Q2 2023 Tyler Technologies Inc Earnings Call
And welcome to today's Tyler Technologies second quarter 2023 conference call.
Your host for today's call is learn more president and C E O of Tyler technologies.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
In order to address your questions and stay with the need a lot of time. Please limit your question to one question per person.
As a reminder, this conference is being recorded today July 27th 2023.
I would like to turn the call over to Holla Ultra Beanie, Tyler Senior director of Investor <unk> Investor Relations. Please go ahead.
Thank you call me.
I'll come to our call with me today is glenmore, our president and Chief Executive Officer, and Bryan Miller, Our Chief Financial Officer after.
After I give the safe Harbor statement Lin will have some additional comments on our quarter and then Brian will review the details of our results and provide an update to our annual guidance.
Will end with some additional comments and then we'll take your questions.
During this conference call management May make statements that provide information other than historical information and may include projections concerning the company's future results.
Prospects revenues expenses and profit.
Such statements, Arkansas 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.
Every conciliation a gap to non-GAAP measures is provided in our earnings release. We've also posted on the Investor Relations section of our website under the financials tab schedules with supplemental information, including information about our quarterly bookings backlog and recurring revenues.
On the events and presentations tab with posted and earning summary, slide deck to supplement our 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 specify otherwise Lynn.
Thanks, all the.
Tyler delivered exceptionally strong second quarter results that exceeded expectations across our key performance measures.
We also reached a new milestone for totally quarterly total quarterly revenues, surpassing the 500 million dollar Mark for the first time.
Ah results reflect a high level of execution and collaborative one Tyler approach across the organization that is the foundation of our long term growth strategy.
Total revenue growth was 7.6% with 10.4% organic growth.
Recurring revenue comprised 82 per cent of our quarterly revenues and grew organically almost 11%.
It's gratifying to achieve double digit revenue growth, even as the shipped assassin or new software contract mixed continued to accelerate.
SaaS deals comprising 82 per cent of our queue to new software contract value.
Most importantly, SAS revenues grew organically 20 per cent.
10th consecutive quarter assess revenue growth of 20% or more.
At the start of the year, we characterize 2023 is a pivotal year in our cloud transition where the significant significant decline in license revenue is replaced by valuable longterm recurring revenue.
Now halfway through the year.
[noise] celebrated pace of cloud adoption, coupled with our heightened focus on our cloud optimization and migration efforts physician as well to drive sustained long term growth and operating margin improvement.
While operating margins this quarter declined from last year is expected to dark cloud transitions margins were better than plan because of operating efficiencies.
We continued to deliver results that reflect our competitive strengths and market leading position in the public sector.
Key to our performance as our hyper focused on leveraging our largest asset are unmatched install client base.
To drive an increasing number of cross-sell and up so wins.
Prioritize migration of on premises clients of the cloud and capture higher transaction volumes through our unified payment solution.
Overall sales activities high and what we see is a robust demand environment with leading indicators, such as rfps and demos generally at or above pre COVID-19 highs.
In addition to software solutions are unified payments strategy in our digital solution Division continue to prove prove their tremendous value to our growth algorithm.
During the second quarter, we signed 132 new payment deals include.
Including a contract with Cook County, Illinois for traffic Court payments.
We also sign renewals of our state enterprise contracts in Wisconsin in Connecticut and.
[noise] extensions of our state enterprise agreements in West, Virginia, Illinois, Idaho, New Jersey in Kentucky.
Additionally, synergies from our disbursements business through our acquisition of rapid financial solutions and deals influenced by data and insights continue to materialize and provide compelling offerings and the state and federal markets.
I'd like to highlight a few strategic second quarter deals that illustrates the successes.
We've seen growing momentum in the public safety market with our best first have sales performance since we acquire new world in 2015.
During the second quarter, we signed contracts with two state police organizations for enterprise Cat Immobility solutions.
These marquee license agreements include a cloud deployment for the Oregon State police and in on premises deployment for Missouri State Highway patrol.
Additionally, Harris County, Texas, the third largest county, United States selected Tyler's enforcement mobile solution for E citations and he crashed applications.
We want to cross sell opportunity with Michigan Bureau of elections, a digital solutions division client to replace an existing custom solution with Tyler's application platform, formerly until a track with $1.7 million or.
We also added our enterprise licensing platform and one outdoor solution under our state Enterprise agreement in Illinois, with 5.2 million of a R. R.
94 clients signed contracts to migrate on premises Tyler solutions to the cloud, including the Cab County, Georgia for the Enterprise Justice solution, Charleston, West, Virginia for their enterprise ERP solution and the Wyoming State patrol for their public safety solution.
Now I'd like for Brian to ride more detail on the results for the quarter and our annual guidance for 2023.
Thanks Lynn.
Total revenues for the quarter were $504.3 million up 7.6%.
Organic revenue growth, which also excludes COVID-19 related revenues in 2022 was 10.4%.
Last year's second quarter included $15.2 million of revenues from Covid related initiatives that are digital solutions Division, formerly NRC all of which ended in 2022.
Subscriptions revenues increased 16.4% and organically rose 16 per cent.
Within subscriptions or SAS revenues grew 20% to $131.5 million and transaction revenues grew 13.7% to $166.3 million.
On an organic basis transaction revenues grew 12.8%.
License revenue declined $34, 8% is our new software contract mixed continued to shift to staff at an accelerated pace with theft deals comprising 82% of our queue to new software contract value compared to 74% last year.
Professional services revenue declined seven 7% due to the absence of Covid related revenues, but rose 12.9% organically.
We added 170, new sense arrangements and converted 94 existing on premises clients to staff with a total contract value of approximately $93 million.
In Q2 of last year. We ended 160 70 cents arrangements and had 96 own premises conversions with the total contract value of approximately $115 million.
As a reminder, in last year's second quarter, we signed a 20 million dollar contract for a digital motor vehicle titling solution in New Jersey.
Our total annualized recurring revenue was approximately $1.66 billion up 11.2% and organically grew 11.6%.
Operating margins in the quarter were once again pressured by the acceleration of the shift to the cloud in new business and the related decline in license revenues.
We've also seen expenses associated with employee health benefits grow well above planned levels. During the first half of the year and we remain cautious about future increases for the balance of the year and next year as.
As we've previously stated we expect operating margins to trough in 2023, and the return to a trajectory of margin expansion in 2024.
As we also discussed in prior quarters merchant an interchange fees from our payments business under the gross revenue model have a meaningful impact on our overall margins.
In Q2, we paid merchant fees of approximately $44 million. If those fees were netted out of both revenues and cost of revenues are consolidated non-GAAP operating margin for the quarter would have been approximately 220 basis points higher.
Both cash flows from operations in free cash flow were negative this quarter at $19 2 million negative and $33 $2 million respectively.
Mainly due to incremental cash tax payments of approximately $90 million.
Related to the current status of IRC section 174 capitalization rules.
On a pro forma basis, excluding the section 174 cash taxes.
Our year to date free cash flow would be approximately $120 million up 19% over last year.
We did not pay down term that in Q2 due to the elevated cash tax payments, but we expect to continue to prioritise debt payments as our cash flow accelerates in the second half of the year.
We ended Q2 with total outstanding debt of $875 million in cash and investments of approximately $148 million and net leverage at quarter end of approximately 1.55 times trailing 12 months pro forma EBITDA.
Are updated 2000 twenty-three guidance is as follows we expect total revenues will be between 1.94 billion in 196 $5 billion the midpoint of our guidance implies organic growth of approximately 8%.
We expect gap diluted EPS will be between $3.87 and $4.02 and may vary significantly due to the impact of stock option activity on the gap effective tax rate.
We expect non-GAAP diluted EPS will be between $7 and $67.75.
Interest expense is expected to be approximately $25 million, including approximately $5 million of non-cash amortization of debt discounts and issuance costs.
Other details of our guidance are included in our earnings release and in the queue to earnings deck posted on our website.
In conjunction with our guidance for the full year I would like to remind you of the seasonality around our transaction revenues.
While transaction revenues will grow year over year, we expect they will declined sequentially in Q3 and again in queue for.
Historically transaction revenues are driven by two primary factors they determined deadlines like corporate filings and hunting seasons.
And the number of business days.
Transaction revenues typically are at the highest in Q2, coinciding with peak outdoor seasons and tax deadlines.
Transactions are the seasonal low in the fourth quarter with fewer business days and less activity around the holidays.
In addition, starting in Q3 will see the revenue impact of contractual changes in one of our state enterprise agreements that includes a move from gross.
Gross to net model for payments.
Now I'd like to turn the call back over to Lynn.
Thanks, Brian .
We finished a strong quarter and first half performance excelled across our business.
Quarter was highlighted by two highly successful events connect 2000, twenty-three, which was our most attended user conference a date with nearly 6000 attendees.
And our first stand alone Investor event in four years, where we unveiled our Tyler 2030 vision and key growth pillars, driving our strategic direction toward organic recurring revenue longterm kanger of 10% to 12% sustainable margin expansion with non-GAAP operating margins of 30% or greater and expanded free cash flow of $1 billion.
And free cash flow margins in the high twenties.
If you didn't attend our investor day in person or virtually we invite you to watch the replay or access the presentations on our website.
It's an exciting time in Tyler's next era of growth and we see a clear pathway to achieve our mid and long term goals guided by a well defined growth strategy and powerful financial algorithm to deliver sustained value creation and support our public sector clients digitally empowered future.
Now we'd like to open the line for Q&A.
We will now begin the question and answer session.
To enter a question into the question queue. Please press star one on your Touchtone phone.
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As a reminder, please limit your question to one questions. So we may stay within the allotted time.
We will pause momentarily to assemble our roster.
Your first question comes from the line of peak Heckman from da Davidson. Your line is open.
Hey, good morning, Thanks for taking the question can you talk a little bit about.
<unk> business and and whether you've seen any <unk>.
Limping dynamics their competitively I've always thought it was interesting that.
Some of the big horizontal ERP companies really just top tier, but have you seen any instances of of some players maybe like birthday coming down into the into the mid tier where where Tyler has historically been been very strong.
Yeah sure I think.
Start the background. The ERP market is really strong right now market activities. Good. It's rfps. We're up demos are up I think we comment on that at the end of the first quarter earnings call.
It is a very competitive market, we do see a workday more so at the top and as you mentioned more so than larger deals and and really we see them more than deals where clients, maybe maybe driven more from a H R. A point solution rather than a sweet solution.
And they compete very well there we we think over the long term that having a suite of products that's fully integrated.
Is the best bet, and we were competing well when we when we compete on that front.
[noise], Okay, and then in terms of like some of the dynamics around into out migration. It seems like that's continuing a pace I I guess are there are there any pockets of either certain certain software products that will need to be upgraded before they can be moved in the cloud.
Or just certain areas, where where the customer base is maybe go more reluctant where where you think they could be hold outs Ah.
In terms of of of eventually moving to the cloud.
Yeah, that's right. That's one of the <unk> I think we talked a little bit about that at the Investor Conference one of the.
I guess hurdles took to getting people into the cloud and getting them upgraded and migrated is some of them are on older versions and that's something that we're consciously attacking across all our product lines and I'm trying to get to version collapse subdivisions are are little head morehead than others, but I think it also sort of highlights what.
What I've said a lot of times is Tai.
Tyler is not really going through a single cloud transition is going through multiple cloud transitions, because we have multiple core applications, who are in different stages with different versions out there.
<unk> technology different beginning points different endpoints and so it's it's kind of it's a lot of moving parts, but yeah. That's certainly a key factor that plays across all of them in different products are in different points right now.
And I would just add to that the public.
Public safety is probably the area that legs, both in terms of adoption of new customers.
Of the cloud and migration of existing customers, but that is changing.
We're seeing a continuous move towards a higher percentage of the new public safety deals coming just in the cloud and this year, we've had our first to.
Flips of of on from public safety clients.
To the cloud one and Q1 and then the Wyoming State patrol this quarter.
Okay. That's good to hear I appreciate it I'll get back in the queue.
Your next question comes from the line of Matthew Van Vliet from B T. I G. Your line is open.
Yeah. Good morning, Thanks for taking my question.
I guess, that's what we we look at the strength of the SaaS business and especially in the South bookings Wonder if you could help us think through maybe the the cadence of the bookings throughout the quarter were they a little bit more back and waited or anything from sort of a timing perspective, and then a second part there is.
We seem to have seen some of the best organic growth in in a number of quarters here. So the business is performing well, but maybe think about why you didn't maybe raise the mid point of the revenue guidance for the year, just sort of what went into the process of.
Essentially maintaining the mid point on the the guidance there. Thanks.
Yeah, I'd say the cadence of bookings has been pretty normal our bookings typically are not terribly back in loaded they tend to be within a quarter they tend to be.
You know generally spread throughout the quarter, we always have some push to get things and at the end of the quarter, but probably different than some of the businesses.
Software business that are that are focused on the private sector. So I don't think there was anything unusual this quarter.
As we said it continues to be a pretty robust market with a lot of activity.
In terms of of the revenue guidance.
Typically where we're not making big changes in that.
Through the early part of the year, we didn't narrow the range so more confident around.
Where the bottom and the top and are but.
Our expectations really haven't changed it's more around.
The timing this quarter there were.
A few deals that happened maybe.
Maybe a little earlier than than we planned in a year, but that.
But our our outlook for the full year really hasn't changed much of them Janeiro.
Okay, great. Thank you.
Your next question comes from the line of Terry Tilman from Truest Securities. Your line is open.
Hi, Good morning land, Brian in Halle, Thanks for taking my question and follow up and.
Maybe learn first question for you is in terms of unified payments and you know you call. It at 132 payment deals I'm, just curious on that kind of revenue synergy side.
And now taking into account nuke use cases around Dispersements, how does the bank have luck in terms of kind of building you know confidence in these revenue synergies and can you keep building on top of like 100 credit to payment deals as we move into <unk>.
Beyond just a little bit more around.
Could we see more goodness, where you've seen so far.
Yeah, Terri that's a good question I think.
Payments as an area, where it continues to even out beat our internal plan and so my expectation is that's going to continue it's something that we push with every deal. It's the the more that we get involved. It's also involved in in a lot of our inside sales, which also continues to to outpace you know <unk>.
<unk> after quarter.
As it relates to rapid we're still pretty early where what nine months eight months ended the rapid acquisition, we've got a lot of good traction.
We've got a lot of deals that are that are in the works that are really pretty exciting deals.
That we wouldn't have without rapid and they're gonna add really some extra extra revenues down the road. So you know where we are with payments right. Now is Ah I'm excited about where we are really excited about the rapid deal. It's something that's being pushed throughout our entire sales channel and I'd I'd I would expect that to continue to grow.
I would point out that there is a lag typically from the time, we sign a new payments deal to the time those revenues start hitting the income statement.
It might be a quarter to it might be longer.
They often were replacing an incumbent payments provider and so there may be some time period for that.
That change to take place or the.
The payments are associated with the implementation of the new <unk>.
Solution like a utility billing solution and so those payments star.
Start when that new system is implemented so.
The fact that we're continuing to see a growing number of new deals sign.
Bodes well for future revenue growth in that area, but it is an incident.
Got it got it thanks for that as well, Brian I guess, maybe branches can follow up question and then I'll get back in the queue was it was good to call out that you know the lumpiness in large deal kind of exposure that y'all have so the 20 million dollar deal. If you back it up I mean, the software contract value was down a little bit year over year, you know it sounds like you're the date, there's been robust demand activity, but I'm just kind of cute.
You know what was their smaller large deals in the quarter and.
Compared to maybe last year's two Q and then.
And is there anything we should call out into three Q that you'll anniversary like a big deal like last year and <unk>. Thank you.
Yeah, It was a tough Tom.
From a bookings perspective this year, our biggest deal was an $8.8 million total contract value. The the Michigan Bureau of elections, and we and on the safe side.
And then we had Oh I guess five other deals that were worth more than $2 million.
And one large license deal the Missouri Highway patrol deal last year, we had the new Jersey deal, which was a 20 million dollar deal. So we don't have anything that approach that that that size deal. This year and we also had a 13 million dollar license deal.
With the tax system in Montreal.
So there were just a number of large deals last year. This year was much more I'd say kind of normal.
In Q3 I don't.
Believe we have a.
That's a meaningful sort of comp issue I think our biggest the license.
A license deal with it.
Two and a half million dollar deal.
And we did have on the south side.
We did have a very large deal with the state Department last year in Q3, which was a total contract value of north of $50 million and we had a state.
Statewide supervision deal that was a $15 million deal so those will.
For a difficult pump on the south side next quarter, Yeah, I think what's interesting there terriers, while there were no huge mega deals this quarter.
Really across the board all of our divisions are outperforming plan and and what they're seeing in their sales and and in their pipeline and in their activity. So you know typically there's always puts and takes but really this is really just a strong quarter across the board both from a revenue standpoint, and an execution standpoint.
Talked for a long time about the lumpiness of his mega deals they come along from time to time we.
And some of these product areas, where like courts and justice in tax.
Very good well positioned to win those but they're not here every quarter. So.
They do create some lumpiness, whether it's S or her license bookings.
Understood. Good luck in the three cute thanks.
Your next question comes from the line of Gabrielle Abortus from Goldman Sachs. Your line is open.
Hi, Good morning. Thank you I wanted to follow up on the comment on Rfps and glamorous now being Arafat Creek.
But let's get a little bit of color how much of that activity changing customer maybe hiring specific initiatives and is there any reason.
Quality of these R P as in Denmark could be better.
Alright, how do you think about conversion rates for us and that that's great topic pipeline up to that email is sketchy.
Yeah, I think you know, it's just it's dark piece of demos up it's just a function of the market and I think there's probably still been a little bit of hangover from COVID-19, but we are seeing it really across the board across all of our business units.
It relates to the quality of Rfps I think there are certain.
Certain business units, where we're actually probably being able even a little bit more selective which I think is going to increase our when rates I know we're doing that for example at public safety, but generally speaking it's just it's just a healthy market right now.
And I think it's.
A combination of both the strength of the market.
I think the stimulus is.
Factor, there, but not the major factor.
But also the strength of Tyler's broader presence.
Ability for us to leverage our customer relationships and and see more opportunities and see some of those opportunities sooner.
Through the and I see.
The state contracts and and our ability, we talk about rfps and demos, but a growing number of our deals take place without rfp's, so and sole source or deals that that bypass that that for more of a fee process. So that's a positive for us as well.
[laughter]. Thank you.
Your next question comes from the line of Josh Riley from Needham Your line is open.
Alright, Thanks for taking my question, a nice job on the corner here subscription or maintenance gross margin was higher in the corner, maybe you can give us some caller on what drove that increased quarter over quarter and how does the cloud migraines and tracking gross margin near term here versus some of the operating expense line items. Thank you.
Well I think we continued to see operating efficiencies around you know a number of aspects of our business, but they're certainly impacting are are recurring revenues are assess business.
We are continuing.
Continuing to be very efficient around managing our our staffing levels. We're seeing some of the efficiency gains for example around the digital solutions are former an icy business that some changes that have been.
Made there.
To to operate more efficiently.
So as we expect that as the SAS revenues grow margins should continue to expand I think we're also seeing.
Improved efficiencies around our our public cloud the AWS operations and better per unit costs as we add more customers there.
So even though we are seeing certainly pressure on margins because of the cloud transition to things we've talked about the.
The bubble costs around until we exit are are proprietary data centers.
We are seeing efficiency gains around.
Those operations as we continue to to scale those.
Your next question comes from the line of socket Telia from Barclays. Your line is open.
Okay, Great Hey, good morning, Good morning, Brian Thanks for taking my questions here.
Brian maybe maybe just maybe just for you great to see the SAS revenue here I think continue to grow 20% plus in in the corner I I know that that's the the the cake or that we talked about at annual stay recently I think out to twenty-five. So maybe the question is should we sorta think about this continuing.
Pretty steady in this range in the medium term or should we think about just maybe a little bit of a different shape around sauce revenue over over the next couple of years. Just curious how you think about you know kind of this quarter's growth in the context without long term target.
Yeah I think.
You know in the in the Investor Day, I think we actually talked about kind of high teens kangaroo over that.
[noise] period collectively from now through 2030, So you know right now and for the next few years will continue to see a bump to the growth from the flips from our own from our customers and over time, I mean that certainly will accelerate over the next few years and then more wine.
As as we we talked about the the cadence that we expect to.
Both those customers over so we are getting you know a higher benefit from those flips and will continue to see that but but I think ultimately.
It moves more into the the teens, but but I would expect to see this you know growth in this range for the near future.
Got it got it and then if I could sit in a housekeeping question.
Interesting point you made in your in your prepared remarks, Bryan just on having one customer switch from gross to net in the payments business here in Q3.
Could you just maybe dig into how much of a revenue impact that is in Q3 that we should think about and is this going to be more of a trend or or do you think this is a little bit of a one off.
Yeah, I think we actually talked about that at our we give you guidance for the full year. There's one state that's about a 10 and a half that's changing mid year. So that impact will start to hit this year and and we estimated that at around 10.
Two and a half million dollars in the second half of the year, probably a little more of that impact as in Q3 [laughter].
It's.
It happens really on a state or customer by customer basis. The vast majority of our businesses on the gross model and we expect that to continue to be the case customers generally prefer the certainty and predictability around having us assume the responsibility for the merchant and interchange fees and have.
A a set percentage that they're going to pay them for their payments processing. There are some some customers that.
Are willing to accept that risk around those merchant interchange fees and prefer the net model.
And sometimes they're changes there as well as we've seen this year really I think we had two states that that that's been the case with this year, but again generally we would expect that the vast majority of our payments business would continue to be on the gross model [noise].
[noise] got it thanks, guys appreciate the time.
Your next question comes from the line of Alex <unk> from Wolf Research. Your line is open.
Hey, this is Ethan broke on trial. So you can thank you for taking my question I have a I have two parts first can you talk a little bit about the shape the quarter, just comment a bit about kind of debate environment coming in and out of the endless debt.
Then just a question on the <unk> how does it perform this relative to your internal expectations I'd be lucky about a year ago.
<unk> a year ago, and just had to think about that training.
The rest of this year 2024.
I didn't hear the first yeah. The first is around the demand environment yeah.
The demand environment.
As we said in the prepared remarks is.
Stable or or growing generally at at or above kind of our pre COVID-19 pies, so very robust demand environment coming out of Investor day, and and really very similar to what we've seen throughout this year and and don't see signs of that changing right now.
So so stable at a high level with respect to flips I'd say generally we're performing along plan. The number of flips is is very similar to last year, but the dollar value is higher so we are seeing bigger customers flip.
And and I think that will continue to be the case, especially in the early days flips most of the customers doing that run the small in today, we're seeing more of the larger customers. We talked about a couple of this quarter that were on the larger side you know a large county in Georgia with the court system.
I said, we've seen her first couple of public safety customers flip.
So I I'd say generally does migrations are in line with our expectations for the year.
Your next question comes from the line of Michael Taryn from Wells Fargo Securities. Your line is open.
Hey, great. Good morning, Thanks for taking the question I wanted to go back to something that was asked earlier, but with a slightly different till if we look at this subscription mix as a percent of total contracts that's very consistent with what we've seen recently, if we look at the the T V and the term metrics, they're they're down a bit and this is less a year on your.
Your comparison question and more just wondering if there's anything to call out in terms of customer behavior, or whether it's rising rates or something that might be driving it.
A slightly smaller initial deal size and then just thinking threw up their impacts that flow into the backlog or bookings numbers that we're looking at just wanting to reconcile if there's anything to call out there and just try to kind of calibrate maybe what to expect on those metrics rustier. Thanks.
Yeah, I don't think there's anything of note around that.
The mix of what the old sign in any given a quarter.
And just very a lot depending on on the.
The timing of of when those things happen and.
What happens to be in the pipeline. So I don't think there's a trend to call out or anything any macro mm.
Condition that that's affecting that.
We continue to.
You look in comparison to last year I think some of those metrics are skewed a bit by this very large deals.
But I don't think there's anything really notable to call out there and I would expect that.
Generally we.
We expect to continue to see.
Deal sizes grow over time, but you know it's hard to predict exactly what will happen in Q3 Q for it but.
Don't think there's anything fundamentally changing in the.
The market around that yeah, I think I would have there that you.
Generally there's a couple of areas in our business that sign larger deals appraisal and tax often has some very large deal multiyear deals are are of course and justice enterprise Justice has some very large deals and the occasional tech stuff can be a little cyclical the large deals or they come and they go we've talked about it for years. So that's what's makes.
That's one reason why we stopped talking about bookings numbers in and started focusing on different metrics I'd go back to my comment earlier today that really.
[noise] form it's across the board has been has been really solid and it actually above plan and Q2, which was pretty exciting to see given as well as the you know our competitive position and and sort of the demand nature. That's out there right now.
I appreciate that that's all thank you.
Your next question comes from the line of Kurt Mckern from Evercore ISI. Your line is open.
Yeah, Thanks, very much morning, guys I crushed.
Question on sort of flips I was wondering learn if you could talk a little bit about you know when customers are considering moving from on prime to cloud is that a cross sell opportunity as well for you all meaning when they're having that discussion is that giving you all an opportunity to go in and talk about the sort of other products that might hang off you know the the the.
Procter moving to the cloud I was just wondering if you have any thought process or there's nothing that you could share in terms of you know what what percentage of flips come along with you know incremental revenue associated with it.
Yeah, No. That's a that's a good point and you're right. That's a that's a big part of our sales strategy in and I'd say, we actually probably call that more upsell opportunity, we talk about cross cells and Upsells you know, it's it's an opportunity to add things like our data and insights solutions are payment solutions as well as just other other other things so we talked earlier about.
How you know a lot of this requires the customers to upgrade to a newer version of the software, which also opens up doors for for other modules and things that that that are more compatible.
And can you talk about just you know in terms of moving to the cloud. Obviously is people will start talking more about gender of AI and AI in general you know take advantage of that you know you you sort of need to be in the cloud has that started to percolate at all as a as a topic of discussion for customers to move on over to the cloud or is it still just super early days in in the in the public.
I think from a customer standpoint, the concept of AI is very early days as you know our customer basis.
Generally pretty conservative pretty risk averse.
And I think they probably are more on a wait and see approach now we at Tyler are not we're not just sitting around taking a wait and see approach. We are we are actively looking at AI. We formed an hour on AI Task Committee, where we're actively already using a little bit of AI. We're looking at things about how it can improve some of our internal efficiencies we're looking at things.
How it can improve our competitiveness as well as how it can it can improve our clients efficiency. So we're looking at that right now, but I would say from a Tyler perspective, we're pretty early on and from a client perspective, there even earlier on.
Great. Thank you.
Your next question comes from the line of Charles Charles or from CJ Security, Inc. Your line is open.
Hi, good morning.
Just a quick question just it seems like every month or so there's a there's a high profile data breach the latest one being in the movie.
Data breach that has been in the news.
Impacting government clients in private businesses have you seen any impact on your business from that and more importantly, a seeing you know opportunities from that as well.
Yeah, I mean, it's it's it's an unfortunate reality of of doing business is is the world of cyber security and breeches and you know our our clients are not immune to it I think there's there's been a fair number of those over the last couple of years up My guess is for the ones that are publicized there's probably even more of that or not.
It does create opportunities for us I think it creates opportunities to flip people into the cloud, it's creating opportunities around for example, our cyber security offering we didn't talk a lot about it last year, we had a client last year in Arizona that we had been trying to flip to the cloud for really for some time and they had a a security breach and.
And that was the decision point for them to to pull the trigger and flipped the clouds. So against an unfortunate part of doing business, but I think that also creates opportunities for our clients to to move into more secure environments.
Great. Thank you.
Your next question comes from the line of Jonathan Ho from William Blair. Your line is open.
Hi, Good morning, just wanted to maybe understand some of those sort of your comments around seeing some additional margin pressure around employee increases is this a change relative to your prior expectations and can you maybe you walk through some of the dynamics with the details around that thank you.
Yeah, it's really it's not it's not around our our labor costs generally or or head count. It was really more around health care. You know, we we budget health care every year, we we do the best we can we model based on last year's practices and we've just been experiencing a higher level of employee claims this year.
The budget last year, I think our our our employee claimed toward a little bit below budget. This year. They are they are trending higher.
And you know we're just we're just trying to grapple with that as well as we go forward, it's something that would probably modeling to continue throughout the rest of the year, but there's ebbs and flows as it relates to health care.
Yeah.
There is.
There continues to be higher inflation, I think I'm on the health care side. Even then then.
The environment in general utilization is a.
More high claims experience. So you know would continue to monitor it we believe we is.
Just at our expectations for the balance of the year in our guidance, but but it is would point out that it's it's several million dollars of expense.
In the first half of the year above what our expectations were and so I think that makes our the performance we've turned in for the first half of the year even.
Even more.
Positive but.
You see that you know throughout our margins, but that also especially in the SG&A side.
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Your next question comes from the line of Keith accuse them from North Coast Research. Your line is open.
Great guys. Good morning, Brian question for you and your commentary regarding the public safety segment, having the first the best first half of the year.
Is there something hidden in the market, that's helping to contribute to that or is this a market share game, but how do you guys explain that goes for your successor have in there.
Uh-huh.
I'd say, it's a couple of things Keith market activity is really strong and public safety, where we're seeing demos right now are on pace for their highest level in a year that we've seen in a long time proposals are up our competitive position is good we've done we've done some internal research that public safety and.
Really kind of excited about where we are I mean, we landed three really large deals this quarter.
Sort of in the range of 1.8 to two $2 million range, which we haven't done it in a while so we're excited about what's going on at public safety I'm excited about where the market is and some of the things we've done internally to to capture that market.
The competitive physicians is continues to improve we've made investments in that product over the last several years and I think the the integration with some of the other acquisitions, we've made like our enforcement mobile.
Mm.
Our data and analytics capabilities are very very strong and so all of those things that that created a very strong integrated public safety platform, along with the integration to our.
Sports and Justice platform continue to improve our market position.
Yeah, our our mobility platform Big differentiator and I think what's also encouraging is that we talked about it I think Brian mentioned as his remarks earlier is the fact that the public safety market is is really starting to slowly so slowly but embrace Ah movement to the cloud. It's it's been it's been sort of moving at a snail's pace.
Suggesting it's going crazy, but where we are seeing a lot more receptiveness, which was highlighted by some of the deals we talked about earlier.
Great. Thank you.
We have no further questions at this time I will now turn the call back over to learn more for any further remarks.
Thanks, Kobe and thanks, everybody for joining us today, if you have any further questions. Please feel free to contact Bryan Miller or myself have a good day.
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