Tyler Technologies Aktie

We can go ahead and get started. My name is Clarke Jeffries. I'm part of the technology research practice here at Piper Sandler. I'm very pleased to have Brian Miller, EVP and CFO of Tyler Technologies. Thank you for joining us.

Thanks for having me.

Yes, welcome to Nashville. Those of you who might not be familiar with Tyler, maybe we can give us a little intro on where the business is at in 2026.

Yes. Sure. We are -- if you're not familiar with Tyler, we're the leading provider of software for the public sector. We focused exclusively on the public sector. We have by far the widest set of solutions for public sector entities across federal -- federal is very small, but federal state and local governments. We also have, by far, the biggest customer base of anyone in the public sector. So we have about installations of our products across about 16,000 different government entities. And about 1/3 of our revenues today are also transaction based.

So we have a growing transaction business with payments that are embedded across our software solutions and other transition-based offerings. Just had an Investor Day in June, laid out a new updated and raised targets for our 2030 Tyler vision, where we're talking about roughly a 20% SaaS CAGR through 2030, 10% to 12% transaction growth CAGR and operating margins going from the mid-20s to the mid-30s over that time period. So laid out a lot of recent information about our plans there, and we're excited about the opportunities for us over the next few years.

Yes. And I will absolutely get into the model transition and some specific levers within transaction in SaaS. But I think one of the big things we had talked about coming out of the pandemic were the new challenges for state and local governments, they're dealing with increasing incursion from cyber threats. They're working with a more distributed work policy than before. Just what are the main frictions and considerations that you see in your customers today? AI is a new wrinkle in all of this. And so what's new, what's the same about this market. We always get a question around budgetary cycles, but maybe you can just talk about the market in general.

Yes. I mean, the market doesn't change a lot, and it's got a lot of characteristics that if you're in the government market, it's very attractive. But if you're not in it, it might be viewed as less attractive, I think the constant is the government always need to do more with less. They never have enough budget even in a really good economy. And when things are booming, there's never enough money or enough resources -- so that's always a factor. Today, there's an awful lot of pressure around staffing challenges, governments, and they're going to get worse because governments are really facing a big wave of retirements over the next 5 years, the SOFR Tsunami calling it.

But they really just don't have enough people to do the things they need to get done. Part of the reason behind that is that often they have old technology and an old technology that they have inefficient processes that are governed by old technology. So they can't -- they don't have online access for citizen self-service. They struggle with remote work because of some of their systems, which also then leads to them struggling to hire people. So a lot of the stuff is interrelated, but at the core, a lot of it has to do with staffing challenges.

And this general sort of theme or drive to improve government efficiency. And those, obviously, was a big talking point, but beyond DOGE at the federal level, there's just -- there's a general goal of improving government efficiency and technology is really the way they're going to do that. And so that's good for us. And we're seeing people start to, in some cases, replace old technology sooner than when it absolutely has to be replaced when it's dying, but recognizing that there is an ROI and there are efficiency gains by updating their technology and AI will, over time, be one of those things.

Yes. Let's dive into sort of drivers of the business. I mean one of the biggest pillars of the story over recent years has been that SaaS transition. You mentioned at the Analyst Day that happened this year. One of the standouts, I guess, in my mind, was the SaaS CAGR. And we went from a high teens target to 20%. What specific items gave you the confidence in raising those targets? What are the inputs that went from 2023 to 2026 where we got to a 25%.

Some of it is the progress we've made from '23 to '25 and that we're sort of ahead of schedule. Some of it are the acquisitions we've made over that time frame, and we kind of laid out in our capital allocation presentation, how the acquisitions or our acquisitions over the last 5 years, have a CAGR that's about twice Tyler's core growth rate. So the acquisitions we've made in recent years are growing at a 24% CAGR. So as we continue to make acquisitions and along with the ones we've already made, they're contributing to higher growth.

But when you look at kind of what builds up to that 20% SaaS CAGR, it's sort of a low teens growth from our new logo SaaS sales and expansions with our existing customers, including kind of the regular pricing we get. We also have very, very low attrition. We typically over a very long period of time only have -- we have gross retention of 98% to 99%. Our customers don't get acquired and they don't go out of business. So they are very sticky. So we start out with a good starting point there.

So low teens growth from new SaaS and expansion and then mid-single-digit contribution from our on-premise customers slipping or moving to SaaS. So we typically get a 1.7x uplift from maintenance to SaaS. So that's contributing sort of mid-single digits on top of that. And we expect that contribution to continue to increase over the next 4 to 5 years as we continue to make progress with migrating our on-prem customers we've had 22 straight quarters of more than 20% SaaS growth. So we've got a pretty good base that we're working on. And we do expect the flip contribution to continue to increase over the next few years.

Yes. Maybe we can talk about that in terms of another part of the targets that moved up was it used to be 75% to 85% conversion and now it's 85% plus. What's the cadence of expected conversion now? I mean top part of that bell curve or S curve. And specifically, I think we talk about this within the realm of there might be some the largest customers into the statewide court systems that might be the last movers. But dollar-wise, how concentrated is it? And is that pretty much one of the bigger swing factors and when the timing will come through.

Yes, that's certainly a factor in that pace of flips moving from on-prem to the cloud. We do expect to grow the volume and basically the dollar amount of maintenance that's converting to the cloud each year over the next 3 or 4 years. I think at one point, we viewed it as more of a bell-shaped curve progression and now we view it more of a steady progression. It won't necessarily be a straight line and the lumpiness of when the big customers, people who have multimillion dollar annual maintenance agreements move, we'll make it a little bit lumpy.

But we do expect they're continue -- over the next 3 to 4 years, a year-over-year increase in each of those years. It won't necessarily be linear. And if you look at our current on-prem base, it is more heavily weighted to large customers. So we have, for example, 17 statewide court systems, 2 of those were deployed in the cloud from the start, but of the 15 that we're on-premise. Only one of those has moved to the cloud so far.

We have big customers like New York City's property tech system in Cook County, Chicago's court, and tax systems that are still on-prem. We do expect they'll all move to the cloud, but they are more complex and have different considerations. So we do see those more over the next 3 to 4 years and how they fall may make that progression a little bit lumpy.

Did any of those larger contracts have like a longer duration as part of their consideration or flips? So they are all at this point, just maintenance...

Not really. Everybody is pretty much is on the annual maintenance agreement. So there's not really contractual considerations. There are a lot of different things that go into when somebody decides to flip. It could be hardware. It could be that they know that in 2028, they're going to have to replace a lot of hardware and their servers in their data center and they don't want to do that. But that's when they're going to make the change. It could be just how it fits in their overall IT road map.

The Los Angeles County, for example, largest county in the country, is a client for multiple Tyler products. They flipped their licensing and permitting system last year to the cloud, but their court system is much further down the road just as they stage all of the things that they have to manage sometimes cybersecurity going the other way, accelerating a flip, sometimes cybersecurity is a big event.

Somebody has a ransomware attack, and they want to move to the cloud, unfortunately, afterwards, but also people that see their neighbors or the town next door suffering a ransomware attack and because they're on-prem networks vulnerable, and then they want to move to the cloud.

So -- there are a lot of different considerations around each of them. I think the biggest thing in the near term, we've talked a lot about Harrison or incentives and disincentives, which are increasingly being communicated to clients. But just last quarter, we had a communication with every on-prem client letting them know that over the next few months that we're going to be sitting down with each of them and starting to really map out a more concrete plan for their move to the cloud that's not an indefinite open-ended option to stay on-prem and talking about what those incentives and disincentives are and what impact those will have, but really starting to more formalize that process and not just sort of let the inertia that can kind of set in, in public sector sometimes take place.

Yes. Well, the other biggest component here is obviously that low teens, you mentioned around new logo counterintuitively, governments aren't being created every day. There's very little change in terms of the composure of counties and systems. So what you're really talking about is penetration of logos. I think from my vantage point, that just seems -- it's so incredibly evergreen.

We've seen that be the biggest portion of the SaaS growth for a very long time. So anything internal that you would say has been most meaningful about getting these customers from 1 or 2 products to some of the biggest consumers up to high-single digits or low-double digits. How can you continue to grow the SaaS base at low double digits off of basically upselling logo penetration?

Yes. So there is a big opportunity. And if you looked at all of the governments across the country, every city counting school district, all the state agencies and looked at all the systems they're using to run all their back office functions. I think you'd find that probably half of those, maybe more than half of those our legacy systems. So there are systems that are either homegrown systems, some of these systems written in COBOL in the '70s. They are systems from vendors, on-prem systems from vendors who if not out of business are not competitive today. They don't have a cloud offering.

At some point, they didn't invest in technology. So they don't have a product anybody would buy today, but they're still supporting a big part of the systems that are being used. And so as those systems get to end of life and need to be replaced, they won't be replaced by the current vendor. So that creates an opportunity. Now on one hand, that's kind of hard to accelerate that but it also creates a very steady constant flow that is, like I said, at least half of the market that still will be replaced at some point in the not too distant future. So it creates that steady but never explosive growth.

And we continue to have strong win rates, very strong competitive position across the major functional areas of government. So we kind of win more than our share as those turn over, and we continue to gain share. But increasingly, as we go from that -- that's how we capture new logos. But as we go from this 2 or 3 products per customer to 8 to 10 products or suites of products, we have this opportunity by having the largest customer base out there of being able to really have an advantage when it comes time for them to buy that next product or the next product and also cross-sell within a suite of products. So, someone that has our court system selling them a jail system, a jury system, a probation system.

And there are a whole lot of structural reasons why that why we should have that advantage. The products are integrated. It creates an easier workflow for our customers. We have common elements like security and sign-on and dashboards and data and analytics players that make it easier to have more products from Tyler. We've made some structural changes over the last couple of years to make sure that we're eliminating barriers to cross-sell. So we've made modifications to our commission structures, our quota structures, go-to-market approaches to try to better -- be in a better position to take advantage of the cross-sell and upsell opportunity.

Also, as we make acquisitions or as we build things through internal R&D, it gives us more products to sell and cross-sell. So I think over time, you'll see more and more of our growth coming from the existing customer base. While we still kind of have that sort of constant opportunity to capture new logos, but more and more of an opportunity to expand within the existing customers.

Yes. Well, let's turn to AI as sort of a monetization opportunity for a new application category for you. What are the sort of top sort of commercialized AI products for you today, ones that can kind of create incremental revenue and where is the highest adoption in terms of where in the customer base.

So, I kind of bucket our AI product in a couple of categories. One would be sort of our more mature ones, those that we've had for, in some cases, 3 or 4 years that came from acquisitions, for the most part that are generating more than $20 million a year of revenues today. These are things like we have a product called Document Automation, which was the company we acquired that partnered with our court group that basically automate data entry into the court system.

We have a product called priority-based budgeting that uses AI to dig deeply into an entity's spending and help them better allocate budget funds to things that are higher priority and identify areas where they're spending money that doesn't meet their priorities. So things that have high ROIs kind of clearly demonstrate a lot of value that customers are willing to pay for and that are generally priced based on some sort of outcome-based pricing that reflects the kind of savings that they'll get.

Then we have new opportunities, things that we're developing today that are more agenetic solutions. And we've talked about at our Investor Day, we talked about a road map where by the end of the year, we should have around 25 new agentic solutions across our product portfolio. And these are things that solve again, product problems that our clients have every day, most of which are related to not enough people to do the work they have to do.

So things like an agent in our licensing and permitting system to review building permit applications rather than waiting for a clerk, you might have a 6-month backlog of those applications sitting on their desk. So using AI to do something in minutes that would take a clerk day to do. And it's not necessarily that they're going to go fire a bunch of clerks is that they don't have enough to start with, that they're short-staffed. And so there are these backlogs of cases being -- waiting to be entered into the court system.

Things like report writing for police officers in our public safety system using AI, but government-grade AI, not ChatGPT, but something that they are comfortable with the data how it's used, how it's protected, and the accuracy and the trustworthy around very sensitive things like police reports. So those are the kinds of things that we're rolling out. We've said that we'll have these agents across our products at least in sort of the early pilots by the end of the year. Those will then progress to a broader pilot group that will serve as the initial references in our space. They want to know it works somewhere else.

They're very curious about AI. They're interested. They have a lot of concerns, but they also want those references. They want early adopters to say, yes, it works to prove up the ROI case, the efficiency gains and the reliability. And so we think we'll be there by in the middle of next year with a broader group of products. And so we're really talking about second half of next year before we start to see more meaningful renews. But making really good progress around it, and we're comfortable that we're going to be a winner with AI and that our customers want that from us.

Yes. Well, I'll just have a follow-up and then I'd love to ask any questions that there might be for the room. Just I think this is the big discussion around this space. And obviously, we as a market of investors and analysts and companies. We're trying to fully assess when shipping software went from scarcity to maybe getting accelerated and becoming not quite commoditized, but much lower hurdle. Doesn't that naturally mean that there'll be companies that come out of the wood work, and aggressively throw an AI solution into verticals that may have not been attractive end markets before for a normal commercial go-to-market. So what do you see on the ground in terms of aggressive AI companies or these government customers trying to maybe feel the temptation to use chatGPT rather than a government-grade solution. What's fact, what's fiction.

Yes. A lot of that is fiction in the public sector and some of that really goes back to the structural differences. Our customers are very risk averse. The technology adoption curve for anything or the adoption curve for any kind of technology in our space, we've seen it with SaaS is much lower than they'll see in the private sector. So our customers are curious. They want to hear -- the -- we had a lot of talk about it at our user conference this last May. The sessions on AI kind of introductions to AI were packed but they're really cautious about it.

So the big thing -- and so we're not seeing traction from new entrants in our space. We're seeing our customers say, "Yes, we're hearing from people, but they're telling us, we want it integrated with the system of record. We don't want to bolt it on. We don't want to have to manage that. Our customers don't have Dev teams, they don't have people that are doing this work internally. They want it from someone they trust. And that trust is not only somebody that really has the domain expertise about these very complex workflows, whether it's how police officers do their job, how building permits are issued, how property taxes run. So the deep domain expertise we have they are very concerned about how their data is managed and protected and where it might be used or where it might go if somebody else is in it.

So they're comfortable that we're going to do that and obviously, we've got a sales channel and deep relationships, and we built a system of record. So all those things, not only do we think that we're hearing from our customers that they would rather get that from Tyler and that lines up with the solutions we're bringing to market and how we see that playing out.

So they're not -- I mean, there's some early adopters that kind of leading-edge people. But generally, they're not wanting to be the first to do anything, and they're waiting for Tyler to help lead them through that process just as we kind of led them to the cloud and continue to do that.

Yes. Any questions from the room? -- Those production agents, I know it's early and you're talking about later half of '27 where it would be a contributory to the revenue. But any use cases you think that could sense the level of the document automation or priority-based budgeting or resident engagement, things that have proven to be kind of, call it, 8-ish figure kind of ARR businesses for you?

Yes. I think eventually, just because of the size of the customer base, and we have thousands of ERP systems installed. So some of these things are not little sexy or not super exciting, but things like automating accounts payable data entry of invoices into the accounts payable system. When you start to multiply that across -- it will be a SaaS uplift -- so when you start to multiply that across hundreds or thousands of customers, they start to get more meaningful. We have hundreds of customers using our licensing and permitting systems, hundreds of public safety agencies using the police.

So individually, these SKUs all we would expect to be uplift to their SaaS fee. But collectively, we talk a lot about really this kind of creates a whole new -- open up a whole new TAM for us, and that's the labor budget. So we've typically focused on their IT spend and their IT TAM, but we're seeing real situations where our clients are paying for the AI solution out of their labor budget, Fort Worth, Texas, Tarrant County, with Document Automation said, we are taking this out of the labor budget. We have dollars in the labor budget for these roles. We just can't hire enough people, attract enough people or keep them -- so we'll take some of that budget and pay for the AI solution.

They went as far as to give it an employee name an ID number and to further emphasize that. There are some other places that are unionized where that's -- they're facing other hurdles because even though they may have the same problems, there's more pushback on something that can potentially replace people. So seeing different approaches there. But if you look at the total labor TAM and our -- just with our existing customers, it's a multibillion dollar TAM for those kinds of solutions that could be replaced. That's over a long period of time, but we think that's a really big opportunity.

Perfect. Last one to take us out, just I think a lot of the time from 2023 to the most recent Analyst Day was getting groundwork laid, exiting data centers, version consolidation. We've talked about cloud living as something you're trying to embody going forward. But what are you most excited about in 2027? Is it things we've already talked about in agentic? Is it getting to that point of cloud living? What kind of rises to the top?

Yes, I think it's continued progress on all those drivers and margin that we've talked about. I think progress with AI, particularly. And I think we're looking forward to starting to demonstrate some of the proof points along the way that will help continue to make the point that we're going to be a winner with AI, and it's an opportunity for us as opposed to a risk and that we can continue to try to dispel that kind of overriding concern about AI being a threat to SaaS companies.

And then I think the last thing that we're excited about that we control is our capital allocation, and we've been very aggressive about buying stock over the course of this year, and they're continuing to. We had a $1 billion authorization from -- in February that we've now completed and now have a new $1.5 billion authorization that we're active with. And so it's one of those opportunities for us that we've seen similar opportunities in the past at times where we've been able to be very aggressive about buying stock back with great results, and this is one of those times.

All right. Brian, I really appreciate you coming out to Nashville.

Thank you.

All right. I think we can go ahead and get started. Thank you all for coming today. Today, I have the pleasure of hosting Tyler Technologies' CFO, Brian Miller. Brian, thank you for joining.

You bet. It's great to be here.

So we're going to touch on some near-term dynamics. But first, I'd like to start with a little bit more on your longer-term view of the business. So at your Investor Day in June, you laid out a more durable and cash-generative model through 2030. What part of that transformation do you think investors are still underappreciating?

I think it's really the impact of the next phase of our cloud transition, which we refer to as Cloud Living. So there are a lot of impacts from that. It impacts margin expansion. It impacts our client experience and ultimately, our ability to cross-sell and upsell more effectively. So I think that's probably one of the biggest ones. Of course, it's the opportunity from AI. I still think this broad narrative around AI applied to a lot of software companies, and there are a lot of reasons why we view AI as an opportunity more than a risk. And I think that's probably still underappreciated.

Yes, we're definitely going to touch on Cloud Living and AI as well. So when you think about your 2030 target model, which component of the 10% to 12% organic recurring revenue growth framework that you laid out in your view, carries the most execution risk?

Well, there are several components of that 10% to 12% growth. There's pricing, there's new business or new logos, there's expansion with existing customers, cloud migrations and the uplift from that, and then our growth in transactions revenue. And we're highly confident in how all of those contribute to that 10% to 12% CAGR. And that's in line with our recent growth. But I think if you're looking for what might have the most risk, it's probably around the new logos, which is more subject to kind of the broader market conditions.

And so within that, so AI and M&A sit outside that framework, how should investors think about potential upside that those 2 could contribute to that?

Well, they both should clearly be upside to revenue. We've certainly demonstrated a long history of successfully executing M&A. We -- our CEO likes to say M&A is in our DNA. We -- I've been with the company for 29 years. We've done, I think, about 65 acquisitions over that time period. So it's something we think we do very well, and we'll continue to do. I guess if you look at an average over that time period, we've probably added low single-digit growth on top of our organic growth. There have been a handful of larger acquisitions, a couple that were 20% of Tyler's size. So I think you should certainly expect to see us continue to drive additional growth from M&A.

And then AI, we laid out a lot of reasons at our Investor Day in June about why we think it -- that we will be a winner with AI and why it's incremental to our revenue growth. At this point, we don't think we can credibly say 2030 revenues from AI are going to be X, but we certainly believe there's upside from that, and we've got a high degree of confidence in our ability to drive that. I think we're clearly seeing with some of the early examples, uplifts from their core software revenues of anywhere from 20% to north of 100%, as we add AI-enabled applications on top of the core systems of record.

So to your point, 65 acquisitions is a lot. You're a very acquisitive company. Can you tell us a little bit more about your mindset when it comes to acquiring versus building something or partnering and sort of what it is that you look for?

Yes. The majority of the acquisitions we do, I guess, you'd categorize as tuck-ins or things that fill in a gap in our product portfolio, expand our TAM. It could be something related to an existing suite of products. Occasionally, it adds sort of a whole new subvertical within the public sector space, everything in the public sector space. Sometimes there's a technology acquisition. But most of them are kind of the tuck-ins that add new capabilities. We've done, as I said, quite a few of those over time.

We look for a number of things. Generally, we're looking for acquisitions that we would expect to grow significantly higher rate than our core growth rate. And I think we had an example at our Investor Day, the acquisitions we've done over the last 3 years that their current and projected growth over the 5 years following acquisition is mid-20% CAGR. So about 2x our core growth rate. We can do that by leveraging our sales organization, by leveraging our customer base, selling them back into our installed base, selling them to -- or bundling them with new sales.

Often, we are looking at a buy versus build as we look to fill in those gaps. We look for a good cultural fit, a reasonable valuation, which has been something that's been kind of challenging in recent years. And increasingly, we also look for, is there a payments opportunity or a transaction-based opportunity because we now have a very robust payments platform that complements our core software.

So if there's an opportunity to layer payments on top of a software solution, that's a plus for us. And now increasingly, we look at, is there an AI opportunity? Or is there an AI risk, but is there an opportunity do they either bring us AI capabilities? Or is there an opportunity to enhance that product with new AI capabilities?

Yes. So I actually want to go back to one of your answers to one of my earlier questions just around the dynamics of the 10% to 12% growth and sort of what carries the most execution risk there. You had said new logos. Can you talk a little bit about what are the main constraints to that leg of growth? And are there pieces of that, that are out of your control and things like the public sector funding environment?

Yes. And the funding environment isn't as big an issue as just the way the public sector buys. The public sector has a number of characteristics that if you're in it, are pretty attractive. If you're not in the market, it might make it less attractive. Our customers don't compete with each other. They're risk-averse. No surprise, they move kind of slowly. They're not profit motivated or ROI driven, although that's kind of changing as there's more of a focus on government efficiency and around things like AI, they're looking at ROI, kind of looking at it through a different lens than they have historically.

But generally, governments -- all the products we provide, the applications, all manage mission-critical essential functions of government. So they're all essential things, public safety, 911, courts, property taxes, utility bills, payroll. So they're essential functions, but they -- government historically kind of uses their old systems until they're about to die. So they tend to -- replacement cycles tend to be much, much longer than in the private sector.

And so when they get to the point where the old system is at end of life, either because it runs on old hardware that's no longer viable. It's a homegrown system, in some cases, written in COBOL 40 years ago, and there aren't COBOL programmers anymore. It's from a vendor who is no longer competitive and hasn't invested in new technology. And for whatever reason, when they get to that point, it's a fairly nondiscretionary decision to replace it. So it's less affected by funding. It's very high in the budget priority, but it's hard to accelerate that demand.

What we are seeing more recently, and it follows on with this greater emphasis on government efficiency is, in some cases, governments are starting to look at it a little bit differently and understand that even though this existing court system may have another 10 years left in it, there's a clear ROI to replacing that today, going paperless, providing citizen self-service, electronic filing, things that will make them more efficient and help them do more within the constraints that they have. So we see a sort of a subtle change in the market. But generally, it's just that pace at which government moves is very different than the pace at which the private sector moves.

Yes. So let's turn to some more recent performance. So you exited the second quarter this year, record bookings, but your ARR growth is still in the high single digits, around 8%. When should investors expect that demand strength to become more visible in your growth rate?

Sure. Well, ARR growth right now is being impacted by -- on the transaction revenue side by the runoff of our Texas payments contract. This was something that's been in the middle for quite a while. We've talked about it over the last 2 or 3 years, but we had a contract with the State of Texas where we did payment processing for the state. It's very different from the rest of our transaction-based agreements in that it was just sort of a commoditized payments-only contract, and it was a legacy contract that NIC had well before we acquired them.

So that contract was low margin. It was around $45 million in revenues, but 8% margin. So very different than the rest of our business. When it came up for rebid a couple of years ago, we were not aggressive about rebidding on it. And so, it went to another kind of horizontal payments provider. So that rolled off at the end of last year, and so we're still seeing the impact of that in our comps. It's been a positive for our margins, but a headwind to ARR growth.

If you take the impact of that out, we grew about 11% on our ARR last quarter, which was more in line with our targets. And that, again, will roll off at the end of this year and won't cause an impact anymore. I think one of the other things in the short term impacting it is, and we'll probably talk about this a little bit more, but where we have sold software systems under a transaction-funded model.

So rather than a client paying us -- and these are state clients paying us SaaS fees, we're getting paid through transaction fees that are charged to the users. So, outdoor recreation, motor vehicle titling, rather than the state paying us a SaaS fee, we get a fee that is tacked onto a car registration. So those show up in transaction revenues rather than SaaS revenues and don't show up in SaaS bookings, but they have SaaS margins. But there's a longer lag.

So we don't start recognizing revenues during the implementation. We start recognizing revenues when the transactions flow. And our largest deals in the last 2 quarters have both been those kinds of deals. So start to see the revenues second half of next year rather than second half of this year. But great deals. It's a great model for state governments and -- but it impacts in the short term. You got to kind of keep that in mind as you look at our ARR growth in the near term.

Yes, that makes perfect sense. And it actually leads right into my next couple of questions here because I want to talk a little bit more about that transaction-funded structure. So for starters, what ultimately determines whether an opportunity is priced as a SaaS opportunity, transaction funded or sort of a hybrid?

Some of it is just the nature of the product. So it has to be a software solution that has the sort of consumer-facing or business-facing, something that there are revenues associated with it that they can add a convenience fee or a charge on to, to fund that. So the primary areas, as I said, where we've utilized that model or where we've had customers choose that model are in outdoor recreation. So the largest deal we've ever done in our history actually in total value, about a $200 million total value deal with the State of California a couple of years ago for an outdoor recreation system for the State Parks.

So complete -- we have a very robust suite of outdoor recreation software that manages all the aspects of the parks, from campground reservations to kayak rentals and parking. And so that is funded by fees that are levied on a campground reservation fee or a tour of the Hearst Castle. And so that is -- and we've done that in a number of other outdoor recreation opportunities. But some clients choose just to pay SaaS fees.

California obviously has some pretty significant budget pressures. And so the idea of being able to fund new software, but not have to appropriate budget funds, not have to pay for it out of the budget is very attractive to them. More recently, we've seen a lot of activity with digital motor vehicle titling systems for state governments. So there's a fee that's added on to your car registration when you buy a new car.

And then -- and now the titling system is completely electronic, so no more paper car titles. And the last 2 quarters, we had a deal last quarter with the State of Connecticut for about $10 million of ARR in the first quarter with the State of New Jersey for about $20 million of ARR. But again, those won't start to hit transaction revenues until they go live next year.

So to your point, these statewide digital motor vehicle titling deals have been 2 of your larger deals that you've announced this year. As these large deals use transaction-funded structures more commonly, do you think that traditional SaaS metrics are becoming less complete measures of Tyler's momentum as a business?

Yes, a little bit less complete, I guess, I'd say. They're still very meaningful. And I don't want to give the impression that we expect to shift our whole model to transaction-funded software. It really only applies in certain instances. It doesn't apply to a payroll system or a property tax system. So I think it's somewhat limited application, but it provides us with a competitive advantage to be able to provide software under that model.

And we have through the former NIC business, these deep relationships with 28 state governments with enterprise -- state enterprise contracts where we provide a wide range of services. And that enables us to be more effective at cross-selling new software into those relationships often without going through a competitive bid process. So I don't think it's going to be a total shift, but you do need to keep that in mind as you look at our SaaS bookings growth and our SaaS revenue growth that there's an impact on -- some of that's coming in through the transaction side, and we certainly highlight those deals as we announce them.

And then as these deals sort of become a larger mix of the total transactions business that you're doing, how should the durability and margin profile of that transactions business evolve?

Yes, it's positive. These are very sticky systems, just like pretty much everything we provide to government, but they're also high margins. So compared to the more traditional margins in our transaction business around payments, these have software margins. So they will continue to drive our software transaction margins higher over time as those layer in on top of the payments and other transaction-based business.

Let's talk a little bit more about Cloud Living. So you unveiled the next leg in your cloud journey, Cloud Living, which is expected to improve retention, help drive cross-sell, improve win rates and also help you expand margins. When you look at those 4 different levers, which benefit should become measurable first?

Probably the margin side. So there are a lot of benefits of our ongoing cloud transition that have an impact on margins. Probably the biggest is version consolidation. So where historically, we have a lot of products. And historically, we have supported multiple versions of products, whether on-prem or in the cloud. And that's really expensive from a development standpoint and a support standpoint. So a significant amount of our development resources and support resources are consumed by clients that are using older versions of our software.

So as we move towards Cloud Living with one version of each product in the cloud, optimized for the cloud, that has a significant margin impact. And we've seen some of that over the last couple of years as we have made progress with version consolidation and sunset older versions of software and gotten down in some cases, from supporting 8 versions of a product to 2. But we still have another leg of that to go. But that's probably what we see the soonest.

A more efficient release process, the ability to deploy software faster with fewer professional services, which are not profitable for us, and the ability to reduce our support effort also will impact that margin. But I think margin is probably what you see first. And then as clients see the benefits and see an enhanced client experience, we think that will contribute to improving our cross-sell and upsell opportunities and drive more on the revenue side.

Sort of to your point on the margin expansion, how much of Cloud Living's value over time do you think is going to come from lowering the cost to serve your customers versus that added revenue opportunity that you just talked about?

Well, both of those are important. I think a lot of the value comes from the cost side and really us operating more like a true SaaS business as opposed to sort of the hybrid we've had over years of moving from on-prem to the cloud. But the revenue opportunity is really important. We have -- we talk a lot about -- probably our most important asset is our client base. We have 50,000 installations of our products across 16,000 different jurisdictions, cities, counties, school districts, states.

And that took decades to accumulate, given the pace at which the market moves. That's unmatched in our space. But it's still a relatively small share of the overall market. And we talk about our average customer having 2 to 3 products from us and being able to go to 8 to 10 products. And Cloud Living is one of those things that makes that easier for us and helps us accelerate that incremental growth with our existing customer base.

So let's talk about cloud conversions. You have said that you expect the peak of that conversion activity to be somewhere in the time frame of 2027 to 2029. And so, as we sort of get closer to that, what operational evidence are you seeing that would -- that tells you Tyler is ready to support that peak conversion activity?

Yes. So we've seen consistent growth in the number of migrations or flips as we call them, from on-prem to the cloud. For years, we were an on-prem software business, and we have decades of clients that were on-prem. Then we moved to more of a hybrid model where we offered our products either in the cloud in a hosted model, recently in our data centers, now at AWS. And then really around 2019 or so, shifted to a cloud-first model where we really only sell primarily new software in the cloud and start to be more active about moving our on-prem customers to the cloud.

As with most things in the public sector, it's kind of a slow process. There's early adopters that are really eager, sort of the middle section and then there's some that are laggards on the tail end. At this point, if you look at our overall customer base on a revenue basis or a revenue equivalent basis, about 55% of our revenue base is in the cloud today and about 45% is still on-prem. We laid out -- at our Investor Day in 2023, we said if you took the on-prem customers at that point, we expected 75% to 80% of them to convert to the cloud by 2030.

At our Investor Day in June, we updated that we expect 85% of them to move to the cloud. That's partially based on the progress we've made to date. But also as we're sort of moving into this next phase of using incentives and disincentives or carrots and sticks, if you want to use that term, we're increasingly communicating to clients that new features and functionality will only be available in the cloud, even though their on-prem product will be -- continue to be supported.

And some of those are things like new AI features that we think will be very attractive and have a high return for them. And that's having an impact on the pace of those conversions. Cybersecurity is a big issue with clients and the vulnerability around their on-prem networks. That continues to be a big problem in the public sector and another motivating factor. And then just the general struggles they have increasingly with operating their in-house networks, particularly around people facing a big wave of retirements, especially on their technical staff, a lot of difficulty attracting, paying market rates, retaining skilled people they need to run their networks.

And so the cloud does become more attractive to them, and they understand those benefits. I think the biggest change in the recent quarter is that we've done a communication from our CEO to every on-prem client this last quarter, letting them know that we're going to be sitting down with them in the coming months and having a conversation to start to map out and formalize their path to move to the cloud that it's not an indefinite open-ended opportunity to stay on-prem.

And there are a number of factors that drive an individual client's decision around when the timing is to move, but we want to have a clear understanding with each client of what that -- what those factors are and help them with what they need to start to execute the move to the cloud, whether it's support in analyzing the budget and what costs will go away when they move to the cloud that offsets the higher cost to Tyler and a lot of planning that goes into it.

But that's kind of actively underway now. So we're confident that the volume of flips will continue to increase in terms of revenue probably over the next 3 years. There's not going to be sort of a clear -- it's probably more of a continuous increase than a steep bell curve, but we're very confident about our ability to get to that 85% by 2030.

Great. So I have a few questions that I want to ask you on margins. So when we look at the entirety of your 2030 target model, you've got 3 to 4 points of expansion baked in from version consolidation, 3 to 4 points from AI and 1 to 2 points from your transactions business. So when you look at those 3 levers, where is the greatest risk of overlap across cloud, AI and operating leverage components of your margin bridge?

Yes. I don't think there's a lot of overlap across those components that build up to that margin expansion framework. And we did, again, the new targets that we laid out at our recent Investor Day were significantly higher than the targets we had previously laid out. We had previously talked about around a 30% operating margin by 2030, and now our target is mid-30s.

So the 3 to 4 points is really more than just version consolidation, it's really from the cloud transition overall. So version consolidation is certainly an important piece of that, but it also includes the scale and particularly the scale with AWS. So as we continue to move more clients into AWS and move our on-prem clients there, our unit costs go down as we continue to buy more capacity from them. So the economics around scaling are a significant part of it.

And then the optimization of our products. So as we release newer cloud-optimized versions of our solutions that run more efficiently in the cloud and particularly take advantage of features of at AWS, then that also continues to provide a positive margin impact. So yes, the biggest part comes from the cloud. We've talked about 3 to 4 points coming from AI, primarily our internal use of AI. And then operating leverage across SG&A, some with R&D and AI has an impact on that as well in G&A, a lot of that just as we scale from a $2.5 billion company to a $3 billion and $4 billion company, but there is a lot of scale in the -- or leverage in the OpEx.

So you said that the margin expansion will be consistent, but it might not be linear through 2030. What are some of the factors that might cause that to be a little bit more back-end weighted?

Yes. Probably just how the cloud transition continues to play out and how we get those benefits of kind of the true Cloud Living operations that probably is a little bit more back-end loaded compared to some of the other aspects of the margin expansion story.

Okay. So you talked about AI a little bit in the beginning, and I definitely want to talk about that a little bit more. You mentioned some of the ARR uplift that you're seeing from some of these early deals. So to that point, what have some of these early AI deals taught you about the repeatability of willingness to pay for some of these products across your installed base?

Yes. I think what we're seeing is that our clients really recognize the benefits and are looking at it through an ROI lens and are confident that they're going to realize savings and efficiencies from implementing AI. I think in general, when we talk about AI in our customer base, like with most things in the public sector, the adoption curve is going to be much slower than you see in the private sector.

Similar, we draw a lot of parallels to how we saw the cloud transition in the public sector market compared to the private sector. I'd say right now, our customers are -- sort of characterize it as cautiously curious about AI. In most cases, there are always a few sort of early adopters, but most of them want to learn a lot more about it and are very interested in how it can solve real problems they have, particularly problems that stem from staffing shortages, and that's probably one of the biggest problems facing or challenges facing government at all levels, but particularly state and local government. They just don't have enough people to do the basic things they need to do.

They lost a lot of workforce during COVID. A lot of that hasn't come back. They face a significant wave of retirements over the next 5 years. And it's not that they want to get rid of a lot of people, they don't have enough people to get things done like reviewing a building permit application that might take you 6 months to get approved a lot of places or entering data into the court system. So there's a backlog of court cases because they're not caught up on getting cases into the system.

So those are the kinds of things where we're focusing our initial development efforts and our initial product releases around AI. And our early returns have been really good with products like document automation, which automates data entry in the court system, where we're seeing clients pay, in some cases, the uplift is equal to what they're paying for the court software system that runs the courts. So a client that's paying us $1 million of annual revenue for the court system is paying $1 million for the AI add-on to automate the data entry. But they're saving $2 million of labor expense by -- that they have budget for, but not people.

So it's a really strong ROI for them. And we're actually seeing clients that are paying for that out of the labor budget rather than an IT budget. So it's not taking away from something else they would do on the IT side, but they're recognizing it. So we talk about it as enabling us to potentially access a whole new TAM that being the labor TAM as opposed to just the IT TAM.

So that's a really good point, especially as you mentioned, you start to shift from just being able to target IT budgets to being able to target a little bit more of the labor budget, and you're seeing some of these things happen already. How does that change or potentially change your go-to-market motion when you think about selling some of these products?

Yes. I mean we're not going to have a separate AI sales force. I mean this will be sold by -- and is being sold by the product salespeople. So our clients clearly are telling us that they want AI that is embedded in or integrated with their core systems of record and not bolted on to it. And they want it from someone they trust. So trust is a big factor in the public sector, references seeing it work somewhere else before they make the leap, whether it's buying a new ERP system or adding AI onto it.

They want -- they're very concerned about their data. A lot of public data -- public sector data is very sensitive, whether you're talking about criminal justice data or public safety data or tax data. So they are very concerned about how that data could be used and where it could go. They trust us with that. And conversely, we have a lot of data and access to a lot of data to build models with and to create very accurate AI products. So all of those things make us confident that our clients want AI from us around their core system and where we're focusing our development efforts and the products that we're bringing to market over the next few months.

And a lot of these are currently in what we call private preview, but kind of early pilot projects, then they'll -- as we -- as those early clients become references and can attest to the return and the efficiency gains, then we'll expect to see more broader go-to-market activities that will be kind of sold through our existing product teams through our inside sales organizations and certainly bundled with new software sales. And so we talked about really kind of the second half of next year before we would expect those revenues to even start to be meaningful given sort of that progression that we need to go through to get to where clients are broadly comfortable with starting to implement some of these solutions.

All right. So as we come up on time, I'd like to finish with a high-level question. So in your view, what is the hardest part of the Tyler investment case for you to explain to investors today?

Well, I think explaining it is okay, but having it resonate is probably the hardest part right now is the whole AI narrative. I mean it's very hard to sort of dispel this thesis that has been sort of broadly applied across a wide range of software companies other than through actually executing and proving that AI is an opportunity for Tyler. We draw a lot of parallels to the way we talked about the cloud transition.

Years ago, there was a narrative that as cloud-native software development took hold and that there would be a whole flood of new entrants that were cloud-native companies that could develop software faster. And we would have a whole new cohort of competitors that would take market share from us. But it sort of ignored the obvious that we could move to the cloud, which we did and develop software in the cloud, but that we had the strength of a really large customer base, a deep sales organization, the references and trust in the marketplace, which is super important. And again, the very deep domain expertise.

So we were able to be the company that takes our clients and takes the public sector to the cloud, not that there weren't other competitors and some of those have been companies that we've acquired to fill in gaps in our product portfolio. So we see some parallels around that and the AI world. We think we're the company that will bring not every possible AI application to our clients, but around Tyler solutions that will be the company that AI will create an enhanced opportunity for us.

But that's -- I think we just have to prove it out over time. Obviously, Tyler has a very, very long history of being -- executing at a very high level, consistent growth, consistent margin improvement and has built a very strong position in this space. And I think that provides us with an incredible platform to continue to build on.

Great. We are at time. Brian, thank you so much for joining me today.

Thank you.

Thanks, everybody, for being here today. Apologies, might be 30 seconds late. We got lost running up and down the stairwell, but I'm sure we can all relate. My name is Steven Anderson, Managing Director on Citi's Software Investment Banking team. Pleased to be here today with Brian Miller, CFO of Tyler Technologies. We're going to have a couple of questions here, fireside chat. If there is time at the end, happy to open up to Q&A from the audience as well.

Brian, as we think about Tyler Technologies, we know you as a major player in the GovTech ecosystem. You've been a leader for decades in the space, and you've been helping governments modernize their business through technology. For folks who are not as familiar with Tyler Technologies, can you just maybe spend a quick intro on who you are, what you do and the business strengths?

Yes. So as you said, we're the leading provider of software solutions, mission-critical software solutions for the public sector, primarily focused historically on the local government markets, so cities, counties, school districts, they make up 70% to 75% of our business, have gotten a bigger position with state governments, mostly through the acquisition of NIC 5 years ago, and that makes up about 20% to 25% of our business, pretty limited exposure to the federal government, less than 5%. So we have the broadest product portfolio of anyone serving public sector software. And we have by far the largest customer base of anyone serving the market.

Having said that, it's still a very, very fragmented market, and we still have an awful lot of runway domestically as well as internationally. And we -- in addition to the software solutions we provide, we have a pretty significant transactions business, makes up about 1/3 of our revenues, so providing payment processing as well as software that's provided under transaction-funded arrangements.

Very good. And one thing I'd love to drill into a lot of the companies who are here at this conference today serve into the enterprise horizontal markets. Those can be very, very different than focusing explicitly on government customers. What is unique about your end market? What is differentiated about serving your customers?

Yes. The public sector, there's a lot of things that are very different about it than the private sector. At the core, one of the big things is our customers don't compete with each other. They talk to each other a lot. So they take a lot of comfort in solutions that work at other places like them. So references and reputation are a really big thing, and that's something that Tyler has an incredible amount of strength at. Not surprisingly, governments move slowly. So we have long sales cycles, long replacement cycles. Very often, they keep systems until they die. So they don't think about -- historically, they don't -- it's changing a little bit, but historically, they don't really think about software from an ROI perspective. Again, they don't compete with each other. They're not profit motivated. So they don't like change. So they tend to use systems as long as they can. So historically, it's been hard to kind of create demand.

But that replacement creates a very steady sort of nondiscretionary demand because when one of these systems does get to end of life, they're all mission-critical applications, public safety, courts, property taxes, utility bills, those kinds of things. So replacing it is -- not replacing it is not an option. So it creates an opportunity for very steady compounding growth as Tyler has demonstrated over a very long time. And I think it becomes if you're not in this market, there are a lot of those characteristics you might view as negative. If you're in the market, there's a lot of those things that are really positive. So -- but at the end, Tyler's strength is really our deep domain expertise, the breadth of our products and our very long history of focusing just on government.

I want to drill in just a little bit on one of the comments you made about they have to -- they might use assets until end of life. They might sweat them all the way through. Maybe correctly or incorrectly, probably a lot of people have a view the public sector may not necessarily always be at the forefront of technology innovation. But what have you seen? Obviously, the cloud transition is something we'll talk about a little bit more now with AI. Are governments becoming more front-footed? Are they becoming more technology oriented? How have these cycles evolved as you've seen them play?

Yes, they really are. And I think some of it is really related to an increased focus on government efficiency. DOGE was obviously a big topic 1.5 years ago in the news every day. But even before DOGE, there was starting to be more of a focus on government efficiency. A lot of state governments, even local governments had efficiency initiatives. And governments always have -- they never have enough resources, enough budget. They always have budget pressures. They always are trying to do more with less. But really, the way governments get more efficient is a more effective use of technology, not only with an old mainframe-based system, is it just old technology that's hard to run, but it doesn't have citizen self-service or online access. It's not a good platform to build AI on top of paper-based in a lot of cases and not digital. So replacing those systems does have a really strong ROI.

And governments are -- I think as they look at how they become more efficient, at least at the state and local level, it's not that they can fire thousands of people, but they don't have enough people to get the basic work done to start with. So technology is the way they're going to address that. And so we're starting to see more customers looking at ROI cases, seeing that around AI applications and talk about replacing systems that aren't necessarily at end of life that they could get another 5 or 10 years out of, but that they're starting to understand that there are real benefits from making that effort and investment.

And you mentioned DOGE, lots of headline around DOGE, certainly more at the federal level. I know you're more state and local, but can you talk about any spillover impact? Did you notice it more than headline? Or was it a real thing in your customer base?

Well, it didn't really have much of an impact, but there was an impact on sales cycles in the first part of '25 because there was a lot of conversation, a lot of noise. And again, we don't have much federal exposure. But at the local level, whether it was those, tariffs, just a lot of noise around the new administration, it was enough that local governments and state governments had to sort of step back and say, "Hey, is this going to affect me? Am I going to lose revenues? Am I going to have a bunch of work that I didn't used to do that I'm going to have to do?"

And so there was a slowdown in sales cycles in the first part of last year that impacted our bookings. It ultimately didn't impact demand. I mean, ultimately, state and local government said, no, this doesn't really change anything. So there was a bit of a pause or a slowdown. And by the end of the year, it was pretty much back to normal. We've talked about in recent quarters, a very active market, really strong RFP activity, sales demo activity. So really no ultimate impact other than what I talked about earlier in terms of a positive focus on efficiency that is -- that will drive more technology purchase.

Perfect. And then you talked a little bit about your market continuing to be despite your leadership position being very fragmented. So maybe can we just spend a minute on really just how has the competitive landscape evolved? Who do you sort of see an RFP? Is there a new wave of more, call it, AI native folks showing up on your radar as well? What does that look like?

Yes. There haven't really been a lot of fundamental changes around the competitive landscape. The market historically was served by a lot of niche players, point solutions, often companies that were focused on one product area and often even narrowly geographically focused. So a company that did court systems in California or property tax systems in New York and New Jersey. And those really were kind of the providers that served the market for a long time and still have a big market share. A lot of those companies have become sort of legacy companies, so they haven't kept up with new technology or invested, but they're still collecting maintenance or from large installed bases that over time will migrate off.

We have different competition in each of our sub-verticals or our functional areas. So the companies we compete with in the court software space are completely different than the companies we compete with for property tax software, and those are different than the ERP competitors. And those are different than the public safety competitors. So there may be a few companies that have a couple of products, but no one has the breadth. And that provides us with a big advantage because in some cases, like public safety and courts, they're very tightly integrated because they're adjacent markets. But in other cases, where we have foundational elements that are common across all of our products like common security and ID or payment platforms or workflow engines that, that creates more efficiencies around having more and more products from Tyler.

In terms of new entrants, I mean, as cloud software became a thing, there were some cloud-native new entrants. Some of those became good acquisition for targets. The difference really is those fundamental things that make it hard for new entrants. They don't have references. They don't have deep domain expertise. The products are typically lighter in terms of functionality. And it takes a really long time to build up all of that. And so not everybody kind of makes it all the way in. We've seen some good -- like we've acquired a number of good cloud-native point solutions that have filled in gaps in our portfolio. But we haven't really seen big significant competition. And kind of the same thing around AI. We know that lots of AI native companies are talking to public sector customers, but they're not really quite ready for anything. And so our customers are really looking for Tyler to bring them AI that's integrated with their products rather than bolted on by someone they don't really trust.

Very good. And let's maybe pivot a little bit more just to the ongoing strategy and financial pivot. But one of the most common things we hear about every quarter is the cloud transition. It's been going on very steadily and we will continue to on go the concept of customer flips moving them from an on-prem to the cloud. Just give us a little color on how is that transition moving for you from your perspective? You've given some targets for your 2030 model, what the business looks like. How do you feel you're on track to that as well?

Yes. We are on track to achieve our targets. And actually, we raised our target. So we had an Investor Day in 2023. And at that point, we said kind of with the starting point we were at then that we expected that of our on-prem base at that time that 75% to 80% would migrate to the cloud by 2030. At our latest Investor Day this past June, we've changed that target to 85% partially because of the progress we've made to date and also the way we see it playing out over the next few years.

If you look at our entire customer base today on a kind of a revenue equivalent basis, if you converted all of our maintenance from on-prem customers to SaaS revenues, we're about 55% of our customer base is in the cloud today and about 45% is on-prem. Almost 100% of our new sales are in the cloud and have been for some time, but we still have this base of on-prem customers that are migrating. So we're well on track to hit that 85%. We've talked about disincentives, carrots and sticks and working with all those things.

Very good. And then maybe a little bit on the carrots and sticks. But as you think about folks who are still yet to make the jump, what is it that -- is there something that prevents them? Is there something that they have to get comfortable with? What is it that stands in the way of getting to 85% and beyond?

Yes. Part of it is just inertia governments move slowly and there are always some early adopters. There's others that move along the way, and then there's some that just need to push or some sort of catalyst to get them to move. I'd say at this point, there's virtually none of our customers that are just saying, I never want to move to the cloud. I don't see any reason why I should be in the cloud, don't understand it. I think they all understand that at some point, they'll be in the cloud, but there are different factors about when that happens. In some cases, it might be hardware. I mean they might know that in 2028, they're going to have to replace a lot of the servers in the data center. And so that's when they're planning to move. They don't want to replace it, but they also want to run them off until they get to that point.

Sometimes it's people driven as they -- especially in technical roles, governments really are struggling with competing with the private sector for filling those systems administrators and database administrators and cybersecurity people. And they're facing a big wave of retirements over the next few years that's going to make those problems a lot worse. And so moving to the cloud helps with that. Cybersecurity as well. Ransomware attacks are a big factor.

In terms of other factors, as we move to -- we not only have a lot of products, we have historically supported multiple versions of a lot of our products. And so that's been really expensive from a development standpoint and a support standpoint for Tyler. A lot of reasons why we've allowed that to happen. But our goal, obviously, is to have one cloud version, cloud-optimized version of each product and to get all the customers on that as they move to the cloud. But if a customer is not on the current version of the software, they need to upgrade to that version before or when they migrate to the cloud. And so we've been making a lot of progress with that in terms of sunsetting older versions, getting more and more of our client base on the current version, so they're in a position to move to the cloud. And we still have some work to do around that, which will also show up in margin expansion. But that's been probably the biggest gating item on our side, and we continue to make progress around that.

I think the biggest development, I guess, if you will, is in this last quarter, a letter went out from our CEO that all of our on-prem customers kind of letting them know that over the next few months that we'll be sitting down with every customer and starting the plan to map out a more formal plan for their migration to the cloud, the timeline, kind of understanding what are the factors on their side that govern that decision, what -- some of the incentives and disincentives on the Tyler side, we've talked about to clients about the new features, including a lot of AI features will only be available to cloud customers. We also expect that along this journey that there'll be more significant maintenance price increases for customers that are still on-prem. And ultimately, there'll be an end of life for on-prem products. And so those will be part of those conversations. And so it's a little bit not quite so open-ended and indefinite, but there will be -- there needs to be a plan around moving to the cloud.

And then one of the things you mentioned just on the revenue front, moving from a maintenance contract to SaaS, there's an uplift. I think you disclosed 1.7 type multiplier. And so especially as we think about getting towards the end of a transition, that creates a great growth tailwind in the middle of it. What does the -- what happens after the fact? What does the cross-sell, upsell opportunity to drive?

Yes. So yes, part of our -- and we've had above 20% SaaS growth for -- I think last quarter it was 23% straight quarters. Part of that is our core growth and part of it is this additional uplift that's coming from the flips of moving from maintenance to SaaS. And we said we expect -- it won't be perfectly linear, especially because it can be lumpy with respect to large customers. A lot of our on-prem base still is made up of really large customers. And so as they move, it has -- can make it a little lumpier. But we expect that the volume -- the dollar value of flips will continue to increase over the next 3 or 4 years and will peak somewhere out there as we get towards that 85% move and then it will start to tail off. So we would expect that incremental revenue growth from flips to be a little bit higher each year for the next 2 or 3 years.

And then over time, it will revert back to whatever our kind of core growth rate is if it's low teens, something like that. But we are seeing -- when we talk about this 1.7 uplift, that's really on a like-for-like basis. So we are seeing increased opportunities to upsell more things when a client moves to the cloud. So they may be moving their court system with Tyler to the cloud, but they have a probation system that's an in-house system or a system that's from a vendor who doesn't have a cloud offering. So rather than leaving those things behind, it creates an opportunity to bring more of those together in an integrated solution from Tyler. And we're having those conversations. I think we're a little more intentional about that around how we approach those opportunities. And so we are seeing. In some cases, uplifts that are 3 or 4x the existing maintenance revenues from additional products and services.

I did not expect to hear that the 3 and 4x...

I wouldn't say that's the average.

But there's opportunity, which is great that those are out there as well. And then one other big product that's become a notable part of your revenue mix. A couple of years ago, you bought a company called NIC to bring payments online. What is the sort of remaining -- what is the remaining opportunity for payment as you think about your customer base? Are there more areas of payments to capture? Is it just more customers? What does that look like?

Yes. And just maybe a little bit more broadly, when we think about our transaction revenue streams, it's a lot more than just payments. Payments is a significant part of it. We're probably approaching $100 billion of payment processing volume for governments. We have 28 state enterprise relationships where we're doing all or a significant part of the payment processing for those states. But beyond that, it's not just payment processing. It's providing the integration to back-end systems and the portals and the interfaces to conduct those transactions to renew your license plates or get a business license. And they're all funded through this sort of a self-funded generally convenience fee model. So the states don't have to budget or appropriate funds for that. So that makes it really attractive. And so we can provide the payment processing capabilities along with software or applications that facilitate those transactions.

And -- but in terms of just payments, we've really kind of -- part of the benefit of the NIC acquisition was it gave us this really robust payments platform that we're now able to integrate with a lot of Tyler products that are installed mostly at the local level that facilitate payments, but we didn't have those capabilities before. So utility billings, traffic tickets, licensing and permitting, property taxes, all have -- our systems produce the bills and process those transactions, but we had third-party payment providers that actually did the payment processing. So now we have integrated the payments platform with our software solutions, and that gives us a much more attractive payments offering than a commoditized payment processor because we can automate reconciliation. The system of record that produces the transaction is fully integrated with the processing system, have better security, better reporting. So it's something that they're willing to pay premium pricing for.

And we've moved away a bit from the commoditized payment processing. We had a large contract where we did all the payment processing for the state of Texas. And that came up. We didn't have the additional services around that. So it was just payment processing, very, very low margin kind of 8% margin contract. And when that contract came up for rebid, we were not aggressive about it. And so that moved off at the end of last year, and it's really being replaced by this integrated payment solution that we're now selling. When we sell a new utility billing system, we give them a payment processing proposal, and then we're rolling it back into our installed base.

So today, I'd say it's about 30% of our current customer base that has a payments opportunity is using Tyler Payments. And we expect that to expand by 2% or 3% every year as we move towards 40%, 50% and greater. And again, it's better than historic payment margins as we continue to move towards that model. And then lastly, we're also increasingly selling software under a transaction-funded model, which kind of provides kind of software-like margins, but in payments revenue, transactions revenue.

Understood. Understood. And then maybe we can just spend a couple of questions on the topic of AI. It seems to be the...

I want to go for 20 minutes in that.

I was impressed actually. It seems to be the hot theme of the day. But maybe we talk just a little bit about what is Tyler's AI strategy, again, going back to your customer base. I think we all see big headlines with federal 3-letter agencies in AI and what it can be. What's it mean at the state and local level, especially when you get to maybe areas away from the Silicon Valley where AI is everywhere. Like what is on the ground state and local government view AI as and how are they going about it?

Yes. I think we've kind of described it as sort of cautiously curious. I mean, obviously, they hear a lot about it like everyone else. They're interested in how AI can solve real problems that they have day-to-day, the basic boring oil that they do every day that is -- a lot of their challenge is not enough people. And not necessarily, they don't have budget for people, but they can't attract and retain and they're facing the retirement wave and all those things. So they don't have the people to do the work they need to get done every day. So as a result, there are things like multi-month backlog to get a building permit approved or backlog of court cases that aren't in the system yet, and so trials are delayed.

And so those are the kinds of things where our initial approach has been to develop AI tools that are embedded in, not bolted on, but embedded in our software products that solve those problems. And we've prioritized those and developed those with a lot of input from our clients around what their needs are and what they see value in and what they're willing to pay for. In a lot of cases, what they're willing to pay is related to the kinds of savings and efficiencies that they can get. So things like an application review assistant, an agent that will review a building permit application and make a determination about it or agents that will -- that do document automation that do the data entry into the court system. So taking complex court documents and extracting the right data and creating the case file. So those are the kinds of things that we're investing in.

I'd say as we talked through this year, some of those products have been out for a little while and are generating meaningful revenues and really significant uplifts from their -- the core software revenues. We talked about at Investor Day that there are about 25 agents that agentic solutions that we'll be releasing during this year that will be at least into what we call private preview, which is basically early pilot adopters. There's a process, especially in government because most people won't adopt something that there's not a lot of references. There are a bunch of other people like them that they can say, yes, they're using it, and it's working and it's providing the kinds of returns.

So we're in that kind of process through this year of releasing these agents, getting early pilot rollouts and client references, evidence of the ROI and validation of the economics that then as we move into next year, we can have broader releases we talked about kind of the second half of next year before we would really expect to see more meaningful revenues. But the interest is there. But again, like most technology shifts in the public sector, the adoption curve is much, much longer than you see in the private sector.

But it sounds like you've been pretty quick to market with some of these new products to have that many agents going into private preview in a short amount of time. Have you had to make changes to your overall R&D strategy? Does that do the same engineering groups that move a business from on-prem to SaaS, they also become your AI engineers? Is there differences you...

So yes, there's some differences. So we've hired some different people. We have retrained and repurposed people. Interestingly, we haven't added a lot. I mean our R&D -- our true R&D spend is going up kind of 10% to 12% this year. There's also some geography changes, but the true spend. But we are using AI in our development efforts. All of our development teams are using AI and getting pretty significant efficiency gains as much as maybe 30% gains in efficiency. So rather than cutting 30% of our staff, we're just producing 30% more output. And a lot of that output is for AI development.

So we're kind of using our AI efficiencies to be able to direct towards the development. I think the pace at which our clients are looking for stuff and kind of matches up with -- we don't have to add hundreds of millions of dollars of spend in a short period of time. We can kind of balance that because of the pace at which government wants to move. So it's not a -- it just works with a really good balance.

Yes. Helpful. And then your AI offerings, you're talking about a couple of different pricing tiers, sort of basic essentials, more subscription pricing and also outcome-based. I guess how do you orient around those 3? What -- are you seeing clients migrate to one over the other, have a preference to one over the other? How are they digesting that?

Yes. Well, our early -- I guess, what I'd call our more mature AI products, those that have been out for 2 or 3 years, things like document automation in the court space, priority-based budgeting, which is a solution that we acquired a couple of years ago that uses AI of its core to dig deep into the spending of city or a county or state and really get into the details of where they're spending money and help them align their spending with priorities. They have new things they want to spend money on, but they need to find some money somewhere else. And so really high value solving a problem. And then -- but those 2 products that are kind of our more mature products are really very much outcome-based pricing. So document automation, Fort Worth, Texas, Tarrant County can save $2 million a year that they're comfortable with in labor costs, and they're paying us $1 million a year for the product, which happens to be about the same amount that they're paying us for the core product for the core software system.

They're actually taking that out of the labor budget, too. They're not taking it out of their IT budget. They've got budget. They just don't have people to spend it on. So that kind of outcome-based pricing is primarily what we have today. I'd say more of the stuff we're about to release over the next year or so will be the SaaS uplift. It might be a 20% uplift for SaaS for the automation of application reviews or core provides an ROI, but it's more of a kind of standard SaaS uplift. And then somewhere down the road, there'll be more things that are just table stakes or embedded in products that won't necessarily be priced separately, but should increase the value of the product overall. So I think -- and all that will evolve over the next couple of years. But today, it's mostly outcome-based with more SaaS uplifts coming.

And well, if you're seeing sort of a direct move from labor budget into tech budget, it just must be a very large TAM uplift opportunity...

Well, and we highlighted that at our Investor Day that we really view it as not only just a revenue uplift opportunity, but accessing a whole new TAM beyond the IT and the software spend. And it really solves the core problem that they have around staffing shortages. But we're seeing that in places 20% to north of 100% uplift from their core SaaS revenue.

Awesome. And then I want to spend a minute on M&A and maybe a little bit of capital allocation as well. But you've been -- you've steadily done acquisitions over the history of the company. How do you think about buy versus build? And maybe particularly in this environment, there's a whole world of folks who were built pre-AI who become potential targets for a leader in the space. There will be folks who are going to be more AI forward. Where do you think about M&A dollars potentially being allocated?

Yes. I mean, historically, a lot of our M&A has been around, I guess, what I'd sort of call tuck-in acquisitions. So things that fill in a gap in our product portfolio, maybe an adjacent product to something where we have a flagship product, but there are things on the fringe that we don't have, things -- some things that go across products like payments or data and analytics. Some of those things have come from acquisitions. And I think that will continue to be the focus where we have opportunities.

Whether -- now beyond the sort of basic, does it expand our product offering? Is it something we can sell to existing customers? Is it something we can leverage our same sales force with? Increasingly, we also ask, is there a payments opportunity? So is there -- can we also monetize payments. And now we say, is there an AI opportunity? Either do they bring us AI capabilities that we don't have? Or is there an opportunity to expand the growth of that product through integrating AI into their products. So it's another factor. I don't think we're out looking for a lot of just pure AI kind of start-up companies. There may be a point at which there are some of those that are interesting. But I think our focus still is on expanding the portfolio through more of these kind of tuck-in, although some of the tuck-ins have gotten bigger. They have.

And maybe that's an interesting question to think about larger scale M&A. I think at the time, NIC was more of a transformational type of a deal or at least a very large tuck-in. How should folks think about sort of your sweet spot on size? Or will you move -- when is the right time you might think about another NIC transformational type?

We've done 2 acquisitions over our life that were each 20% of our size, New World, which is a public safety company in 2015 and then NIC, which was a $2.3 billion acquisition in 2021. I think there's still those opportunities out there. But I'd say in the near term, they're less likely just because of the overall shift in multiples and valuations that I think on the seller side of those, some of those are -- many of those are companies that are owned by PE firms that were acquired at multiples well in excess of what current software multiples are, at least in the public sector or in the public market.

And I think there's still kind of some struggle around valuations around those -- that's what you do, I guess. And so I think that makes it difficult right now. I don't claim to be an expert on the PE side of the business, but I think it seems like in the near term that those are less likely and the kinds of traditional founder-owned businesses, those kinds of things are a little bit more active right now.

Makes sense. And I know we're wrapping up. So maybe just one final one, but maybe you can just share again, summarize it all. What are you most excited about here for Tyler in the next coming, call it, 18 months?

Yes. We laid out -- we just in June, laid out our new 2030 targets, and those were generally increased from where we previously had set those. We talked about AI as being an opportunity on top of those organic growth numbers and M&A on top of that. We're generating really strong cash flow. We've got $6 billion of firepower over the next 5 years from cash flow from operations and our available credit. So I think we're really excited to see how all that plays out. We think there's -- we've got such a really strong base in this -- the amazing client base that we've accumulated over the last 3 decades that provide us with this great platform. And so we're just excited to see all that play out and kind of dispel the narrative around AI being a threat as opposed to an opportunity. And so that's what we're excited about.

Super. Well, thank you very much for being here today. Really enjoyed it.

Thank you.

Good afternoon, everyone. Welcome to the 29th Annual Oppenheimer Technology Conference. Super happy to have with us Tyler Technologies. Representing Tyler will be EVP, CFO, Brian Miller. Brian, welcome.

Thanks. Good to be here.

And for everyone in the audience, this is a fireside format. I'll run through a series of questions with Brian, but we also have the option for some audience participation. Please feel free to dump some questions that you might have into the conference portal, and I will get to those kind of on the back half of this presentation.

So with that, Brian, look, I think everyone generally knows Tyler in this room, but perhaps just a quick background on Tyler and the product capabilities that you guys offer to customers?

Yes, you bet. For starters, we serve exclusively the public sector, so focused on governments, primarily domestic governments with about 98% domestic in the U.S., most of the 2% is Canada. We provide a very broad range of software applications that really power the mission-critical functions of government. We're about 75-ish percent local governments, so cities, counties, school districts, local agencies, roughly 20 -- a little over 20% state government and most of that is through a transaction-funded model, providing access to back-end systems through portals and building those interfaces to enable citizens to conduct business with state governments. We also have state government software applications as well. And then less than 5% with the federal government. But we have, by far, the broadest set of solutions for the public sector and the biggest customer base.

So we have about, I think, 16,000 distinct government entities that are our customers and roughly 50,000 systems installed across those customers. We also have a transaction business with embedded payments and software, including software provided under a transaction-funded model that complements the core software business as well.

Fantastic. Really appreciate that backdrop. Maybe taking a wider lens to the Tyler business first, you guys just had your Investor Day a couple of months back. You laid out some new financial targets, specifically bumping up your recurring revenue ranges, also a 15% increase to your free cash flow targets. I would love to just kind of get your view on what was the primary driver for that increased confidence? Like what are some of the factors that are underpinning that growth rate, those margins?

Yes, sure. At our previous Investor Day in 2023, we had laid out targets for 2030, which was certainly something new for us to go out 7 years with targets. But there was a lot going on in the company around that time. We had done the acquisition of NIC, our largest acquisition ever. So we had this new transactions business.

We were sort of at the inflection point in our cloud transition at that point, both around revenues and margins. So we had a lot of things going on then. And so we had laid out these 2030 targets as well as some interim targets for 2025. So at our Investor Day in June, we certainly outlined how we had done versus those 2025 targets and pretty much -- well, in every case, we had either met or exceeded the 2025 targets, and then we recalibrated the 2030 targets.

And again, in every case, either they were unchanged, but in almost all cases, they were raised. So part of the revisions and the increases to our 2030 targets was based on our sort of outperformance through 2025. So the fact that we were ahead of track in terms of our -- certainly our margin expansion, we were ahead of track by a wide range on our cash flow target there. We were making the kind of progress we expected around flips of our on-prem customers to the cloud. So a lot of that -- the higher assumptions are based on what we've already accomplished through 2025 as well as some new opportunities.

So we -- our transaction-based business is more mature now. And we have had success in our go-to-market with embedding payments with our software solutions. So we had more visibility around that. We've made significant progress on our cloud transition around things like version consolidation, eliminating multiple versions of products, exiting our data -- our proprietary data centers and moving exclusively into the AWS world.

So those things all kind of colored how we look at the next 5 years going forward. We -- so the targets for SaaS revenue growth that we previously targeted high-teens CAGR through 2030. Now for the last 5 years, we're targeting around a 20% CAGR, 10% growth in transactions. And we framed all of this as exclusive of M&A and incremental AI contribution. So laid out a lot of reasons why we think AI wasn't part of the conversation in 2023. It certainly is now.

We laid out in great detail the reasons why we think Tyler is a winner in AI in our space. But at this point, being too early to really put dollars on how much incremental revenues over the next 5 years. But that should be incremental, and we also have historically been consistently active with acquisitions. But any further contribution from future acquisitions is also not included in those growth targets.

Understood. And maybe diving into one of the areas that you guys are progressing on, it's been out there for a while. You guys are kind of at the turning point for the cloud migration. Would just kind of love an update on kind of how you're thinking about the path to the peak? How does that underpin your confidence in that 20% plus SaaS revenue growth? I know there's a lot of back and forth on SaaS bookings and whatnot. But I feel like at the end of the day, as you guys progress through that cloud migration, that's probably the most important piece to getting to some of those targets.

Yes, that's -- broadly, the cloud transition is the biggest margin contributor and we've talked about adding almost 1,000 basis points of margin -- operating margin between now we were at 26% last year to target in the mid-30s by 2030. And the cloud operations, cloud transition is probably the biggest contributor to that.

So there are a number of different vectors around that. One of those is version consolidation. So where with many of our products, especially in the on-prem world, we have historically supported multiple versions of those products, which has become very expensive from a support and development standpoint. So we've made a lot of progress in consolidation and sunsetting older versions, getting customers -- more and more customers on the current version, which in turn puts them in a position to move to the cloud.

We still have some work to do around that, but we've seen some margin improvement from that and there's more to come. We now are at mid- to high 90s in terms of the percentage of our new business that's cloud. We only, in a couple of products, sell a very limited number of new licenses. Public safety is one where we still sell some licenses, but that even has moved pretty rapidly towards embracing the cloud.

So in the new business market, we're pretty much there in terms of almost being all cloud. The biggest thing is the progress we've made and what's left to come around flipping or migrating our on-prem customers to the cloud. So today, we still have a big base, more than $400 million of annual maintenance revenues from on-prem customers. We had previously set a target of 75% to 80% of those on-prem clients in '23 moving to the cloud by 2030. We have upped that now to a target of about 85% flipping by 2030.

We have various incentives and disincentives or carrots and sticks, if you will, that support our effort to move those customers. As you get further down the curve, you get into where there are more customers who just are subject to inertia, which is fairly common in government, they need a little bit of a push. They're not resisting moving to the cloud. They understand the benefits of being in the cloud, easier to stay on current versions of the software, a better client experience from easier upgrades and new releases.

Don't have to worry about all the headaches that they face with internal systems, whether it's staffing, technical roles, buying hardware, managing cybersecurity. So they understand all of that, but there's still a lot of places that just go, well, I'm going to move at some point, but I don't have a firm deadline. So we have increasingly told customers that new features and functionality will only be available to customers in the cloud. So they'll still be supported on-prem, but there'll be new features and functionality, including a lot of things involving AI that they will want, but only be available in the cloud.

We've also told customers just this past quarter, our CEO sent a letter to every on-prem customer, telling them that over the coming months, we'll be sitting down with them and mapping out a strategy, a pathway to the cloud that it's not an open-ended forever on-prem opportunity. And that we'll be working out those pathways. We'll understand what their concerns are, what their needs are, if they need help.

We're hearing from a lot of customers that they want to move, but they need help kind of selling it internally whether it's a CFO trying to work with the CIO to get that move prioritized, whether they need to get more budget and understand the savings -- internal savings that will be -- that will offset the cost of moving to the cloud. So working with customers on that. But also those conversations involve what are the disincentives and those are mainly that, at some point, if they remain on-premise, their maintenance will increase significantly, which reflects our higher cost of supporting a smaller and smaller number of on-prem customers.

And then ultimately, there'll be a point at which there will be end of life for support for on-prem products. So all that's kind of supporting this 85% moving by 2030 and there's a lot of activity going on around that in a more proactive role as we continue to evolve into this next phase of our cloud transition.

Understood. So that does seem to set at least a relatively high floor in terms of that SaaS revenue growth. The other piece of the equation is the new SaaS bookings. And you did see a rebound in the first half of the year compared to last year. How should we think about that pipeline? And what kind of visibility do you have in terms of being able to execute and close on some of those transactions to keep that 20% SaaS number? Or I guess to the extent that it doesn't impact that 20% number that much, I mean it would be great to get a sense of what that [ allocation is ].

Yes. Certainly part of it -- part of the SaaS growth, I mean it comes kind of from 3 places. It's new clients, and that can be both in our SaaS bookings. It's both brand-new logos, and its significant amount of add-on sales to existing customers. So we have a big, big customer base. Our average customer has 2 to 3 products from Tyler and they could, in most cases, have 8 to 10 products from Tyler. So it's -- and there's cross-sell opportunities within a suite of products. So a customer that has our courts system, adding a probation system, and then there's across new suite, so someone has courts system, selling them an ERP system.

There's a lot of cross-sell and upsell opportunities. We've done a lot of things internally with our sales staff around sales compensation and commissions, around how we manage quotas to incentivize more cross-sells, how we're adding sales reps that are focused on that. So there's new sales, there's sales to existing customers. There's certainly pricing on renewals. And then there's the incremental revenue from flips. And typically, we're seeing about a 1.7x uplift from maintenance to SaaS as we move those customers. All that adds up to that 20% CAGR target.

In terms of the new sales, what we said over the last several quarters, I think our commentary has been really pretty consistent that it's an active market. But -- and there's certainly a lot of differences across -- whether you're talking about the state of California or whether you're talking about a city in Texas, different budget situations. But generally, budgets are reasonably stable, underpinned by really solid property tax revenues, which form a big part of the base. So we've said in terms of market activity, leading indicators like RFPs, sales demos, we're seeing a lot of stability there at fairly active levels.

So feel good about the pipeline, the activity in the market. What we have seen over -- if you look back really like 1.5 years, some volatility in the sales cycles. The second half of '24 was extraordinarily strong, and we saw really outsized bookings growth. That was driven by some large deals, which can be lumpy and there just sort of were a number of those in the second half of '24. And also there was a pull forward of bookings from early '25 because there was a deadline for the ARPA stimulus funds. So that in turn had a negative impact in the first part of '25 because some of that business had been pulled forward. And then there was noise around the new administration around DOGE and tariffs and all the noise that came with the new administration that caused a lot of sales cycles to slow as governments trying to figure out what kind of impact all of that might have on them.

Ultimately, they figured out that it didn't have a big impact on it and that things sort of normalize as we got into the second half of last year. So we're seeing the benefit of a more, I guess, normalized market, more consistent market right now, consistent sales cycles. So bookings growth was really good in the first 2 quarters of this year. The comps get a little bit harder in the second half of the year, but they're kind of more normal.

From a long-term perspective, if we're going to grow SaaS revenues at around 20%, our SaaS bookings need to grow around 20%. They were a little north of that in Q2. But I would expect over the next few quarters, we'd kind of -- absent any new external factors that we'd probably kind of settle in more around that 20% bookings growth that would be more in line with our long-term revenue growth expectations.

Understood. And that's super helpful in terms of how you laid that out. Maybe shifting gears to sort of the topic du jour for the last couple of years, the AI side of the equation. I realize Tyler is not embedding any uplift, which makes a lot of sense given a lot of new products, waiting for adoption. But you mentioned earlier, you feel Tyler has the right to win, at least in the government space. Could you maybe lay out some of the rationale there? And what are some of the data points you're seeing from customers that might support you're thinking that Tyler is going to be their vendor of choice when they do make those final decisions?

Yes. So like with a lot of things in the public sector, to start with government is a much slower adoption curve than you're going to see in the private sector. We saw that with SaaS. We've seen it with other technology evolutions. That might not mean it's a decade, but public sector is going to be much more cautious about embracing AI, about how they use it and who they get it from than you'll see in the private sector.

What we hear from our clients is, certainly, they hear a lot about AI. They're very curious about it. They're interested in how it can help them solve real problems. A lot of their real problems stem from staffing shortages. Governments are always having to do more with fewer resources, and particularly fewer people. Governments already are very often short staffed, sometimes because of budget issues, but often just because they have a hard time attracting and retaining staff, they're facing a big wave of retirements, and it's really hard to attract a lot of different roles, but especially technical roles, it's hard to pay market salaries.

And so staffing shortages are a big problem with government, which leads to things like long delays in getting a building permit application approved or backlogs in the courts or not enough police officers, all those sorts of things. So they're interested in how AI can help solve those problems, and that's where we're focusing our investments and we're showing them those road maps of where Tyler is bringing AI to them around their core systems of record, around the public safety system they have from Tyler, around the licensing and permitting system they already have from Tyler.

So what we're hearing from our customers is trust is a big factor. So they're typically distrustful of start-ups and new entrants. They want to see references. They want to know it works somewhere else like them. They are very concerned about their data. Public data can be -- or public sector data can be very sensitive. You think about courts data, public safety data. It's a highly regulated environment. So they're really concerned about how their data might be used, who might get -- who might use it, where it might go. They're obviously very concerned about accuracy that these things need to be right.

So we believe we have the trust of the clients. We have often decades-long relationships with them. We have a huge amount of domain expertise. So we built a system of record, which manages very complex workflows. So we understand how these things should work for government. We're not [ burning on their time ]. And we have a well-developed sales channel already along with these relationships.

So all of those things, we think, give us advantages in bringing clients AI. So we're hearing from clients. They don't want AI that someone bolts on to their system of record. They want AI that's embedded with it, and that's where our investments are going. So we have some products that are fully AI-enabled that are like stand-alone products that use AI at the core. And some of those we've had for 2 or 3, 4 years, things like document automation, which automates data entry in the courts and eliminates the number of -- limits the number of clerks they need to do that work. Priority-based budgeting is a solution that uses AI to assist with the budget development, which is probably the most important thing the government does every year from an administrative standpoint.

So allocating budget to figuring out how to best allocate budget to higher priority initiatives. So in areas where we've seen -- we've proven -- we've got large number of users already, where we've proven the ROI and the kinds of savings they can get, we're seeing really meaningful uplifts in our revenue as the customers add that. A couple of examples we talked about at our Investor Day, Tarrant County, Fort Worth, Texas, when they added document automation to automate data entry. It was a 43% uplift from -- they were paying us $900,000 a year for the court management system, added 43% to that annual fee to add document automation, but they're saving a couple of million dollars a year in labor costs.

Placer County, California added our supervision assistant to their probation system, 177% uplift from our SaaS fee. So we're seeing good uptake from this. But again, we're in the very early days. We're starting to roll out agents and release agents to the market around each of our core products. By the end of the year -- this year, all of our flagship products will have agentic AI capabilities that are in, what we call, a private preview stage. So it's where -- it's basically with a handful of pilot customers that are testing it, giving us feedback, collecting references and use cases. And then we move on into the next stage, which will be public preview.

So that's where we get a broader range of customers. And these really form that whole cohort of referenceable customers that new sales prospects can talk to and see, yes, it's doing what it says, we said it would do. It's providing the ROI we expected. The price is justified and the economics work for us and then it moves into kind of general release. So we said that by the time we get through all that process, given the pace at which governments move, we're probably looking at the second half of next year before we see more meaningful contribution from this incremental AI opportunities. And as we talked about at Investor Day, all of that is incremental to these targets that we've already set for 2030.

Understood. Super helpful. You touched on a point where you're addressing some labor issues, Tarrant County saving millions on some of the labor costs. I mean when you think about Tyler, historically, I mean, we look at it as you're kind of fighting for IT budget. Are your customers now maybe shifting labor dollars or like what they would have spent for employees over to, I guess, the tech budget, if you will. What are you seeing there?

Absolutely, they are. And that's one of the really interesting things we highlighted that at Investor Day about how we really think this lets us access something way beyond just the IT budget, but their labor budget because they're viewing it as -- and it's not the case that they're looking to lay off or fire a lot of employees, it's they don't have enough already to do the things they need to do. For example, in public safety, when there is automating report writing, the average police officer spends 2 to 3 hours a day writing reports. There's obviously a lot of places, there are not enough police officers. And so to the extent that they can automate that through a trusted, reliable AI solution that's embedded with the product, and that frees up time or multiplies their force.

So we're seeing places. Tarrant County is actually one of those that specifically said, we're paying for this out of our labor budget and not out of our IT budget. So it's not taking away from other projects. And in the case of this product, Tarrant County actually gave it an employee name and an employee ID number because they said, we really want to emphasize that this is how we view this technology is supplementing our staff and letting us get things done that we can't otherwise get done.

So we think it opens up kind of a whole new budget. And obviously, we're having those kind of conversations with our customers around how they should be looking at it. And again, as we move through these preview customers that we're collecting the data around the ROI and the case studies that can show people with confidence to how the price can be justified.

And then the -- it was great to see that you guys raised the long-term free cash flow margin to the mid-30s. But as you can imagine, I think the other half of the AI debate is there's just naturally an additional layer of costs, right, whether it's the inferencing on top of the hosting, whether it's, I guess, with the headline, you see all this tokenmaxxing. What are you seeing there on the AI cost? How are you guys offsetting whatever potential headwinds could hit gross margins to your OpEx line internally or finding other sources of efficiencies?

Yes. So within the products, we're -- there's kind of 3 different potential pricing approaches. One is kind of the premium pricing where some things will ultimately just be embedded in products and not separately built. It's not really -- that's not really part of the current products. There's -- there will be others that just are a SaaS uplift and then there's a third that's more kind of what we talked about earlier, more outcome-based pricing that this should save you $2 million a year in labor costs. And so we'll charge you $900,000 or $1 million.

Generally, the volumes are fairly predictable around how many documents are being processed by the courts, how many calls an office typically answers, the tax office answers questions from citizens that can be diverted or deflected with AI. So the numbers are not typically terribly volatile right now. As you might see with -- as opposed to a company that developers are using AI like crazy and their token costs are going through the roof.

So within the products, we believe it's fairly predictable, but we have caps on usage so that the pricing needs to reset if they get to -- so that we're not exposed or not highly exposed on the token costs. On internal usage, we're managing it in a fairly disciplined manner. So we're rolling out -- we've highlighted kind of 3 major areas where we see benefits. Development is probably the one that's furthest along. All of our developers are using AI to increase their productivity.

We have various tools in place to monitor and manage the usage and also to find -- make sure we're using the appropriate models and not the ones that are appropriate for the task we're doing and trying to manage the cost that way. We, at this point, are really putting the savings or the additional capacity back into more output. So we've not reduced our development staff. We're just using that increased efficiency to do more development work and a lot of that is around AI.

I think over time, we would expect that our development team would grow at a much lower rate than our revenues grow. Same thing with our implementation and support on professional services. We've had some early initial success in using AI around data conversions and reducing the hours around a new product implementation and also success and support in deflecting calls and over time, we would expect that those would reduce our support cost. But taking sort of a measured, disciplined approach to it and doing a lot of monitoring along the way as we roll this out to make sure that the costs are not outweighing the benefits.

Got it. So it stands to reason maybe at least in the near term, less of that leverage from AI. But as we get deeper towards that 2030 time frame, some of that should flow through, hit the bottom line.

Yes. We talked about 4 to 5 points of margin improvement, I think, 3 to 4, 4 points roughly of margin improvement over the next 5 years that feels like a not terribly aggressive target, but we are targeting that within those kind of 3 primary areas. But we're using it elsewhere. I mean, obviously, finance is using, marketing is using it, sales. There are a lot of good examples. But it's being sort of managed. It's -- we're trying not to have it be the wild west and have everybody kind of a free for all. We're trying to prove up that's -- and that's the hard part is kind of proving up what are the efficiencies you're getting versus what the costs are.

Got it. And maybe shifting gears a little bit here. You guys have been pretty aggressive buying back stock recently. And then you recently got a kind of convertible offering that just was announced, I think, end of Q1...

May.

In May. Yes, sorry, middle of Q2. How should we think about kind of where your kind of capital allocation priorities lie now? Is this -- have you kind of done the buyback stuff and now it's on other things? What's the right thinking, at least as we stand today?

Yes. Yes. This -- with the current valuation at a, I don't know, 15-year low and certainly well below kind of the average valuation we've seen from a cash flow multiple or revenue multiple, we primarily look at cash flow. It's a very compelling opportunity for us. And when we talked about this on our last call, historically, if you go back over the last 25 years, I think we've got 3 other times where we've seen these very compelling buyback opportunities when we said the valuation just is not at all aligned with how we see the next 3- to 5-year outlook for the company, and we've been very aggressive about buybacks at those times.

So yes, we had -- we've always maintained a really conservative balance sheet and try to keep a lot of flexibility around capital allocation and our 3 priorities, which can kind of shift around from time to time in terms of where they are. But internal investments in innovation, primarily R&D, which we have continued to increase over the last few years; M&A, which we've been very active with over the last 25 years; and thirdly, stock buybacks.

I guess the fourth priority going back over the last 3 years or so was repaying debt. So typically, we've had a little or no debt. We did a big acquisition of NIC in 2021, had not an unreasonable amount of debt, but we delevered pretty rapidly, paid that debt off well ahead of the schedule. And then the last piece of that was the convert that we paid off in the first quarter.

So we ended the first quarter, we had no debt. We had a strong amount of cash on the balance sheet and then cash flow going forward. So we had an opportunity to do a new convert in May, very attractive terms, 0.5 point of interest with the capped call, it's not dilutive until we get well beyond our all-time high in the mid-600s. So super attractive terms. And unlike the last one, when we had a 0.25 point of interest and interest rates were close to 0. This time, we've got 0.5 point of interest, but we're earning north of 3.5% on those funds while they're sitting on our balance sheet.

So we had to put in place a $1 billion share repurchase authorization in February. Through the end of June, we had completed a little north of $750 million of that. We are currently very active with that. So we're finishing out that first $1 billion repurchase. So we bought back 5.5% of our stock through June. We then put in place in June a new -- or I guess, in July, a new $1.5 billion authorization on top of that initial $1 billion. And so we expect to continue to be active through this year if the valuation remains where it is today, that, that is kind of our first priority.

We still have done acquisitions. We did a little north of a $200 million acquisition just after -- earlier this year with For The Record. And then just a couple of weeks ago, we did a $30 million acquisition. So we still will have the flexibility to do acquisitions that we find compelling. But I think it's -- as we look at the acquisition landscape, it's not too likely that we would do a very large acquisition in the near term, part of that doing the valuations and seller expectations, especially private equity owned assets. But -- so I think we are continuing to be active with the buyback, and I expect that will be the case throughout this year.

Got it. And I've got a couple of questions from the audience, both regarding kind of the SaaS revenue growth. So maybe I'll kind of try to lump them in so we can kind of knock it out in these last few minutes. I think the first is kind of what's the SaaS growth contribution, excluding flips? And then any directional trends to highlight there?

And then the second one on that 20% SaaS growth in '27, like how much of that is coming from flips versus new versus add-on versus pricing. So yes, so kind of similar questions.

Yes. I mean we've said that flips will continue to be a bigger part of our -- the flips should continue to accelerate over the next 3 or 4 years that we've talked a lot about the incentives and disincentives that we're using to get to that 85% target of our installed base moving. So flips will continue to be a bigger piece of that revenue growth. Our SaaS revenue growth was a little north of 21% this last quarter. We set a 20% average over the next 5 years.

So I think over the next, say, 3 years or so, until we get to that peak, wherever that peak is, flips will continue to be a bigger piece of it. But I think we've talked about kind of mid-teens growth, excluding flips and flips on average, if you look at that 20% breaking it down, it's probably somewhere around 4% or 5% from flips, the balance from those things you mentioned, pricing, which is kind of on average, 4% or 5% a year. So you've got that from the installed base. We have very low turnover, so very little attrition. So there's not a lot on the downside from that.

And then new and expansion sales, both new logos and that cross-sell to the existing base make up that -- the other part, which maybe that's 10% growth. But -- and we do expect that cross-sells and upsells will continue to be a bigger and bigger piece of that SaaS growth opportunity.

Got it. That's perfect. I got through all of my questions, got all the audience questions and we are right up on time. Brian, as always, thank you for all of your insights. To the audience, thank you for joining, and thank you for participating in the Q&A. And with that, have a good day.

Great. Good to be here. Thank you.

Thanks, Brian.

Hello, and welcome to today's Tyler Technologies Second Quarter 2026 Conference Call. Your host for today's call is Lynn Moore, Executive Chair, President and CEO of Tyler Technologies. [Operator Instructions] And as a reminder, this conference is being recorded today, July 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, and welcome to our call. With me today is Lynn Moore, Executive Chair, President and CEO; and Brian Miller, our Chief Financial Officer. In an effort to streamline our earnings communications and provide timely context around our quarterly earnings release, we published our prepared remarks yesterday, shortly after posting our full quarterly results release to the News section of our Investor Relations website. We've also posted on the Investor Relations section of our website under the Financials tab, a schedule with supplemental information.

Lastly, on the Events & Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. After I give the safe harbor statement, Lynn will have some opening remarks, and we'll directly go to Q&A.

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. Lynn?

Thanks, Hala. As you can see, it was a very busy and exceptionally productive quarter for Tyler. We accomplished a great deal strategically, including our Investor Day, where we detailed new higher Tyler 2030 targets, our convertible debt offering, which enhanced our financial flexibility, significant share repurchases, reflecting confidence in our long-term growth and the acquisition of For The Record, which strengthens our leadership position in the Courts & Justice market, all while continuing to deliver strong execution across the business.

Operationally, we delivered another strong quarter, highlighted by 21.7% SaaS revenue growth, record SaaS bookings, record total bookings and record second quarter free cash flow. Public sector demand remains healthy, supported by ongoing modernization priorities across government and continued investment in digital transformation cyber security, operational efficiency and constituent engagement.

We also continue to see momentum in our transactions business, made meaningful progress with our cloud operations and advanced our AI strategy with growing client engagement and early customer adoption across the portfolio. Overall, we're very pleased with our first half performance and remain well positioned for the second half of 2026 and beyond. Simply put, we got a lot done this quarter and the progress we made reinforces our confidence in the opportunities ahead.

We'll now take your questions.

[Operator Instructions] Your first question comes from the line of Kirk Materne with Evercore ISI.

Lynn, I realize you guys ran through a lot of the AI strategy at your recent Analyst Day. But I was just kind of curious, we've heard from some companies that AI sort of decisions are slowing down decisions in other parts of the business.

And I was just kind of curious what you're seeing in your area. Have sort of the broader discussion of AI slowed any discussions on flips or on some of your products? Or is it pretty much business as usual, right now?

Yes. Thanks, Kirk. I'd say it's business as usual. As we talked about at Investor Day, our market is going to move a little bit slower, but there is a lot of excitement and energy around the products that we're starting to bring to market around AI. We're not seeing any meaningful impact or any impact really on the remainder of our core business.

And if I can just ask a quick follow-up for Brian. Brian, just on the margin front going in the back half of the year, anything we should be sort of aware of in terms of hiring plans or any sort of shift in how you guys are thinking about sort of spending?

No, there's no real change to our spending outlook. Margin expectation, obviously, is that margins will continue to expand through the year. I think the midpoint of our guidance has somewhere around the 100 basis point margin expansion. There were a couple of onetime things in this quarter that pulled it down a bit, but we still have about the same outlook on growth. And our hiring is right on plan and fairly limited in the second half of the year.

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

I guess looking at the progress of For The Record. Obviously, it's only been a couple of months, but just curious on how the interest there gives you confidence in both future M&A strategy, but also just sort of your own AI road map as you were just talking about?

Yes, sure, Matt. Yes, we're still just as excited about For The Record as we were 2 months ago. And as we were when we made our initial investment 11 years ago. They won a really big opportunity in Australia this quarter, about a $1.6 million annual ARR. They also won a -- I think it's 7 or 8 other deals in the quarter. So really out of the gate, it's about what we expected. Like a lot of our acquisitions, we expect that over time, we're going to help accelerate its growth. And that's the plan. I'm sorry, I don't remember the second part of your question.

Just how this also require...

Generally about M&A.

Encouraging the AI strategy.

I'm sorry, we talked over each other.

Yes. Just how it impacts your AI strategy for both M&A and organic?

I think it just reinforces one, our overall M&A strategy. And obviously, with changes that are going in the market, that's one of the things we talk about is what is it that they can bring for AI. And on the flip side, we're probably scrutinizing acquisition candidates a little more closely in terms of whether or not AI is something that could displace those types of products versus others. But I would say it validates our approach. And again, we're as excited about FTR as we've really been for many years.

And then, Brian, quickly following up. Could you just give us the organic revenue growth and bookings growth that you've historically given?

Yes. The organic revenue growth on a total revenue basis is about 2 points lower than the overall growth. And I don't have the organic bookings growth. But there was a pretty minimal contribution on the -- from the acquisitions this quarter, but about 2 points on the organic revenue growth. About $11 million of bookings from acquisition. So the contribution for bookings was about $11 million from the acquired revenues.

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

If you look at some of the channel checks we did in the last quarter, some of the interesting feedback was customers on the ERP side seem more concerned about features and functionality, vendor reliability and AI product road map relative to necessarily having the lowest contract price. Is that consistent with what you're seeing in deals? And then along with that, do you think customers are less price sensitive than historically because you can drive a higher ROI to offset these higher contract costs?

Yes. Sure, Josh. I don't know that they're less price sensitive than they have been in the past. But I would agree with you about features and functionality and AI product road map. One of the things we've done on the ERP side is we've actually engaged our client base. We have an annual AI product focus group, not annual. They meet monthly, and we're working with our clients to make sure we're delivering the right value of AI into their products.

Features and functionality are always going to be king. That's one of the things that's always differentiated Tyler is our 30-plus years of domain expertise, and that's going to continue to be the case in the future.

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

Firstly, Brian, could I ask you about how you're thinking about gating specific capabilities, including AI to cloud-only over the next year? And what principles determine whether something stays available on-prem versus becoming on cloud exclusively?

Yes, Alexei, it's Lynn. You're right. We've outlined a lot of what we call incentives for clients to flip to the cloud, and one of those will be AI functionality that will be solely available in our cloud release. We are -- we recently sent out messages to our client base around their need to get a path to the cloud and working with us and our salespeople to do it.

There'll be a lot of incentives to do that. It's not just AI features, but cloud-only features, cloud living release model that we talked about at Investor Day, the faster time to value they can get, starting to work with clients on transitional pricing. So you're going to see us continue to ramp up what we traditionally called carrots, but I'd rather just call them incentives to moving to the cloud.

And another question about transactions. So excluding the Texas contract, transactions seem to be quite strong. Can you unpack what's driving the improvement? Is it volumes, mix or new logos? And how you expect the mix shift towards software-type transactions streams to evolve through second half of the year?

Yes. It's really all 3. You're right. Excluding Texas, our transaction revenues have grown about 10%. And for the -- it's really from all 3 of those things. It's from higher volumes, and we are continuing to see that. We've talked about how we work with our clients to drive greater adoption. It's from new names. And so sales continue to be very active in terms of bundling transaction services with both new sales and driving it back into our installed software base.

And then the third part is, as you noted, providing software under a transaction-based arrangement. And those -- not as much impact on the second half of the year. We've seen impact or ongoing impact from the California deal we did some time back. I think it's interesting that both last quarter and this quarter, the biggest software deals of the quarter were transaction-based. And so they're not showing up in the SaaS bookings, but they will show up in transaction revenues. But the largest actual software deal in terms of full ARR at full adoption rate was a statewide deal again this quarter as it was last quarter for our digital motor vehicle titling and electronic lien solution.

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

Lynn, Brian and Hala, can you hear me okay?

Yes.

Yes.

Wonderful. Kind of building on that last question on the transaction deal that's a $10 million ARR deal. I'm curious, was that early on in the opportunity looking like it would be a transaction-funded deal or was it looking like a SaaS deal? And kind of the follow-up to this first question is could you all maybe do sales enablement work where you actually lead faster with transaction-funded opportunities and maybe that moves the deals along faster? And maybe it's not that simple. And then I had a follow-up.

Yes. I think that deal, as with the one last quarter in that digital motor vehicle titling deal, my understanding is that, that was expected to be a transaction-funded deal throughout the process. That is one of those areas. We've now with our partner, Champ, have done those types of DMV deals in several states now. And that lends itself well to the transaction-funded model because it has a revenue stream or a charge to the citizen that accompanies that transaction.

So those things, outdoor recreation is another one of those areas. There -- it doesn't lend itself to every type of software deal but there certainly are those where it does, and we do use that to our advantage, being able to provide those transaction services, the payment capabilities and fund it with that transaction model that takes away the pressure of budgets because it doesn't have to have appropriated funds to pay for it. And so we use that to our advantage when it fits the transaction type perfect perfectly...

Yes. I think if there are deals where the citizens are involved in interacting with the government or businesses like digital titling outdoors that lends it. But our traditional business, probably not so much.

Okay. Got it. And then it's always good to see the AI-driven deal kind of commentary in the slides. I'm curious, as it stands right now looking out over the next couple of quarters, what seems more impactful, document automation, priority-based budgeting or the resident AI assist?

Gosh, Terry, I'm not sure how I would prioritize. I think the interest across all 3 are pretty high, and we're continuing to release new AI into the market as well. You're going to see an increase of that really starting next year and revenues probably start picking up the latter part of next year.

The excitement around all 3 is high, but for different reasons. And we're getting a lot of traction right now out of document automation. We're getting a lot of traction on the resident AI. And priority-based budgeting, we've had in the bag for a couple of years now, and it's out there and it's proven in the market. And I think as the other -- our other solutions continue to be proven in the market. Again, as we talked about at Investor Day, trust and provability is really important in this segment. You're going to continue to see more traction and excitement.

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

Lynn, in the prepared remarks, you called out some investments in AI-enabled sales tools to improve the go-to-market function here. I was wondering if you can go a layer deeper and help us understand exactly what you're bringing in here and how that's changing the way that you all approach this end market today.

Yes. I don't want to go too deep for competitive reasons, but we've been utilizing AI in sales for some period of time. There's obviously -- everything we do is in the public domain. Everything is out there. And so being able to use AI to understand client demand, understand what's going on at city council meetings, to understand their specific needs to the extent that we don't have that already through our relationships, to understand what competitive processes are out there, what competitors are doing. There's just a lot that we're doing, and it's -- the results have been encouraging to see.

One of the things is the AI enablement in our CRM system, and taking advantage of that, that there's a wide variety of tools there.

Got it. And Brian, a follow-up for you. Record second quarter free cash flow here. Anything onetime to call out about that performance that you saw here?

There's not anything necessarily onetime, but I think probably the biggest impact on the increase over last year was cash taxes. So there was about a $30 million less cash taxes this quarter than there was in the second quarter of last year, and that's primarily related to some of the impacts of the One Big Beautiful Bill.

Your next question comes from the line of Tamjid Chowdhury with Guggenheim.

I guess first one for Lynn. In the prepared remarks, you talked about Resident AI Assistant now being adopted by 8 states. What brings customers to table to come to the table and say, "Hey, Tyler, we want to talk to you about a solution like that." And then what is the typical ARR uplift for a solution like that once it's fully deployed in a state?

Yes, I think it's a couple of things on what garners the interest. I think when you talk about AI solutions, we're talking about -- this is one of those that is really an outcome-based solution and you're really trying to ease the burden, the sort of the day-to-day routine that in this instance, state agencies, but with all our jurisdictions, the burden that they have in serving their citizens. And what they see is, like I mentioned earlier, in the response to the other question, everything we do is out in the public.

And our client base tends to be a little conservative, and they tend to watch what happens in other states and when things start working for other jurisdictions, generally say, states. But when things start working, and they see that measurable ROI outcome, then it drives that demand. And that's what we've seen with our Resident AI Assistant.

And the ARR varies from state to state, but I would say, typically, it's in the multiple millions of dollars.

Okay. Great. And then for Brian, a quick one for you. As you approach the second half of the year, ACV from conversions from on-prem will see some tough comps. Can you give us more color on the visibility that you have into the second half when it comes to conversions?

Yes. And we've gotten away from commenting on that quarter-to-quarter. We have said that we expect the activity to continue to grow in general over the next 3 to 4 years and that we're certainly on track to achieve that 85% of our 2023 maintenance converted to the cloud by 2030. So -- and it can be lumpy from quarter-to-quarter, especially based on the larger customers, and there's probably a little less -- I wouldn't say visibility, but a little less certainty around some of those. The timing tends to move around a bit around those larger flip opportunities.

So I'd say we're on track to certainly achieve the long-term objectives, and we're continuing to see those pick up. And Lynn talked about some of the things we're doing with -- particularly around incentives now that we expect will help solidify that activity over the next couple of years.

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

Two for me. Lynn, just first for you, on really strong performance on trailing 12-month ACV from conversions for you guys. And I know you've talked a little bit about in the prepared remarks around AI and some of the data preparedness that customers need to think about if they're going to have an AI future? And is that pulling you guys into the equation today? In other words, are you seeing today that AI is serving to show up in the rationale around those flips and potentially start to help accelerate those flips?

I don't know that sitting here today, Rob, it's been a meaningful contributor. I do expect it to become more meaningful and more significant over the next, I'd say, probably 12 to 18 months as we continue to put more AI agentic cases in our flagship products as we tend to do more commercialization of the AI. I think you're going to see that ramp up.

As I mentioned on the other question, we've got a whole program in place to try to start incentivizing the move a little faster, particularly now as our products and our -- as we move towards cloud living that we talked about at Investor Day. And as we become better prepared and our clients become better prepared, I think you're going to see that continue to increase, consistent with what we outlined at Investor Day.

Great. And then Brian, for you, just on the third-party payment processing headwind that you guys called out, how structural is that? Does it recur in '27? And then how should we think about the kind of normalized incremental margin on SaaS once that noise clears?

No, that third-party payment headwind was really pretty much isolated to last year where we saw sort of outsized increases from some of our third-party payment processing partners. That seems to be played out after the first part of last year. So that headwind really isn't the big factor going forward. But last year in Q2 was sort of the peak of that.

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

I guess, Brian, maybe the first one for you. Can you help us understand -- investors understand a little bit of the SaaS revenue in the quarter? Were there some timing impacts that led to there being a bit less recognized in the quarter? And then is there confidence given it looks like first half SaaS bookings is a meaningful acceleration obviously versus last year. But kind of when does that start to show up? Is that the confidence behind the reiterated SaaS revenue guidance?

Yes. I think you -- as we've talked about for a long time, there is a lag from the time we signed something to the time those SaaS revenues start to show up in the income statement, and that's true both with respect to new deals, which is probably a little longer, often 1 or 2 quarters, but could be longer.

And flips. There's also a lag there as well. So I think the accelerated bookings in both of the last 2 quarters don't have as much of an impact, certainly on the current quarter, but even in the next quarter or 2 as they do beyond that. And so that lag, I think, is something you have to keep in mind.

I don't think there's anything particular around timing. We always have deals that move around, some that -- so we typically aren't calling out deal slippage as a major factor because it's -- they're all the time. There's nothing unusual about this quarter. And I'd just say that our outlook for the full year hasn't changed, and we don't give quarterly guidance. And -- but I'd say there's not any meaningful change to our outlook for the year.

Got it. And then maybe on the AI ACV contribution as a percentage of your new SaaS ACV this quarter. I think you called out New SaaS ACV growing about 22%. You talked about document automation attach continuing to be really healthy. Any sense for what that attach rate looks like on the installed base and like how much should we think about that potentially being a tailwind to new SaaS ACV over the course of the -- maybe beyond this year?

Yes, I'd say, as Lynn mentioned, it's beyond this year where we expect it to be meaningful. The direct sort of AI stuff that we've talked about is still a real small percentage of the total ACV. As we've said in the past, we expect that revenue contribution really is probably 12 to 18 months down the road when it starts to become more meaningful. It's certainly growing, but it's still a very small percentage of the new ACV.

Your next question comes from the line of Trevor Walsh with Citizens.

Brian, maybe I'll just start with you, a real quick one. You made some comments around that $10 million transaction business or that deal with -- for motor vehicle. Do you have a sense of the ramp on that $10 million annually number? And if so, kind of how does that compare maybe to other similarly situated or sized deals?

Yes. I think the biggest difference between -- from state to state is whether adoption is mandated initially or whether it starts out as optional or voluntary. In the case of the state that we signed this quarter, it is not yet mandated. So we expect it will start out at somewhere around a $2 million ARR run rate, and that's probably starts at some point in early 2027, and then would ramp up to $10 million plus as it becomes mandated.

In the case of the state we signed last quarter, it has been mandated. So we expect that ramp up. I believe that one was closer to $20 million of ARR that, that ramp-up will start faster. And it just depends on state policies from state to state how they decide to govern that.

Yes. It's not too dissimilar from our courts and e-filing business that we -- as you remember, 10, 15 -- 10 years ago, 12 years ago, as we were rolling out e-filing and a lot of counties were sort of voluntary and then as jurisdictions went mandatory, which will happen over time as they see the value of the solution, that then you'll start to see those revenues pick up.

Got it. Got it. Super helpful color. And maybe just one quick follow-up. Maybe, Lynn, for you, but Brian, feel free to weigh in as well. I know at the Investor Day, you guys talked a little bit about more disincentives or negative types of consequences, i.e., sticks, which you didn't like to use that term, which I get as far as flipping to the cloud.

And then I think you had mentioned either in your prepared remarks or some of your comments earlier, Lynn, that you've rolled out e-mail or comms basically to the customers saying kind of what to expect going forward. Any just initial feedback from customers around maybe some of the more negative aspects or the stick pieces of that? Just trying to get a sense of kind of how you think the new order, if you will, of getting people to kind of move faster is kind of being received by the customer base.

Yes. Sure, Trevor. I'd say right now, yes, communication has gone out since Investor Day to our clients. And it's really about, look, we want to be there and hold your hand and work with you on the plan that's going to get you to the cloud. We'd like for you to have a plan in place by -- within a certain time period. We're still focusing mostly on the incentives. We're not necessarily communicating right now what those disincentives will be. But -- and I'll tell you, the feedback we've got from a lot of clients as well, both at Connect that we had this past quarter, our client advisory board, our focus groups and just generally, our general day-to-day working relationships with our clients is some of them also need our help in sort of selling the move to the cloud internally.

And so we're working with them on the talking points that they need to go internally to sell those. The disincentives, I think you'll start to see come out more over the next 12 to 24 months, as opposed to something that we're really focusing on right now today.

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

You mentioned in the prepared remarks how you are testing pricing models in the market with respect to monetizing AI? And you went through different methods of monetization at the recent Investor Day. But can you just share what your latest learnings are coming out of this quarter on that front?

Yes, sure, Allan. I mean right now, the proof points are, it's validating. When I think about how we price AI, and I think we covered this at Investor Day, there's really sort of 3 different models that we're talking about. The first is really what I call sort of essentials or table stakes. This is stuff that's going to be in our product. It's going to improve our competitive position, it's going to improve our win rates, it's going to improve client sat. But I also think it's stuff that as we continue to bake stuff in the product, that may also allow us to increase annual rates.

The second is obviously the subscriptions uplift, where we're bundling the AI capabilities and then outcome-based type of pricing. On the subscription uplift, yes, we're seeing that in the market right now that's being well received. We're still testing and talking with our clients about the amount that we can charge for that and the viability of those going forward, similar with outcome-based, it's still early but it is being validated in the market.

And again, you're going to start seeing more meaningful revenues coming from AI, really probably the second half of '27. It will ramp up between now. But second half of '27 and going into '28, I think you'll start seeing more meaningful revenue.

Perfect. And then maybe internally just regarding that early internal productivity benefits you're seeing across development, implementation and service delivery. Can you just expand on what you're seeing there and how we should think about those benefits alongside your unchanged R&D guidance?

Yes. I think right now, some of it's still anecdotal. We're really trying to tease everything out and make sure there's clear ROI before we go invest too much internally. On the developer side, we're seeing as much as anecdotally, 30% increase in productivity. I don't know that, that translates into anything other than our developers are going to be 30% more productive. And the way I view productivity is we want more productivity, not less.

In the areas of support and implementation, we have some -- we have some guidelines that we're shooting towards. I'm not ready to publish those. But we are looking at different ways to both shorten implementations, which shortens time to value, which increases client sat, which helps us with cross-sells and upsells. And same thing on the support side, how can our clients get their answers faster, and we've got a lot of things in motion there. But again, it's still a little too early to say, "Hey, this is going to mean x return or y return." All I can say is we're extremely diligent to make sure that whatever investments we're making in AI are going to have a meaningful ROI attached with them.

Your next question comes from the line of Gabriela Borges with Goldman Sachs.

This is Greyson on for Gabriela. I wanted to start with a little bit of the labor augmentation thesis that you discussed at your Investor Day and sort of you outlined this vision where AI can expand your TAM beyond targeting traditional software budgets into more of the labor-related spending. I know it's early, but I wanted to ask, what evidence have you seen so far that customers are evaluating solutions through an ROI lens tied to labor rather than traditional software procurement? And are there any specific workflows where you're starting to see that shift materialize?

Yes, Greyson, that's a good question. And I'd say a couple of the products that we talked about earlier on the call, document automation, resident assistant. Those are being viewed specifically through the lens of the labor budget. In fact, one of our clients made the comment as we were going through the sales process that they were going to be able to tap the labor budget to go ahead and procure this product. I think we outlined at Investor Day Tarrant County, which is a document automation, product. And we went from, I think, a $900,000 SaaS arrangement to about a $1.3 million total ARR. So a pretty significant increase.

We've seen it with Resident Assistant, being able to document the fewer amount of calls and Q&A that jurisdictions employees had to take because we all know, and we've talked about it for years, is that one of the things the public sector workforce is facing over the coming years is a shrinking labor force, both through retirements and also a lack of hiring and technology. So tapping that labor budget is becoming more meaningful. It's part of our playbook and discussion. We're still in the early innings, like we talk about everything else, but it is getting traction in the market.

Great. And then just one quick follow-up. In your prepared remarks, you highlighted the 40-plus AP automation wins in the quarter. As customers sort of adopt these workflows, how should investors think about the economic implications for Tyler? Like do you see a bigger opportunity here for incremental software ARR, higher payments penetration or sort of a combination of both?

Yes.

It's a combination of both for sure. AP automation is one we called out. On an individual basis as we add that to our ERP clients, it's a relatively small uplift in the SaaS fees, but it is a SaaS fee uplift, but it does open up additional opportunities to leverage payments in association with that automation of invoice processing. So it creates a new conversation and a new opportunity to bring in more transaction-based revenues tied to that automation.

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

Great. And I like the new format on the call, so kudos on that. Lynn, on the -- how would you rank order the product strength across the different portfolio of products across ERP, public safety, financials and Courts & Justice, how would you rank order those? And how is the pipeline building across those? And how would you drive cross-sell up across -- there are some big cities and counties that might not have all of those core products, what are you working on to drive up cross-sell there?

Well, I'd say this, when we talk about sort of our Cornerstone products, our view is that we want to be #1 in the market with each of those cornerstones. I wouldn't rank one over the other. You can look at it in terms of -- I wouldn't rank one over the other in terms of our competitiveness, or our functionality but you can look at some things where we sit in the market and our market share, clearly, a place like courts, we have a lot higher market share. There's fewer competitors, and we really dominate that market.

ERP and public safety, more competitive markets, but our competitive position is really strong and continues to get stronger. We've made significant investments, for example, in our ERP product over the last 12 months. And we're always doing that.

Public safety, some really nice wins this quarter against some really key competitors, which I always like to see. So I would say, generally, when I look at our portfolio, again, our flagship products, we want them to be #1, and I believe they're very competitive in each of the markets they serve.

And on the cross-sell. We've talked about cross-sell as being one of the key pillars of our growth. You're correct that especially in larger customers, very few have all of our flagship products. And there are a lot of underpinnings that we're doing to create those opportunities to make a more compelling story for why that next product and the next product when it comes time to replace those should come from Tyler. So we've talked a lot about going from that 2 or 3 products a customer to 8 to 10 products to customer and all of the things that we're doing to encourage that. But that customer base that we have that doesn't have all those flagship products is a huge opportunity for us.

Yes. I think one of our biggest cross-sells of the quarter was out of our ERP division. We sold to the Mississippi Department of Health, our enterprise permitting and licensing enterprise health. It was a $700,000 ARR deal, and that came -- that was leveraged by our DSD or former NIC relationships. We've made great inroads with the State of Mississippi, and we're looking to turn that into what we call a "Total Tyler state." But that doesn't happen without those relationships across our different divisions.

That's great. One more follow-up, Lynn. The Riverside deal in public safety was -- seemed like a big one. Any way to ballpark size that? And just the state of the public safety market and budgets, I would love to hear any color on that.

Yes. I think the public safety market is pretty healthy and budgets seem to be stable as generally across all of our business lines. Our competitiveness is really strong. I'm happy with where we are in public safety. As you pointed out, we won some nice deals. As I mentioned, I don't like to call out competitors, but we had some really nice competitive wins against some very competitive companies in Q2 and the momentum and engagement and my general excitement about what we're doing at Public Safety remains high.

I don't have the Riverside deal off the top of my -- at the tip of my tongue. I'm not sure we won a nice deal in Santa Cruz, California. Maybe that was -- I don't have Riverside. That was about a $660,000 ARR deal for our RMS and enforcement mobile solutions.

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

Appreciate you taking the questions. I guess just first on the Q2 metrics, I think what stands out is the new SaaS ACV and flips ACV growth. So I'm just curious, Brian, how durable is that from your perspective at this point? Is there anything we should be just mindful of in terms of compares or seasonality there? Just the right way to think about those metrics going forward?

Yes. I -- obviously, those are really good growth numbers. And regardless of what the comp was, those were our SaaS bookings and our total bookings were all-time quarterly records. So it was the highest quarter ever for those bookings, again, regardless of the comp from last year. Clearly, as we talked about a lot last year, the first 2 quarters of last year, were weaker booking quarters. So those are against somewhat easier comps, although the second quarter improved sequentially from the first and then the second half of last year was stronger.

I think one thing to point out is that both last quarter and this quarter, the good bookings number weren't really on the back of mega contracts or really big deals. The biggest deals were transaction-based, so they're not showing up in those SaaS numbers. So it was just a lot of volume of good sort of traditional midsized deals and a handful of a little bit larger deals, but no mega deals. Those things are still in the pipeline. It's hard to tell what quarter those could fall in.

So the comps are a little harder in the second half. But as we said, the underlying factors of the strength that we're seeing in RFPs, the strength in the activity in sales demos, all those point to continued good bookings throughout the rest of the year.

That's great. Just as a follow-up, Brian, you've now bought back more than 5.5% of shares outstanding year-to-date. Just maybe speak to how you're approaching the buyback from here as part of your overall capital allocation framework, what would lead you to hold that cadence going forward throughout the rest of the year versus moderate? Or what could we see going forward?

Yes, Michael. Over the years, I'd say our priorities have sort of evolved based on what's going on in the market, what's going on in the business at a particular time. If you go back 10 years ago, our priority focus was internal investment in 2017, 2018. Coming out of NIC, our priorities were debt repayment. I'd see right now that share repurchases are taking a higher priority for me. And that's based on the confidence I have in our 2030 outlook and what I see the valuation in the stock market, I think it's a great time to buy right now.

There have been 3 times in Tyler's history, where we've really sort of gone hard at it, I'd say, in the early 2000s post-recession, 2010, 2012. And now we've sprinkled buybacks in between those times. But I just think where things sit today and the valuation that Tyler has in the market, our free cash flow, our outlook, the confidence in our future it's a compelling value. And I think you'll see us continue to execute on that as we try to continue to reduce our share count and then really maintain that reduced count going forward.

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

I wanted to, I guess, better understand. I think you said in the prepared remarks that you're embedding AI into your workflows. Can you provide a little bit more color on what customers are looking for in terms of embedding and what the opportunity is to more broadly build sort of that AI functionality across your entire portfolio?

Yes. I think at a high level, Jonathan, we're talking about automating just more routine work, reducing those manual responses, helping our clients be able to make better decisions through data assistance and generative AI predictive and analysis, basically just generally freeing our clients up to do other things. again, we talked earlier about labor savings. It's not just -- it's making their day-to-day work go faster and making them more efficient in addition to being able to compensate for lost labor actually in the market.

And you see that stuff with things like we talk about our document automation, our priority-based budgeting, AP automation, report writing assistance, georeconciliations, policy assistance, permit review assistance, just things like that, are getting inside of our products, inside of our workflows and making them -- our clients be more efficient with their daily tasks.

And in terms of that being embedded in the workflows as opposed to bolted on, that's really key to our clients. We're hearing from them that that's what they're looking for. They want those -- from Tyler, they want them integrated and embedded in the system of record that's doing the work, and it's really a matter of trust and their comfort with how that data is being handled, how those models are working, and they want that from the same provider as the system.

That makes a ton of sense. And it seems like it would sort of have you bring AI to the customers as opposed to large language model provider. Can you talk a little bit about maybe the spending environment, particularly as new state and local budgets start to unlock? I know you've said that the pipeline looks pretty good here, but I just want to get a sense for -- on a forward-looking basis, whether there's any concerns out there over the macroeconomic or anything that you're seeing on either the compliance driver side or grant driver side as well?

Yes, Jon, we're not seeing any real change. I would say the market dynamic budgets are generally healthy and stable. It's been pretty consistent now for the last, I don't know, several quarters, maybe 1.5 years, 2 years. So I think that's pretty stable. A year ago, for example, we were talking about some decisions taking a little bit longer. The market didn't go away, but some decisions. We're actually starting to see, it's still anecdotal, particularly like in our ERP area that an uptick in the decisions actually being made. But generally speaking, the overall demand environment, the overall health is pretty consistent with where it's been.

And I think where customers -- and it certainly varies from place to place, but where customers are seeing pressure, that's where the ROI analysis comes in and becomes more important as they work -- drive towards more efficiencies and doing more with less, the understanding of how technology can make that happen. So looking at that ROI -- and that's also, as we talked about earlier, where the -- in certain instances where the transaction-funded model is attractive.

So the systems that we've talked about states acquiring under that model, they don't have to appropriate budget funds for that. It operates sort of outside of the budget through self-funded revenues and the budget pressure does not enter into the equation.

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

Lynn, in the past, you've discussed the goal of getting every client onto a single code stream for each of your products. I was wondering if you could just provide some additional details on how far along you are in that journey and maybe which businesses such as courts or ERP are maybe the furthest along.

Yes. There's a lot to unpack there. So at Investor Day, we talked about our whole cloud living initiative, which is to get everybody on that single stream that's got continuous improvement, continuous delivery. Before we can even achieve that, we've got to get people down to a single version, when we're going to get them in the cloud. You will see us start to unroll Cloud Living. We're launching pilots throughout 2027, and we're going to start to have clients referenceable on '28.

When you look generally at version control, what we've done, for example, you mentioned in courts over the last 3 years, we've gone from 89% of our clients being on a legacy system to only 7% today. And look at our enterprise ERP, we've got about 85%, 90% are on the current version. That's not necessarily our cloud living version, but getting them current, then moving them to cloud and getting them into our cloud living road map is a goal that's going to drive higher client sat, higher retention, increased upsell and cross-sell opportunities. It's pretty exciting. It's a pretty bold vision. We've been working on it for many years, but you're going to continue to see gains year-over-year over the next -- over the coming years.

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

I noticed had another sizable city of Orlando public safety flip. And you made the comment at the Analyst Day that, that segment has really had a change of heart when it comes to SaaS, nearly 100% going to cloud. Just wondering if we could get a state of affairs across the products, really what segment remains the biggest set of holdouts? Is that the state court?

And just tactically, is the state team going to be taking over tackling those flips on the largest court clients at the state level? Will they be working jointly with Courts & Justice team? And then one follow-up.

Yes. I think the answer to the second question is I don't envision that. Those are -- it's a smaller client base. Our relationships are strong and deep within our Courts & Justice division. So they'll continue to work those. And there, just like other places, we talk about how the clients -- they like to watch what their neighbors is doing, and they like to see it successful. We did that Idaho state flip a few years ago. That was the first one. Everybody watched it, and that spurred more interest.

Generally speaking, yes, Orlando was a really nice SaaS flip for our Public Safety division. It involved I think our CAD product, our RMS and our newer product, emergency networking that came through acquisition last year. I don't think there's really a segment of the market that has sort of the reluctance that we used to talk about a few years ago with public safety.

Public safety is moving all -- is moving to SaaS. That's all we're selling. We're actually one of the -- a pure SaaS provider. Many of our competitors are still more in the lift and shift mode. But I think just generally, across the board, I don't think there's any sort of structural or individual vertical market resistance. It's just the same factors that we've been talking about for the last couple of years. And as more clients go, as more see the value, as we continue to roll out incentives and eventually disincentives, we'll reach our goals that we outlined in Investor Day.

Perfect. And then I did see Federal Courts of Australia For The Record, getting that transaction. Just wondering if there's any appetite to follow with other products in the portfolio for the international opportunity? Anything that would make sense based off of For The Record, having that presence? And then remind us if it's an inside or a field sales motion for some of those international markets?

So FTR is based in Australia. So not surprising, they had a presence. They used to own a manual transcription business there, which was actually sold off while we owned a piece of FTR, so several years ago. I don't know that FTR -- they'll continue to do things in Australia. They'll continue to have sales international. They had a couple of international sales, small deals this past quarter. I don't think it changes our overall strategy, which is we still got a lot of runway ahead in front of us.

We've got a lot of strategic initiatives. We're rolling out -- moving our U.S. clients in the cloud. We're rolling out AI here. So I think it would be a bit of a distraction to think that we're going to start taking other products more international when we've got still such great runway in front of us here.

There are no further questions at this time. I will now turn the call back to Lynn Moore for closing remarks.

Thanks, Maria, and thanks, everybody, for joining our call today. If you have any further questions, please feel free to contact Brian Miller or myself. Thanks again, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

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.