Q3 had the highest number of RFPs that we've seen in the last 2 years. That demand, just like historically, doesn't go away. We're there to capture it. I think that was, for whatever reason, it was a post ARPA hangover, it was a short blip.

But we've seen that before in larger cases, whether it was post-9/11, Great Recession, COVID, whenever there was for whatever reason a pause we were there. This obviously was never -- nothing to that extent. But that's part of our confidence as we move forward.

Your next question comes from the line of Joshua Reilly of Needham.

Can you just remind us the moving parts of how the Texas payments contract winding down is going to impact transaction revenue for the balance of the year. And then offsetting that is the ramping of the California State Park deal. Is that at a full run rate now? And are there any other notable payments deals ramping in transactions disrupting the normal seasonality for decline into Q4?

Yes. The Texas contract continues to move towards wind down. I think we currently expect revenues from Texas for the full year to be kind of in the $39 million to $40 million range, which is maybe down just a tick from I think last quarter, we said $41 million. So as we get more clarity as it transitions out that's the level we expect to be. There's probably a little bit that carries over into next year, maybe $4 million or $5 million. So that delta between the 39% to 40% this year and 4 or 5 next year is what will come out of next year.

With the California parks, which was a big basically software and services that mostly software paid for as transactions, that contract started last August. So we lapped it during this quarter. So going forward, although that the revenues from the contract will continue to grow. I'd say it's not fully ramped. But most of that growth -- or most of the incremental revenues from that are now built into our base. I don't think there's anything that fundamentally changes the seasonality. We did call out, Lynn mentioned one large transaction-based deal we signed this quarter with the state of Colorado for our inmate services financial suite. So again, that's software that's being provided under a transaction-based arrangement that will add a couple of million dollars a year of revenue, but no individual deal that's on this -- on the scale of something like California.

Yes, Jeff, we also -- in this quarter, we signed a payments deal with chesterfield County, Virginia that fully ramped up. We think it will be about $1.5 million deal. There are some other payments transactions that are in queue right now that, as you know, we don't announce awards or where we sit. But we like the trajectory right now of our payments transaction business.

Your next question comes from the line of Saket Kalia of Barclays.

Okay. Great. Great to hear the 20% SaaS growth for next year as well. Maybe for my one question, Lynn, it's really for you. Really appreciated your points on AI in your prepared comments. And I want to marry that with kind of Tyler's move to SaaS. As more of the base moves to SaaS, what do you -- and without getting too specific, what do you sort of see on Tyler's road map that's going to maybe grow that revenue opportunity in terms of AI in the public sector?

And maybe relatedly, have you seen any changes from competitors as perhaps AI becomes more of an offering in public sector. That's been -- that's been a question that I've gotten as well. Curious if you could comment.