The paragraph is from a fourth-quarter 2024 conference call for Tyler Technologies, Inc., held on February 13, 2025. Lynn Moore, President and CEO, and Brian Miller, CFO, are present, with Hala Elsherbini, the Senior Director of Investor Relations, leading the call. The call will include an overview of the quarter's performance, financial details, and guidance for 2025, followed by a question-and-answer session. Hala provides a safe harbor statement, explaining that forward-looking statements might be made, subject to risks and uncertainties, and refers listeners to SEC filings for more details. Non-GAAP measures are included in the earnings release for better comparison and understanding.

The article's second paragraph outlines the company's strong performance in the fourth quarter, highlighting significant growth in recurring and SaaS revenues. Recurring revenue grew by nearly 15% due to a 23% increase in SaaS revenue, marking the sixteenth consecutive quarter of over 20% growth in SaaS revenue. The company experienced accelerated SaaS adoption, with 97% of new software contract value being cloud-based and transaction revenues growing by almost 21%. The non-GAAP operating margin improved to 24.4% due to higher SaaS revenue, and free cash flow reached a record $216 million. In 2023, the company noted that recurring SaaS revenues surpassed on-premise revenues, marking a significant shift. At the 2023 Investor Day, the company introduced its Tyler 2030 vision, with targets for revenue growth and margin expansion by 2025 and 2030. They also mentioned progress toward these goals in 2024, including closing the Dallas data center and planning to close the main data center by the end of 2025.

The paragraph highlights strong financial performance and growth for the company, surpassing its SaaS revenue growth target and exceeding transaction revenue plans. Significant progress in cloud operations has led to better-than-expected operating margin expansion and optimism for future goals, including organic recurring revenue growth and expanded free cash flow. Demand in the public sector is robust, driven by digital modernization and efficiency needs, which the company views as an opportunity. The company has also seen elevated market activity and improved sales performance, evidenced by a 37% increase in new SaaS contract value to approximately $141 million.

The paragraph discusses the company’s strategic focus on four growth areas: a cloud-first strategy, leveraging its extensive client base, expanding into new markets, and growing its payments business. It highlights progress in cloud optimization, resulting in significant migrations of on-premises clients to the cloud, with 106 "flips" in the quarter, a 58% increase in contract value from the previous year. The company is working on transitioning products to the cloud with an anticipated peak in migrations from 2027 to 2028, aiming to move over 80% of clients to a next-gen cloud platform. There's also increased interest from clients in using multiple integrated cloud solutions from the company.

In the recent quarter, the largest SaaS deal was an $11.4 million contract with Kenosha, Wisconsin, which adds $1.3 million in ARR and highlights the company's integrated solutions. Other significant SaaS contracts with Hernando County, Florida, and Warner Robins, Georgia, also contribute $1.3 million in ARR. The adoption of a newly acquired AI-driven priority-based budgeting solution is growing, with key clients including LA County, Kansas City, and Johnson County adding nearly $1.8 million in ARR. Additionally, the company is increasing cloud adoption for public safety solutions, with notable contracts in Texas and Illinois. The company is also gaining traction at the state level for its public safety offerings.

In the quarter, the company secured several significant contracts with state agencies, including SaaS agreements with the Iowa Department of Public Safety, Michigan State Police, and a license deal with the Nebraska State Patrol, bringing the total to nine state police agencies as clients. They also signed an eight-year contract with the state of Maine for a resident engagement portal. Expanding their outdoor recreation presence, they entered a multi-year SaaS agreement with South Carolina State Parks and signed a contract with the Colorado Department of Corrections for inventory management. The company is focusing on growing transaction revenue through its integrated payments business, signing 244 new payment deals in the fourth quarter, totaling $8.1 million in projected ARR, and 995 for the year.

In the recent quarter, the company achieved significant financial growth, with total revenues reaching $541.1 million, a 12.5% increase. Subscription revenue rose by 21.9%, driven by SaaS revenue which grew by 23% to $173.4 million. Transaction revenues increased by 20.9% to $175.4 million, bolstered by new services and higher transaction volumes, including transactions with the California Department of Parks and Recreation. Despite Q4 traditionally being a lighter quarter for transaction-based revenues, this year showed reduced seasonality. Notably, 97% of new software contracts were SaaS deals, compared to 89% the prior year. The company added 150 new SaaS arrangements and transitioned 106 existing clients to SaaS, with a total contract value of $194 million, a 42% increase from the previous year.

In the fourth quarter of last year, the company secured 156 new SaaS contracts and 92 flips, amounting to roughly $137 million in total contract value. The average annual recurring revenue (ARR) from new SaaS deals increased by 63%, while the ARR from flips rose by 32%, reflecting larger client transitions to the cloud. Total annualized recurring revenue was approximately $1.86 billion, marking a 14.9% increase. The company anticipates margin expansion in 2024, having already seen a non-GAAP operating margin of 24.4% in Q4, which is up by 210 basis points due to cloud efficiency efforts and cost management. Merchant fees were roughly $41 million, up from $35 million the previous year. Strong earnings and cash management led to record cash flows from operations and free cash flow of $224.8 million and $216 million, respectively, with free cash flow increasing by 60.7%. This was aided by a $29 million prepayment from a contract with Kentucky and timing of funds in the Tyler disbursement platform. The company finished the quarter with $600 million in convertible debt, cash and investments of $779 million, and zero net leverage.

The 2025 annual guidance projects total revenues between $2.30 billion and $2.34 billion, with organic growth around 8.5%. Expected GAAP and non-GAAP diluted EPS ranges are $7.31 to $7.56 and $10.90 to $11.15, respectively, with a non-GAAP tax rate of 22.5%. Free cash flow margins are projected between 24% and 26%, considering an impact of $27 million in incremental cash taxes due to section 174. R&D expenses are estimated to range from $177 million to $182 million. Subscription revenues are anticipated to grow 15% to 18%, with SaaS revenue increasing by 21% to 24%. Transaction revenue growth is expected to be 10% to 12%, while merchant fees are anticipated to decrease by 7% to 9%, partially due to the conclusion of a payments processing contract with Texas, which ends in August 2025. This contract differs from their core strategy of offering integrated and premium solutions.

The payment relationship with Texas originated from a state enterprise agreement acquired by NIC from BearingPoint in 2009. This contract, split in 2017 and extended through August 2025, involves competitive and price-sensitive terms with low margins. As of 2024, the Texas payments contract shows revenues of about $44 million and a gross margin near 10%. By 2025, revenues are expected to drop to $29 million with a similar margin. The transition of some services may occur before August 2025, leading to a positive impact on margins due to the contract's narrow margins. Transaction growth in 2025 is anticipated at 17%, while total growth is projected at 10%. Maintenance revenue will likely decline by 4% to 6% because of a shift to SaaS and acceleration of system transitions. Professional services revenue is expected to remain flat or decrease by up to 3%, and license revenues and hardware sales are predicted to decline by 18% to 20% due to changing business dynamics and prior elevated sales from ARPA funds.

The paragraph outlines the anticipated growth in research and development (R&D) expenses, expected to increase by over 50% due to three factors. The primary factor, contributing 30 percentage points to the growth, involves reallocating resources from support activities to R&D as the company transitions to a SaaS-only model. Secondly, some software development projects will conclude by 2025, leading to more expensed development costs, accounting for 8 percentage points of the growth. The final factor relates to additional R&D investments, including in AI. Lynn Moore then acknowledges the company's success in 2024 with its cloud-first strategy, efficient sales performance, and unified go-to-market approach. Additional sales resources are being added, such as a dedicated state sales team, alongside better-aligned incentive compensation, demonstrating the company's commitment to responsible capital management and achieving its 2030 goals.

In a high-interest rate environment, the company strengthened its financial position by paying off debt and increasing its credit facility. Despite not making any 2024 acquisitions, they recently acquired MyGov to enhance their public administration offerings and expand their market presence. The company is focusing on AI, leveraging its extensive public sector experience and collaboration with leading AI vendors, centering its strategy on productivity, decision-making, and service delivery.

The company is focusing on integrating AI-driven features into its flagship products and plans to reveal its AI strategy at the upcoming Tyler Connect user conference. To support long-term growth and enhance client experience during its cloud-first transition, the company is creating a chief client officer role by the end of 2024, appointing Andrew Call to the position. Call, with extensive technology and leadership experience, will focus on strengthening client relationships and driving business expansion. Additionally, Samantha Crosby, the chief marketing officer, will retire in June after 16 years of significant contributions to the company's brand strategy and marketing efforts.

The paragraph discusses recent leadership changes and achievements at Tyler. Samantha's tenure as a senior marketing adviser is ending, and Eric Flanders has been appointed as the new chief marketing officer, bringing significant improvements since joining in 2023. Abby Diaz has transitioned from chief legal officer to chief administrative officer, with expanded responsibilities. Bill Van Essel has been promoted to chief legal officer, having joined Tyler in 2021. Tyler has received accolades for commitment to excellence and innovation, including being listed as a top employer by Forbes and recognized by AWS and GovTech. The paragraph concludes with optimism about Tyler's future.

The company is successfully growing its high-value SaaS and differentiated transaction revenues while reducing reliance on lower-margin revenues, such as professional services and commodity payments. They are on track to meet or exceed their 2025 targets and are confident about their Tyler 2030 vision. During the Q&A session, Alexei Gogolev from JPMorgan asked about the company's focus on profitability within payments and their partnership with Fiserv. Lynn Moore explained that Tyler's strategy has always been to avoid pursuing commodity payments, implying that the expansion of their Fiserv partnership aligns with this strategy and could positively impact their margins.

The paragraph discusses Tyler's strategic shift away from pursuing pure payment contracts that offer low margins and are not long-term engagements. Instead, they aim to provide differentiated offerings that integrate with back-office systems to drive higher margins and revenue. Tyler acknowledges inheriting a Texas contract but seeks more value-added services. It highlights their relationship with Fiserv, a major payment processor that serves the state market within NIC and offers valuable technology. Tyler uses other payment processors as well and likens their current position in payment processing to their past decision to transition to the cloud with AWS—indicating a move away from traditional operational roles.

The paragraph discusses a company's strategy to enhance its offerings by partnering with payment processing providers to leverage their strengths in areas like fraud protection and cryptocurrency. Additionally, the company is increasing its investments in AI, with support from AWS, to enhance its cloud initiatives and applications. These investments include hiring new staff and repurposing existing employees, with plans to introduce AI features in major applications by 2025, alongside showcasing them at a conference.

The paragraph discusses the company's anticipated 4% to 6% decline in maintenance revenue due to ongoing customer migrations to cloud-based services. These migrations are broad-based across various product lines, with a significant shift observed in public safety due to a growing preference for cloud solutions. The company expects higher migration rates between 2025 and 2028, with peak activity in 2027 and 2028. Visibility on these migrations is good, driven by factors such as cybersecurity concerns, hardware replacements, and cloud-exclusive new features.

The paragraph is from a discussion about a company's cash flow performance and future expectations. Joshua Reilly and Ken Wong are asking Brian Miller about recent cash flow results and projections. Miller explains that the company experienced a particularly strong cash flow year, partly due to two unusual items totaling around $55 million: a Kentucky prepayment and unusually high client disbursements at the year's end. These factors temporarily boosted cash flow, and if they had occurred slightly later, they would have impacted the following year's results. Excluding these items, the company's normalized cash flow margin for 2024 was 24.3%, which exceeds their original guidance, providing a baseline for their 2025 projections.

The paragraph discusses the financial progress and strategic initiatives of a company, including an anticipated 100 basis points increase in margin and free cash flow margin expansion by 2025, with targets set for 2030. It notes earlier-than-expected margin benefits and continued upward trajectory. Ken Wong acknowledges Brian's remarks and operator introduces Dylan, who asks about cross-sell momentum. Lynn Moore responds positively, highlighting strong sales performance across product lines due to initiatives in sales compensation and incentives. The company exceeded quotas in the previous year and looks forward to investing in growth while maintaining margins, with specific investments being made in sales teams, including a new state sales team.

The paragraph discusses the funding sources for local and county governments in relation to Tyler's business, particularly highlighting the minimal role of federal funding. Federal funds constitute a small portion of Tyler's business, and local governments typically receive very little federal funding directly. On average, local governments obtain about 14% of their revenue from state funding, which may include some federal trickle-down, while nearly half comes from local taxes. Similarly, counties receive about 25% from state funding, but predominantly rely on local taxes for their budgets. Tyler's revenues are largely derived from these local government budgets, which are minimally influenced by federal funding.

In the paragraph, a discussion takes place regarding the positive outlook on making government operations more efficient through priority-based budgeting, highlighting a $1.2 million deal with the city of LA. Despite concerns about spending pauses, the speaker believes this will lead to more partnership opportunities for the company, as they've consistently aimed to improve efficiency. Saket Kalia and Alex Zukin pose questions regarding the demand environment, noting strong performance in the SaaS segment and its better-than-expected conversion rate. They also inquire about the role of AI and cyber threats in accelerating these conversions. Lynn Moore acknowledges the multifaceted nature of this topic.

The paragraph highlights that the company, referred to as Tyler, is experiencing healthy and stable budgets, steady leading indicators, and strong competition. Their sales team is performing well, with a focus on the OneTyler strategy and cross-selling among divisions. There is an emphasis on SaaS acceleration, particularly in public safety, and a unique client network that shares information rather than competes. The company's strong execution in sales, implementation, services, and support creates a self-sustaining growth cycle. While AI is not yet a major factor, clients are interested in understanding its potential to improve productivity and efficiency. Overall, the success is attributed to excellent execution by the team.

In the paragraph, the discussion revolves around the company's plans and strategies concerning research and development (R&D) investments. Brian Miller explains that about $100 million in development expenses currently part of the cost of sales will be gradually moved to the R&D line over the next few years, as products and teams shift focus towards cloud solutions. He anticipates this transition to be more front-end loaded in the next three to four years. Lynn Moore emphasizes that, in addition to reallocating expenses, the company is also increasing its R&D investments, particularly in AI and other core applications, and hiring more R&D personnel. Alex Zukin is satisfied with these explanations.

In the paragraph, Michael Turrin from Wells Fargo asks about the 2025 growth guidance, noting that it doesn't seem to fully reflect the current momentum seen in SaaS and other growth metrics. Brian Miller responds by explaining that there is no change in their approach to guidance. He provides details on expected growth across different segments: SaaS revenue is projected to increase by 21% to 24%, transactions are expected to grow by 10% to 12% (taking into account a decline from a specific Texas agreement), and maintenance and professional services are expected to decrease. The guidance approach remains consistent, with a range provided to account for potential risks and opportunities.

The paragraph is an investor discussion involving Lynn Moore, Michael Turrin, and others regarding the financial performance and projections of their business. Lynn Moore highlights the company's focus on growing quality revenue lines like SaaS and transactions, noting that despite some noise in financials related to Texas payments, they are achieving a 10% growth target. Michael Turrin acknowledges the information as helpful. Charles Strauzer from CJS Securities asks about the unusually high stock compensation implied in the guidance. Brian Miller responds that the increase is due to the higher stock price expectation entering the new year, resulting in modest dilution from new stock compensation issues. Lynn Moore adds that the company expects 28 to 30 cents of dilution year over year, influenced by last year's stock performance and option exercises.

The paragraph discusses Tyler's shift in compensation plans from issuing options to focusing on share-based, mainly performance-based stock awards, resulting in a modest dilution of less than four-tenths of one percent of outstanding shares. Charles Strauzer thanks the speaker for the clarification, and then Clarke Jeffries from Piper Sandler questions Brian and Lynn about the company's significant outperformance in free cash flow projections since their 2025 Analyst Day estimate. Jeffries highlights areas like reduction in commodity payments, scaling R&D costs, and data center closure as controllable margin tailwinds. Lynn Moore expresses confidence in Tyler's future, reiterating their focus on the targets set two years ago, while questions about why long-term margins aren't projected higher remain unanswered.

The paragraph discusses the company's strong performance in exceeding its targets for SaaS growth, transactions, and margins as of 2025. The management team is focused on achieving their 2025 targets and is optimistic about future prospects, although they are not ready to revise their 2030 targets yet. Brian Miller highlights that the company is ahead in cash flow projections due to effective management of cash taxes, working capital, and receivables, which has positively impacted margins and cash flow. While there's confidence in long-term targets, they will consider adjustments if needed. The paragraph ends with Rob Oliver from Baird asking a question about the company's cloud-optimized products.

The paragraph is a discussion between Lynn Moore and Rob Oliver about the progress of a company's cloud optimization and product version consolidation. Lynn expresses satisfaction with their advancements in cloud transition and version consolidation, noting that they have exceeded expectations set three years earlier. She mentions that a significant majority of their clients for certain core applications are now using a single version. Lynn also highlights ongoing efforts in optimizing cloud services and enhancing delivery efficiencies, aiming for synchronized releases across their client base by the end of the decade. The conversation ends with Rob thanking Lynn and introducing the next question from Jonathan Ho.

In the paragraph, Lynn Moore addresses the impact of ARPA funding on their company's performance, acknowledging that while it has been present, it has not driven many deals directly. Some SaaS deals were accelerated due to ARPA funding but were likely to close regardless. The impact on their hardware line has been minimal, and Moore does not see ARPA funding as a headwind moving forward. The company remains confident in its sales projections, both short-term and long-term, despite the winding down of ARPA funds.

The paragraph discusses a question regarding the potential impact of discussions around Dogecoin on efficiency and digitization in certain estates, with Lynn Moore responding that there is currently no noticeable effect. He acknowledges that the topic could promote conversations about technology-driven efficiency, but notes that it is still a relatively new idea. Looking ahead to 2025, Moore mentions that Tyler Technologies is developing a new dedicated state sales team to enhance their presence at the state level. This team will focus on promoting Tyler's comprehensive product portfolio, including their Cox solutions, payments, and application platform, in both existing and new state markets. However, the full implementation and impact of this new strategy will take time to develop.

The paragraph discusses a company's strategy involving a new sales avenue set to begin in 2025, with expectations of gradual results. In the Q&A, Mark Schappel inquires about a priority-based budgeting solution that has had strong initial success, particularly in the public sector. Lynn Moore explains the solution's use of AI to evaluate program costs against organizational priorities, enabling budget reallocation for savings. The solution, founded by Chris Fabian, is deemed highly effective for public sector budgeting, evidenced by adoption in large organizations like LA County and Kansas City.

The paragraph discusses Tyler Technologies' approach to the Texas payment business and similar commodity, lower-margin ventures. Lynn Moore and Brian Miller explain that such ventures, inherited from the NIC acquisition, are not a strategic focus for Tyler. While they engage in payment partnerships in some states, like Florida, these ventures include additional value-added services. The IRS contract, initially won but subsequently lost, also exemplifies an area not targeted for growth. Overall, Tyler prefers to concentrate on differentiating services rather than purely payment-focused contracts.

The paragraph outlines a discussion about business strategy related to payments and merchant fees at a company, particularly focusing on operations in Texas. It highlights that the company, led by CEO Lynn Moore, emphasizes services with integrated solutions at the state and local levels, excluding commoditized payments. Moore indicates a shift in senior executive compensation to focus on long-term performance based on margin and annual recurring revenue (ARR), excluding merchant fees, to ensure business health. Despite certain headwinds, the company's growth metrics, such as Tyler's 10% growth and transaction growth between 15% and 17%, indicate a positive direction. The call concludes with Lynn Moore inviting further questions and thanking participants.

The paragraph expresses gratitude for participation and requests that participants disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.