Q2 2024 Tyler Technologies Inc Earnings Call
Hello and welcome to today's Tyler Technology second quarter 2024 conference call.
Operator: Your host for today's call is Wayne Moore, President and CEO of Tyler Technologies. At this time, all participants are in a listen-only mode.
Your host for today's call is Wayne Moore, President and CEO of Tyler Technologies.
Operator: Later, we will conduct a question-and-answer session, and instructions will follow at that time. In order to address your questions and stay within your allotted time, please limit your question to one per person. You may get back into the queue for a follow-up.
Speaker Change: 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 within the allotted time, please limit your question to one question per person.
Operator: As a reminder, this conference is being recorded today, July 25, 2024. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Customer Relations. Please go ahead.
Hala Elsherbini: Thank you, Matt, and welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer, and Brian Miller, our Chief Financial Officer. Thank you.
Hala Elsherbini: After I give the Safe Harbor Statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and update our annual guidance for 2024. Lynn 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 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.
Hala Elsherbini: 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.
Speaker Change: We would refer you to our Form 10-K and other SEC filings for more information on those risks.
Hala Elsherbini: We have also posted on the Investor Relations section of our website, under the Financials tab, schedules with supplemental information, including information about quarterly recurring revenues and... On the Events and Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Thanks, Hala.
Speaker Change: On the Events and Presentations tab, we posted an Earnings Summary slide deck to supplement our prepared remarks.
Lynn Moore: We built on the momentum from our strong first quarter performance to again deliver exceptional second quarter results marked by consistently high execution and a continuation of solid operating and financial performance. In fact, each of our key metrics across revenues, earnings, operating margin, and cash flow exceeded our expectations. These results are especially meaningful given the significant shift towards SaaS in our new software contract mix, which pressured revenues and margins. Recurring revenues grew 8.4% and comprised 83% of our total revenues.
Speaker Change: Each of our key metrics across revenues, earnings, operating margin, and cash flow exceeded our expectations.
Speaker Change: These results are especially meaningful given the significant shift towards SAS in our new software contract mix, which pressured revenues and margins.
Lynn Moore: SAS revenues grew 23.2%, our 14th consecutive quarter of SAS revenue growth of 20% or more, above our target of a 20% CAGR in SAS revenues through 2025. In addition, transaction revenues were ahead of plan, driven by higher transaction volumes, including an increase in e-filing volumes and expanded payment services. Since committing to our cloud-first strategy in 2019, we've been intently focused on supporting our public sector clients' digital transformation and guiding their migration to Tyler's next generation cloud application.
Speaker Change: SAS revenues grew 23.2%, our 14th consecutive quarter of SAS revenue growth of 20% or more, above our target of a 20% CAGR in SAS revenues through 2025.
Speaker Change: In addition, transaction revenues were ahead of plan, driven by higher transaction volumes, including an increase in e-filing volumes and expanded payment services.
Speaker Change: Since committing to our cloud-first strategy in 2019, we've been intently focused on supporting our public sector's clients' digital transformation and guiding their migration to Tyler's next generation cloud applications.
Lynn Moore: Last year, we reached an inflection point where valuable long-term recurring SAS revenues surpassed on-premises license and maintenance revenues. We're pleased to reach another milestone as we have now essentially completed the exit of our Dallas Data Center. This move is a significant achievement in our cloud migration roadmap as we continue to scale our deployments at AWS and drive more durable growth and margin benefits from our SaaS-based operating model. The public sector market remains healthy, characterized by high levels of RFP and sales demo activity.
Speaker Change: We are pleased to reach another milestone as we have now essentially completed the exit of our Dallas Data Center.
Speaker Change: This move is a significant achievement in our cloud migration roadmap as we continue to scale our deployments at AWS and drive more durable growth and margin benefits from our SaaS-based operating model.
Speaker Change: The public sector market remains healthy, characterized by high levels of RFP and sales demo activity.
Lynn Moore: Our new business pipeline remains at elevated levels, reflecting the robust market environment, growing cross-sell opportunities, and continued strong execution by our sales organization. Our leading market position and competitive strengths, including our deep domain expertise, continue to differentiate us in the marketplace. These strengths underpin our long-term strategic focus on four key growth drivers.
Speaker Change: Our new business pipeline remains at elevated levels, reflecting the robust market environment, growing cross-sell opportunities, and continued strong execution by our sales organization.
Speaker Change: Our leading market position and competitive strengths, including our deep domain expertise, continue to differentiate us in the marketplace.
Speaker Change: These strengths underpin our long-term strategic focus on four key growth drivers.
Lynn Moore: Leveraging our unmatched install base, expanding into new markets, completing our cloud transition, and growing our payments business. Our large client base represents one of our most significant assets, and we're pleased to see strong go-to-market execution with significant cross-sell and up-sell wins during the quarter, which included a joint effort with our Justice Group, leveraging our Digital Solutions Division's strong relationships in Florida, for an agreement with the Florida Department of Corrections to manage all aspects of money transfer services for correctional facilities across the state.
Speaker Change: Leveraging our unmatched install base, expanding it to new markets, completing our cloud transition, and growing our payments business.
Speaker Change: Our large client base represents one of our most significant assets, and we're pleased to see strong go-to-market execution with significant cross-sell and up-sell wins during the quarter, which included
Speaker Change: A joint effort with our Justice Group, leveraging our Digital Solutions Division's strong relationships in Florida, for an agreement with the Florida Department of Corrections.
Speaker Change: to manage all aspects of money transfer services for correctional facilities across the state.
Lynn Moore: The contract brings together disbursement solutions from our Rapid Financial Solutions Acquisition, inmate Trust and Accounting, and eCommunications from the VendEngine Acquisitions and Payments through our Digital Solutions Division. A single-sourced enterprise supervision and enterprise public safety contract with Cherokee Nation Oklahoma, adding to its existing enterprise ERP solution.
Speaker Change: The contract brings together disbursement solutions from our Rapid Financial Solutions Acquisition.
Speaker Change: Inmate Trust and Accounting and eCommunications from the VendEngine Acquisitions and Payments through our Digital Solutions Division.
Speaker Change: A single-sourced enterprise supervision and enterprise public safety contract with Cherokee Nation Oklahoma, adding to its existing enterprise ERP solutions.
Lynn Moore: The SAS agreement was a joint collaborative sales effort resulting in a total Tyler client win. Additionally, we continue to innovate and elevate our clients' resident engagement experience by empowering citizens with direct connections to government through Tyler's MyCivic platform. In Mississippi, we expanded citizen access to mental health resources with the Mississippi State Department of Health, leveraging our state enterprise agreement.
Speaker Change: The SAS agreement was a joint collaborative sales effort resulting in a total Tyler client win.
Speaker Change: Additionally, we continue to innovate and elevate our clients' resident engagement experience by empowering citizens with direct connections to government through Tyler's MyCivic platform.
Speaker Change: In Mississippi, we expanded citizen access to mental health resources with the Mississippi State Department of Health, leveraging our state enterprise agreement.
Lynn Moore: We continue to advance our cloud transition and make substantial progress with our product version consolidation efforts, which will accelerate our continued migration of on-premises clients to the cloud. We're also pleased with the numerous second quarter SAS contract wins, which underscore the public sector market's recognition of cloud benefits, including enhanced security. One of the key themes that emerged during client interactions at our recent Connect 2024 user conference was a notable shift in client openness to embrace cloud technology and a growing expectation among on-premises clients that they will migrate to the cloud.
Speaker Change: We continue to advance our cloud transition and make substantial progress with our product version consolidation efforts, which will accelerate our continued migration of on-premises clients to the cloud.
Speaker Change: We're also pleased with the numerous second quarter SAS contract wins, which underscore the public sector market's recognition of cloud benefits, including enhanced security.
Speaker Change: One of the key themes that emerged during client interactions at our recent Connect 2024 user conference was a notable shift in client openness to embrace cloud technology and a growing expectation among on-premises clients that they will migrate to the cloud.
Lynn Moore: This shift is especially apparent in the state and federal market with our application platform and in the public safety market, where 90% of second quarter public safety contract value was SAS compared to 13% a year ago. Primarily as a result of this accelerated shift in public safety cloud adoption, SAS arrangements comprised 97% of our new software contract value in the second quarter. Additionally, we signed 111 flips of on-premises clients, including a number of larger clients, with the average ARR of flips growing 21.8%.
Speaker Change: This shift is especially apparent in the state and federal market with our application platform.
Speaker Change: and in the public safety market, where 90% of second quarter public safety contract value was SAS compared to 13% a year ago.
Lynn Moore: We also had a very successful Go Live in May with the SAS migration of the Idaho State Court system. This was our first flip of the cloud for a statewide court system, and Idaho went live just four months after the project kicked off.
Speaker Change: We also had a very successful Go Live in May with the SAS migration of the Idaho State Court system.
Speaker Change: This is our first flip of the cloud of a statewide court system.
Lynn Moore: This high-profile migration has been watched closely by other statewide and large county courts, and its successful execution is certainly a positive reference point as we engage with other large court clients about moving to the cloud. Key second quarter new SAS deals and flips included a competitive win with the City of Topeka, Kansas, for multiple integrated solutions including Enterprise ERP, Enterprise Permit and Licensing, Enterprise Asset Management for nearly $700,000, and ARR. An ERP pro and payments contract with Richland County, Wisconsin, funded via ARPA funds, that was executed on an accelerated 90-day sales cycle, leveraging our enhanced sales enablement and competitive Intel team. The Idaho State Police signed a SAS contract for our integrated enterprise public safety suite, including CAD, records management, and e-citation.
Speaker Change: and Idaho went live just four months after the project kicked off.
Speaker Change: Key second quarter new SAS deals and flips included a competitive win with the City of Topeka, Kansas for multiple integrated solutions including Enterprise ERP, Enterprise Permit and Licensing, Enterprise Asset Management for nearly $700,000 and ARR.
Speaker Change: An ERP pro and payments contract with Richland County, Wisconsin, funded via ARPA funds that was executed on an accelerated 90-day sales cycle, leveraging our enhanced sales enablement and competitive Intel teams.
Lynn Moore: This Tier 1 competitive win demonstrates our growing momentum with state public safety agencies and represents the sixth state police agency to adopt our enterprise public safety solution. The Oneida County, New York Department of Emergency Services also chose our Integrated Public Safety Suite for a 64-agency, client-driven, SaaS deployment. Hunt County, Texas, upgraded to Enterprise Public Safety from our Public Safety Pro Solution. In Spotsylvania County, Virginia, signed a contract for Enforcement Mobile Solutions, joining 8 of the 14 largest Virginia agencies using Tyler Public Safety applications.
Speaker Change: This Tier 1 competitive win demonstrates our growing momentum with state public safety agencies.
Speaker Change: and represents the sixth state police agency to adopt our enterprise public safety solutions.
Speaker Change: The Oneida County, New York Department of Emergency Services also chose our integrated public safety suite for a 64-agency, client-driven SAS deployment.
Speaker Change: Hunt County, Texas upgraded to Enterprise Public Safety from our Public Safety Pro Solution, and Spotsylvania County, Virginia signed a contract for Enforcement Mobile Solutions, joining 8 of the 14 largest Virginia agencies using Tyler Public Safety applications.
Lynn Moore: We signed an enterprise justice SAS flip with Fulton County, Georgia, which includes Atlanta. The contract, with an ARR of $1.9 million, follows Fulton County's Enterprise Appraisal and Tax SASFLIP signed in the first quarter, and includes integrated justice solutions such as Prosecutor in Jail, as well as additional client management services under our unified one-tiler approach. We also signed an enterprise supervision expansion with the Arizona Supreme Court that builds on the success of adult probation to add juvenile probation for all 15 counties across the state.
Speaker Change: We signed an enterprise justice SAS flip with Fulton County, Georgia, which includes Atlanta.
Speaker Change: The contract, with ARR of $1.9 million, follows Fulton County's Enterprise Appraisal and Tax SAS Flip signed in the first quarter, and includes integrated justice solutions such as prosecutor in jail, as well as additional client management services under our unified one-tiler approach.
Speaker Change: We also signed an enterprise supervision expansion with the Arizona Supreme Court that builds on the success of adult probation to add juvenile probation for all 15 counties across the state.
Lynn Moore: We leveraged the state relationship, which led to a five-year enterprise justice agreement with the Phoenix Municipal Court, representing an excess of $2.25 million in ARR. This strategic and highly competitive win includes five one-year extension options and paves the way for expansion and new core software opportunities in a large population state. Another theme coming out of Connect24 was a pronounced interest in AI and our expanded AI capabilities that were added through our 2023 acquisition.
Speaker Change: We leveraged this state relationship, which led to a five-year enterprise justice agreement with the Phoenix Municipal Court, representing in excess of $2.25 million in ARR.
Speaker Change: This strategic and highly competitive win includes five one-year extension options and paves the way for expansion and new core software opportunities in a large population state.
Speaker Change: Another theme coming out of Connect24 was pronounced interest in AI and our expanded AI capabilities that were added through our 2023 acquisitions.
Lynn Moore: High interest is turning into multiple new deals and cross-sell wins for our application platform, leveraging our Augmented Field Operations Solutions, formerly AR Inspect, with four inspection SAS arrangements in the quarter across state environmental, health, and regulatory agencies. These included the California State Board of Pharmacy to configure and automate five regulatory inspection types, the Kentucky Department of Environmental Protection, the New York Department of Health, and the Arkansas Department of Labor and Licensing, which was a cross-sell win leveraging our Digital Solutions Division state enterprise relationship.
Speaker Change: High interest is turning into multiple new deals and cross-sell wins for our application platform, leveraging our Augmented Field Operations Solutions, formerly AR Inspect, with four inspection SAS arrangements in the quarter across state environmental, health, and regulatory agencies.
Speaker Change: These included the California State Board of Pharmacy to configure and automate five regulatory inspection types, the Kentucky Department of Environmental Protection, the New York Department of Health, and the Arkansas Department of Labor and Licensing, which was a cross sell win leveraging our Digital Solutions Division state enterprise relationship.
Lynn Moore: Another key to our growth strategy is expanding our differentiated payments business, and similar to our first quarter results, higher transaction volumes contributed to better-than-expected transaction revenues. In the second quarter, we signed 195 new payments deals across Tyler Software clients, representing approximately $8 million in projected ARR. In our state enterprise portal business, we secured extensions for our digital government and payment processing services under four state enterprise contracts, including Hawaii, New Jersey, Kansas, and Kentucky, and also won a sole source award with the state of Rhode Island as no extensions remained under the previous contract. We also signed a two-year renewal with the State of Illinois for our Outdoor and Enterprise Licensing Solution.
Speaker Change: Another key to our growth strategy is expanding our differentiated payments business, and similar to our first quarter results, higher transaction volumes contributed to better than expected transaction revenues.
Speaker Change: In the second quarter, we signed 195 new payments deals across Tyler Software clients, representing approximately $8 million in projected ARR.
Speaker Change: In our state enterprise portal business, we secured extensions for our digital government and payment processing services under four state enterprise contracts, including Hawaii, New Jersey, Kansas, and Kentucky.
Speaker Change: and also won a sole source award with the state of Rhode Island as no extensions remained under the previous contract.
Speaker Change: We also signed a two-year renewal with the state of Illinois for our outdoor and enterprise licensing solutions.
Brian Miller: Now, I'd like Brian to provide more detail on the results for the quarter and our updated annual guidance for 2024. Thanks, Lynn. Total revenues for the quarter were $541 million, up 7.3%, and organically grew 6.5%. Subscription revenue increased 12.1%, and organically grew 11.8%. Within subscriptions, our SAS revenues grew 23.2% to $156 million and grew organically by 22.5%. Keep in mind that there is often a lag from the signing of a new SAS deal or flip to the start of revenue recognition that can vary from one to several quarters.
Speaker Change: Now I'd like Brian to provide more detail on the results for the quarter and our updated annual guidance for 2024.
Brian: Thanks, Lynn. Total revenues for the quarter were $541 million, up 7.3%, and organically grew 6.5%.
Brian: Subscriptions revenue increased 12.1% and organically rose 11.8%. Within subscriptions, our SAS revenues grew 23.2% to $156 million and grew organically 22.5%.
Speaker Change: Keep in mind that there is often a lag from the signing of a new SAS deal or flip to the start of revenue recognition that can vary from one to several quarters.
Brian Miller: Because of this, as well as the timing of SAS renewals and related price increases, SAS revenue growth, both year-over-year and sequentially, may fluctuate from quarter-to-quarter. Transaction revenues grew 3.8% to $177.7 million. Transaction revenues exceeded our plan primarily due to higher transaction volumes from new and existing clients, including recreational licenses such as hunting and fishing, which begin their peak season during Q2. In addition, e-filing revenues grew 11.2%.
Brian: Because of this, as well as the timing of SAS renewals and related price increases, SAS revenue growth, both year-over-year and sequentially, may fluctuate from quarter-to-quarter.
Brian: Transaction revenues grew 3.8% to $177.7 million.
Brian: Transaction revenues exceeded our plan, primarily due to higher transaction volumes from new and existing clients, including recreational licenses such as hunting and fishing, which begin their peak season during Q2. In addition, e-filing revenues grew 11.2%.
Brian Miller: The year-over-year comparison for transaction revenues continues to be impacted by the change in mid-2023 from the gross model to the net model for payments under one of our state enterprise agreements. This will no longer be a factor in year-over-year growth comparisons in the second half of the year, and our expectation is for mid to high teens growth in transaction revenues in the second half of 2024. SAS deals comprised approximately 97% of our Q2 new software contract value compared to 82% last year. During the quarter, we added 203 new SAS arrangements and converted 111 existing on-premises clients to SAS, with a total contract value of approximately $127 million.
Brian: The year-over-year comparison for transaction revenues continues to be impacted by the change in mid-2023 from the gross model to the net model for payments under one of our state's enterprise agreements.
Brian: This will no longer be a factor in year over year growth comparisons in the second half of the year, and our expectation is for mid- to high-teens growth in transaction revenues in the second half of 2024.
Brian: SAS deals comprised approximately 97% of our Q2 new software contract value compared to 82% last year.
Brian: During the quarter, we added 203 new SAS arrangements and converted 111 existing on-premises clients to SAS, with a total contract value of approximately $127 million.
Brian Miller: In Q2 of last year, we added 170 new SaaS arrangements and had 94 on-premises conversions with a total contract value of approximately $93 million. More importantly, the average ARR associated with our Q2 flips increased 21.8% over last year, as larger clients such as Fulton and Clayton Counties in metropolitan Atlanta, Georgia, the cities of Tucson, Arizona and Birmingham, Alabama, and the Columbus, Ohio City Schools flipped to the Transaction Revenues, Expansions with Existing Clients, and Professional Services. Total bookings increased 7.3% on an organic basis.
Brian: In Q2 of last year, we added 170 new SaaS arrangements and had 94 on-premises conversions with total contract value of approximately $93 million.
Brian: More importantly, the average ARR associated with our Q2 flips increased 21.8% over last year.
Brian: As larger clients such as Fulton and Clayton counties in metropolitan Atlanta, Georgia, the cities of Tucson, Arizona, and Birmingham, Alabama, and the Columbus, Ohio City schools flip to the cloud.
Brian: Including transaction revenues, expansions with existing clients, and professional services, total bookings increased 7.3% on an organic basis.
Brian Miller: Our total annualized recurring revenue was approximately $1.8 billion, up 8.4%, and organically grew 7.8%. In previous quarters, we discussed our expectation that 2023 would be the operating margin trough from our cloud transition and that 2024 would mark a return to operating margin expansion. Our non-GAAP operating margin in the second quarter was 24.5%, up 150 basis points from last year. The margin expansion reflects improved margins from our cloud operations, along with effective operating expense management and Improving Professional Services.
Brian: Our total annualized recurring revenue was approximately $1.8 billion, up 8.4%, and organically grew 7.8%.
Brian: In previous quarters, we discussed our expectation that 2023 would be the operating margin trough from our cloud transition, and that 2024 would mark a return to operating margin expansion.
Brian: Our non-GAAP operating margin in the second quarter was 24.5%, up 150 basis points from last year.
Brian: The margin expansion reflects improved margins from our cloud operations, along with effective operating expense management and improving professional services margins.
Brian Miller: As we discussed on previous calls, merchant and interchange fees from our payments business under the gross revenue model have a meaningful impact on our overall margins as they are passed through to clients and are included in both revenues and cost of revenue. We incurred merchant fees of approximately $45 million in Q2. Because of strong earnings and effective working capital management, both cash flows from operations and free cash flow were above expectations for the quarter, at $64.3 million and $48.6 million, respectively. Cash flow in the quarter was impacted by approximately $29 million of incremental cash tax due to Section 174.
Brian: As we discussed on previous calls, merchant and interchange fees from our payments business under the gross revenue model have a meaningful impact on our overall margins, as they are passed through to clients and are included in both revenues and cost of revenues. We incurred merchant fees of approximately $45 million in Q2.
Brian: Because of strong earnings and effective working capital management, both cash flows from operations and free cash flow were above expectations for the quarter at $64.3 million and $48.6 million respectively.
Brian: Cash flow in the quarter was impacted by approximately $29 million of incremental cash taxes.
Brian Miller: We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $262 million. Our net leverage at quarter end was approximately 0.65 times trailing 12-month Proforma EBITDA. Our updated 2024 annual guidance is as follows. We expect total revenues to be between $2.12 billion and $2.15 billion. The midpoint of our guidance implies organic growth of approximately 9%. We expect that merchant fees will be up approximately 6% over last year, and that implied organic growth excluding merchant fees would be approximately 20 basis points higher. We expect GAAP diluted EPS to be between $5.76 and $5.96 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate.
Brian: due to Section 174.
Brian: We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $262 million.
Brian: Our net leverage at quarter end was approximately 0.65 times trailing 12-month Proforma EBITDA.
Brian: Our updated 2024 annual guidance is as follows. We expect total revenues will be between $2.12 billion and $2.15 billion.
Brian: The midpoint of our guidance implies organic growth of approximately 9%. We expect that merchant fees will be up approximately 6% over last year, and that implied organic growth excluding merchant fees would be approximately 20 basis points higher.
Brian: We expect GAAP diluted EPS will be between $5.76 and $5.96 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate.
Brian Miller: We expect non-GAAP-delivered EPS to be between $9.25 and $9.45. We expect our free cash flow margin to be between 18 and 20 percent, including an estimated impact of approximately $60 million of incremental cash taxes related to Section 174. Other details of our guidance are included in our earnings release and in the Q2 earnings deck posted on our website. Now, I'd like to turn the call back over to Lynn.
Brian: We expect non-GAAP to lose EPS will be between $9.25 and $9.45.
Brian: We expect our free cash flow margin will be between 18 and 20 percent, including an estimated impact of approximately $60 million of incremental cash taxes related to Section 174.
Brian: Other details of our guidance are included in our earnings release and in the Q2 earnings deck posted on our website.
Lynn Moore: Thanks, Brian. Our exceptional performance in the first half of 2024 positions us well for a strong second half. We're pleased with our progress across all fronts, as we remain on track with key initiatives around our four-pronged growth strategy while demonstrating our competitive strength and model durability. Our cloud transition is beginning to generate the expected benefits of margin improvement and enhanced client experience. As you know, in 2019, we launched a multi-year cloud strategy to shift our solutions and operations to a cloud-first business model, leading our clients to a future in the cloud.
Brian: And I'd like to turn the call back over to Lynn.
Lynn: Thanks Brian . Our exceptional performance in the first half of 2024 positions us well for a strong second half.
Lynn: We're pleased with our progress across all fronts as we remain on track with key initiatives around our four-pronged growth strategy while demonstrating our competitive strength and model durability.
Lynn: Our cloud transition is beginning to generate the expected benefits of margin improvement and enhanced client experience.
Lynn: As you know, in 2019, we launched a multi-year cloud strategy to shift our solutions and operations to a cloud-first business model, leading our clients to a future in the cloud.
Lynn Moore: As we enter the next phase of our cloud journey, and as more new and existing clients embrace our cloud strategy, we see increasing opportunities to improve areas critical to our clients that ultimately affect client satisfaction, such as Product Release Cycles, Product Consistency, Performance Reliability, and Cost-Effectiveness.
Lynn: As we enter the next phase of our cloud journey, and as more new and existing clients embrace our cloud strategy, we see increasing opportunities to improve areas critical to our clients that ultimately affect client satisfaction.
Lynn: including product release cycles, product consistency, performance reliability, and cost-effectiveness.
Lynn Moore: To effectively address these areas and lead this change, I'm pleased to share that Russell Gainford has been promoted to Chief Cloud Officer, effective immediately. Over the past three years, Russell has proven his ability to own the overall vision for Tyler's cloud-first strategy, and in his new capacity, he will continue to drive our cloud initiatives across our organization. Including developing our cloud technology and operations standards, controls, and business processes, overseeing our strategic business partner and vendor relationships, as well as architecting the organizational design and staffing plans in collaboration with operational leaders.
Lynn: To effectively address these areas and lead this change, I'm pleased to share that Russell Gainford has been promoted to Chief Cloud Officer, effective immediately.
Speaker Change: Over the past three years, Russell has proven his ability to own the overall vision for Tyler's cloud-first strategy, and in his new capacity, he will continue to drive our cloud initiatives across our organization, including developing our cloud technology and operations standards, controls, and business processes,
Speaker Change: overseeing our strategic business partner and vendor relationships as well as architecting the organizational design and staffing plans in collaboration with operational leaders.
Lynn Moore: Shifting to capital allocation, our disciplined approach bolsters our strong balance sheet as we've repaid our term debt during this period of higher interest rates. This, coupled with our ability to consistently generate strong, free cash flow, provides tremendous flexibility to take advantage of opportunities to make investments that drive shareholder value, including product development, M&A, and potentially stock buyback.
Speaker Change: Shifting to capital allocation, our disciplined approach bolsters our strong balance sheet as we've repaid our term debt during this period of higher interest rates.
Speaker Change: This, coupled with our ability to consistently generate strong free cash flow, provides tremendous flexibility to take advantage of opportunities to make investments that drive shareholder value, including product development, M&A, and potentially stock buybacks.
Lynn Moore: And while the bar is currently high for acquisitions, we continue to evaluate strategic tuck-in acquisitions while building liquidity to be in a position to address our convertible debt maturity in March. I'm also pleased to highlight that Tyler was recently recognized by two leading publications, as we were included on Time's list of America's Best Midsize Companies and Forbes' Best Employers for Women list. Before I close, I'd like to welcome our two new board members, Margo Carter and Andy Teed, who were elected at our May 9th Annual Meeting.
Speaker Change: And while the bar is currently high for acquisitions, we continue to evaluate strategic tuck-in acquisitions while building liquidity to be in a position to address our convertible debt maturity in March of 26.
Speaker Change: I'm also pleased to highlight that Tyler recently was recognized by two leading publications as we were included on Time's list of America's Best Midsize Companies and Forbes' Best Employers for Women list.
Lynn Moore: Margo brings a wealth of experience in cloud software and SAS transformations, AI, and payment. She currently serves as president of Living Mountain Capital, where she invests in and advises companies and private equity firms on digital transformation and innovative strategies. She has an extensive background in finance, M&A, and corporate governance and has served on several public company boards. Andy is a seasoned technology executive with significant public sector experience. He currently serves as the CEO of Eco Parking Technologies, an integrated lighting and parking guidance company. Prior to that, Andy spent nearly 20 years at Tyler in various senior leadership roles.
Speaker Change: Before I close, I'd like to welcome our two new board members, Margo Carter and Andy Teed, who were elected at our May 9th annual meeting. Margo brings a wealth of experience in cloud software and SaaS transformations, AI, and payments.
Margo Carter: She currently serves as president of Living Mountain Capital, where she invests in and advises companies and private equity firms on digital transformation and innovative strategies.
Margo Carter: She has an extensive background in finance, M&A, and corporate governance and has served on several public company boards.
Speaker Change: Andy is a seasoned technology executive with significant public sector experience. He currently serves as the CEO of Eco Parking Technologies, an integrated lighting and parking guidance company.
Speaker Change: Prior to that, Andy spent nearly 20 years at Tyler in various senior leadership roles.
Lynn Moore: His extensive public sector experience and familiarity with our products and clients, along with his knowledge of cloud technologies, make Andy a valuable addition to our board. I also want to thank our two outgoing board directors, Dusty Wamble and Mary Landreau, for their years of service and contributions to Tyler's success. Finally, I'd like to express my appreciation to our entire Tyler team for their hard work and continued commitment to driving growth while leading our clients on their digital modernization journey.
Speaker Change: His extensive public sector experience and familiarity with our products and clients, along with his knowledge of cloud technologies, make Andy a valuable addition to our board.
Speaker Change: I also want to thank our two outgoing board directors, Dusty Wamble and Mary Landreau, for their years of service and contributions to Tyler's success.
Speaker Change: Finally, I'd like to express my appreciation to our entire Tyler team for their hard work and continued commitment to driving growth while leading our clients on their digital modernization journeys.
Lynn Moore: Our leadership is aligned with a unified focus on cloud living, and I've never been more confident in our prospects and Tyler's 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. If you're using a speakerphone, please pick up your handset and then press the star key and the number one.
Speaker Change: Our leadership is aligned with a unified focus on cloud living, and I've never been more confident in our prospects and Tyler's future.
Speaker Change: Now we'd like to open the line for Q&A.
Speaker Change: To withdraw your request, press the star key, then the number two. As a reminder, please limit your questions to one question, so we may stay within the allotted time. We will pause momentarily to assemble our roster.
Operator: To withdraw your request, press the star key, then the number two. As a reminder, please limit your questions to one so we may stay within the allotted time. We will pause momentarily to assemble our roster. The first question is from the line of Alexei Gogolev with JP Morgan. Your line is now open. Thank you. Hi, Lynn. Hi, Brian.
Speaker Change: The first question is from the line of Alexei Gogolev with J.P. Morgan. Your line is now open.
Alexei Mihaylovich Gogolev: Congratulations on great results. Brian, I was wondering the components of higher capex. What were they?
Alexei Mihaylovich Gogolev: Thank you. Hi, Lynn. Hi, Brian . Congratulations with great results. Brian , I was wondering the components of higher CapEx, what were they, if you could elaborate on that, and why are we seeing...
Brian Miller: If you could elaborate on that and why we, [inaudible] I remember you were saying you were planning to do that for COG. Those two are related, but they're not related to any reclassification of R&D. They're just interrelated as in terms of how we... Unknown Attendee.
Speaker Change: [inaudible]
Speaker Change: Those two are related, but they're not related to any reclassification of R&D. They're just interrelated in terms of as we...
Unknown Attendee: So we carry out different R&D projects. Some of them fall in the category of requiring capitalization, and others are expensed. And sometimes there's a – and this just reflects a little bit of a shift between those two. So more of our development costs are being expensed, and less is being – I'm sorry, more is being capitalized, and less is being expensed for R&D. So it's just a shift between capitalization and R&D. Transcribed by https://otter.ai. Understood.
Speaker Change: performed different R&D projects.
Speaker Change: expense based on the nature of the project.
Brian Miller: And then the second one about Unknown Attendee, Kirk Materne, Aleksandr Zukin, Peter Heckmann, Alexei Gogolev, Tyler, and whether you think there will be a one-off benefit or you expect to unlock more discounts as you progress through the contract. Yeah, Alexei. I think it's a couple of things.
Speaker Change: and whether you think there will be a one-off benefit or you expect to unlock more discounts as you progress through the contract.
Brian Miller: You know, we did sign that long-term extension as we continue to commit more and more of our clients to AWS and more and more spend each year. We do receive some additional discounts, so I would expect those to continue. I think the other side is really just some of the operational efficiencies that we're starting to see, the product optimization as we continue to optimize and move them into AWS, version consolidation, the things that we've talked about.
Speaker Change: Yeah, Alexei, I think it's a couple of things.
Speaker Change: You know, we did sign that long-term extension as we continue to commit.
Speaker Change: of our clients going into AWS and more and more spend each year. We do receive some additional discounts, so I would expect those to continue.
Speaker Change: I think the other side is just, is really just some of the operational efficiencies that we're starting to see. The product optimization as we continue to optimize and move them into AWS.
Brian Miller: So there are a number of factors, but I do expect, looking forward, that some of our gross margins will improve. I don't know that I would look, you know, but I think as you look out over the next six, seven years, our Tyler 2030 vision, I would expect several of our gross margin lines to improve. I don't know necessarily if it's going to happen in the next 12 months, but we're making progress on all of those items. Thank you, and I appreciate it.
Speaker Change: version consolidation, the things that we've talked about. So it's a number of factors, but I do expect looking forward that
Speaker Change: Some of our gross margins would improve. I don't know that I would look at it, you know, I think as you look out over the next six, seven years, our Tyler 2030 vision, I would expect several of our gross margin lines to improve. I don't know that necessarily it's going to happen in the next 12 months, but we are making progress on all of those all those items.
Speaker Change: Thank you, and appreciate it.
Operator: Thank you for your question. The next question is from the line of Matt VanVliet with BTIG. The line is now open.
Speaker Change: Thank you for your question.
Speaker Change: Next question is from the line of Matt VanVliet with BTIG. Your line is now open.
Matthew David VanVliet: Hey, good morning. Thanks for taking the time to answer the question. You continue to have more success at the state level. I'm curious how much of that's being driven by the integration sort of more holistically on the sales team with the NIC team and sort of some of those hunting licenses versus the product maturation and the acceptance at that level. And as you look on a go forward basis, you know, how much of these deals are having sort of a multi-product together, to where the more, I guess, combined sales effort is paying off here. Yeah, Matt, it's a good point.
Matthew David VanVliet: Hey, good morning. Thanks for taking the question. Continuing to have more success at the state level, I'm curious how much of that's being driven by the integration sort of more holistically on the sales team with the NIC team and sort of some of those hunting licenses versus the product maturation and the acceptance of cloud at that level.
Speaker Change: And as you look on a go-forward basis, how much of these deals are having sort of multi-product together to where the more, I guess, combined sales effort is paying off here?
Lynn Moore: We are, we are seeing more momentum, certainly more cross-sell momentum, and in that, in that state space. I think it's a testament to our DSD division's longstanding relationships and really our enhanced focus on leveraging those these last couple of years. There are things that we've done, and we talked about in the last couple of earnings calls around compensation and sales commissions, and also, you know, executive leadership compensation that sort of try to break down some of those barriers and enhance those cross-sell opportunities.
Speaker Change: Yeah Matt, it's a good point. We are seeing more momentum, certainly more cross-cell momentum, and in that state space.
Speaker Change: I think it's a it's a testament to our DSD division's long-standing relationships.
Speaker Change: and really our enhanced focus on leveraging those these last couple of years. There's things that we've done, we've talked about in the last couple of earnings calls.
Speaker Change: around compensation and sales commissions.
Speaker Change: and also, you know, executive leadership compensations that sort of try to break down some of those barriers and enhance those cross-sell opportunities.
Lynn Moore: We are seeing more and more multi-product deals. I think I referenced a few in my notes earlier, and that, again, that's just, it's a testament to what we've been, what I've been sort of calling the last couple of years, this vision of one Tyler operating more as a single, singular, unified company, breaking down any sort of internal barriers that might have been just a slight hindrance in the past around cross-sells and up-sells. Great, thank you.
Speaker Change: We are seeing more and more multi-product deals.
Speaker Change: I think I referenced a few in my notes earlier, and that again, that's just, it's a testament to what we've been, what I've been sort of calling the last couple years, this vision of one Tyler, operating more as a single, singular, unified company.
Speaker Change: Breaking down any sort of internal barriers that might have been just a slight hindrance in the past around cross-cells and up-cells. And I think we're starting to see that pay off as relationships are continuing to forge and as they start to become more and more productive.
Operator: Thank you for your question. Next question is from the line of Rob Oliver with Baird, the extent to which this cloud move is really underscoring competitive advantages for you guys, perhaps the relationship with AWS, as you take a sector of your market that, you know, historically was somewhat more reticent to move to the cloud, and how that is helping you. And then as you look at that public safety pipeline, where you see, you know, sort of current Tyler customers and where that cross-sell advantage might be. Thank you. Yeah, you're right, Rob.
Speaker Change: Great, thank you.
Speaker Change: Thank you for your question. Next question is from the line of Rob Oliver with Baird. Your line is now open.
Robert Cooney Oliver: Great. Thank you. Good morning, guys. Lynn, my question is for you. Just, you know, pretty rapid and somewhat stunning, I guess I would say, having followed you guys a long time, increase in public safety's willingness, public safety customers' willingness to adopt the cloud. And you guys clearly are right there to address that opportunity. I'm just wondering, you know, this is one of the areas within CORE Tyler that has been historically the most competitive and I think somewhat of a modest concern for investors.
Speaker Change: I was hoping you could address the extent to which this cloud move is really underscoring competitive advantages for you guys, perhaps the relationship with AWS, as you take a sector of your market that, you know, historically was somewhat more reticent to move to the cloud, how that is helping you, and then as you look at that public safety.
Speaker Change: pipeline where you see, you know, sort of current Tyler customers and where that cross sell advantage might be. Thank you.
Robert Cooney Oliver: Public safety is, it's actually been a little bit surprising, their results this year. We, at the end of last year and really coming into this year, we had made the decision that we were going to really, you know, lead our clients to the cloud, sort of like the position we took across all of Tyler. And, and you're right, the momentum is there. It's an interesting thing.
Speaker Change: Yeah, you're right, Rob. Public safety is, it's actually been a little bit surprising, their results this year.
Speaker Change: At the end of last year and really coming into this year, we had made the decision that we were going to really, you know, lead our clients to the cloud, sort of like the position we took across all of Tyler.
Speaker Change: And you're right, the momentum is there. Momentum's an interesting thing. And, you know, as you know, our clients talk and...
Lynn Moore: And, you know, as you know, our clients talk, and so I think right now that is a competitive advantage for us. You know, we are able to offer all of our core public safety products in an SAS environment. That's not necessarily the case with all of our competitors. It's still a very competitive market. I like where we sit right now.
Speaker Change: And so I think right now it is a competitive advantage for us. You know, we are able to offer all of our core public safety products in a SAS environment. That's not necessarily the case with all of our competitors. It's still a very competitive market. I like where we sit right now. I like some of our key wins are against some really key tier one competitors, some that I mentioned.
Speaker Change: In my remarks earlier, like the Idaho State Police deal.
Speaker Change: It's a it's an interesting dynamic and one that I think is is, you know, I talked earlier about momentum it is building momentum and It's exciting to see I think we're also starting to see the impact of
Lynn Moore: I like some of our, our key wins are against some really key Tier One competitors, some that I mentioned in my remarks earlier, like the Idaho State Police deal. So it's a, it's an interesting dynamic, and one that I think is, you know, I talked earlier about momentum. It is building momentum, and it's exciting to see. I think we're also starting to see the impact of, you know, some of the cybersecurity concerns, which are, you know, heightened across all of our clients, but we've seen a number of flips. I think we had six flips in public safety in Q2. A couple of those were actually the result of some ransomware.
Speaker Change: We've seen a number of flips, I think we had six flips in a public safety in Q2.
Speaker Change: A couple of those were actually the result of some ransomware, and so being able to be nimble and stand up those clients very quickly, perhaps not with full functionality, but get them up and running where they can do their job.
Speaker Change: has actually shown a lot of benefits in starting to give confidence to our clients and to their surrounding communities that the cloud is something that they should be looking at.
Lynn Moore: And so being able to stand up those clients very quickly, perhaps not with full functionality, but get them up and running where they can do their job has actually shown a lot of benefits in starting to give confidence to our clients and to their surrounding communities that the cloud is something that they should be looking at. Great, I appreciate that. Thank you, Lynn.
Operator: Thank you for your question. The next question is from the line of Michael Turrin with Wells Fargo. Your line is now open. Hey, great. Good morning.
Speaker Change: Great, I appreciate that. Thank you, Lynn.
Speaker Change: Thank you for your question.
Speaker Change: Next question is from the line of Michael Turrin with Wells Fargo. Your line is now open.
Michael James Turrin: Thanks for taking the question. Looks like a strong Q2 for SaaS, a fairly even split between new deals and conversions and the metrics. So I was just hoping you could maybe speak to the drivers there, how you'd expect that mix between new deals and conversions, likely trends, and, if anything, seasonality in terms of Q2 and what we're looking at, we should be mindful of there. Thanks.
Michael James Turrin: Hey, great. Good morning. Thanks for taking the question.
Michael James Turrin: Looks like a strong Q2 for SAS, fairly even split between new deals and conversions in the metrics, so I was just hoping you could maybe speak to the drivers there, how you'd expect that mix between new deals and conversions, likely trends, and if anything, seasonal in terms of Q2 and what we're looking at, we should be mindful of there. Thanks.
Brian Miller: I don't think there's anything particularly seasonal around the pace of those; both the timing of new deals and, especially, the timing of flips can be a little bit lumpy. So we certainly expect the trend to continue in the mid and long term for the number of flips and the size of flips to continue to increase. One of the big factors this quarter was that the average ARR from flips this quarter was up almost 20%, and we highlighted some of those larger flips that are taking place.
Speaker Change: Yeah, I don't think there's anything particularly seasonal around the pace of those.
Speaker Change: both the timing of new deals and especially the timing of flips can be a little bit lumpy.
Speaker Change: So, we certainly expect the trend to continue to be over the mid and long term for the number of flips and the size of flips to continue to increase. That was one of the big...
Michael James Turrin: Factors this quarter was that the average ARR from flips this quarter was up almost 20% and we highlighted some of those larger flips that are taking place.
Brian Miller: But I think, in general, obviously we're at a very high percentage of SaaS at 97% in the new business. I think public safety will still have some license deals in the second half of the year and so that may even fall back a little bit, but the trend that Lynne just described is certainly a, Unknown Attendee, Mark Schappel, Charles Strauzer, William Jeffries, Peter Heckmann, Mark Schappel. The vast majority of our new deals coming in in SaaS will also continue.
Michael James Turrin: But I think in general, obviously, we're at a very high percentage of SaaS at 97% in the new business.
Michael James Turrin: I think public safety still will have some license deals in the second half of the year and so that.
Michael James Turrin: may even fall back a little bit.
Michael James Turrin: But the trend that Lynne just described is certainly...
Lynne: continuing of greater acceptance of SAS in public safety so
Lynne: So I think you'll continue to see the flips trend upward, although they may bounce around a little bit from quarter to quarter.
Michael James Turrin: and that the continuing...
Brian Miller: Yeah, I think Michael, too, I think when you look at the numbers and compare quarter over quarter from last year, we've talked about the public sector market and how budgets are healthy, and the sales pipeline is strong. I think you're seeing that.
Michael James Turrin: The vast majority of our new deals coming in in SAS will also continue. Yeah, I think, Michael, too, I think when you look at the numbers and compare quarter over quarter from last year, we've talked about the public sector market and how budgets are healthy and sales pipeline is strong.
Lynn Moore: You know, we had, I think if you look at our total new software deals, they're up about 11% year over year. Our flips are actually up about 18%, and our new SaaS deals were up about 20%. Licenses, as Brian mentioned, are continuing to decline. I think licenses in Q2 were a little less than 1% of total revenues.
Speaker Change: I think you're seeing that. You know, we had, I think if you look at our total new software deals, it's up about 11% year over year. Our flips are actually up about 18%.
Speaker Change: and our new SAS deals were up about 20%. Licenses, as Brian mentioned, are continuing to decline. I think licenses in Q2 were a little less than 1% of total revenues.
Lynn Moore: And for the year, maybe a little less than 1.5% is what we're looking for the rest of the year. So you're seeing the results of a healthy market, and you're seeing the results of that market continuing to embrace SaaS in the cloud. Thank you for your question. The next question is from the line of Charles Strauzer with CJS Securities. Good morning.
Speaker Change: And for the year, maybe a little less than 1.5% is what we're looking for the rest of the year. So you're seeing the results of a good, healthy market, and you're seeing the results of that market continuing to embrace SaaS in the cloud.
Speaker Change: Thank you for your question. Next question is from the line of Charles Strauzer with CGS Securities. Your line is now open.
Charles S. Strauzer: Just looking at guidance for the back half of the year, is there anything abnormal that we should think about when modeling the cadence of the back half? [inaudible] I don't think there's a whole lot, at a very high level. I think you'll continue to see revenues step up a bit from where they were in the second quarter. [inaudible] Sass will continue to see growth sequentially. I think the biggest growth in the second half will be as you'd expect.
Charles S. Strauzer: Hi, good morning. Just looking at guidance for the back half of the year, is there anything abnormal that we should think about when modeling the cadence of the back half? Is there anything we should fix that we should build into our thinking here?
Speaker Change: I don't think there's a whole lot. At a very high level, I think you'll continue to see
Speaker Change: Revenues step up a bit from where they were in the second quarter.
Speaker Change: particularly around professional services will continue to grow a bit.
Speaker Change: SASS will continue to see growth sequentially. I think the biggest growth in the second half will be as you'd expect.
Charles S. Strauzer: Sass revenues continue to step up quarter to quarter as more new customers come online and as we execute more flips, and we get the impact of those revenues. The other revenue lines, I think generally, you'll see them be fairly consistent with where they were in the second quarter across the third and fourth quarters, and you know, dropping down to the bottom line, I think you'll see earnings generally in the same range that we saw in the second quarter.
Speaker Change: SaaS revenues continue to step up quarter to quarter as more new customers come online and as we execute more flips and we get the impact of those revenues.
Speaker Change: The other revenue lines I think generally you'll see be fairly consistent with where they were in the second quarter across the third and fourth quarters.
Speaker Change: And, you know, dropping down to the bottom line, I think you'll see earnings generally in the same range that we see in the second quarter, in the third and fourth quarters.
Brian Miller: And cash flow, certainly, the third quarter historically is by far our strongest cash flow quarter because of the timing of maintenance collections, and that will be the case as well. Thank you for your question. The next question is from the line of Aleksandr Zukin with Wolf Research. You can let that open.
Speaker Change: And cash flow, certainly the third quarter historically is by far our strongest cash flow quarter because of timing of maintenance collections and that will be the case as well.
Speaker Change: Thank you for your question.
Speaker Change: Next question is from the line of Alex Zukin with Wolf Research. You can go ahead and open.
Aleksandr J. Zukin: Yeah, hey guys, thanks for taking the question. I'm going to try to link a few threads and just throw something out there, which is that it seems like, you know, the flips are happening faster, they're larger, and you're promoting, you know, somebody to run the cloud full time immediately. And so I guess my question is, does it feel as though the value of that maintenance portfolio, the value of these flips, given even the attach rate and the expanded portfolio, other services that you're cross-selling, and the transactional revenues, is it just growing?
Aleksandr J. Zukin: Yeah, hey guys, thanks for taking the question. I'm going to try to link a few threads and just throw something out there Which is it seems like you know, you're you're the flips are happening faster. They're larger You're promoting, you know somebody to run cloud full-time immediately and so I guess my question is does it
Speaker Change: feel as though the value of that maintenance portfolio, the value of these flips
Aleksandr J. Zukin: Like, if you look at the value of that pipeline, is it a lot larger than maybe what you were previously anticipating? And kind of, how do you see that? How should we think about that playing out in the P&L over the course of the next, you know, year or two? Yeah, Aleks, I would say.
Speaker Change: Given even the attach rate and the expanded portfolio of other services that you're cross-selling and the transactional revenues, is it just...
Speaker Change: Unknown Speaker If you look at the value of that pipeline, is it a lot larger than maybe what you were previously anticipating? And kind of how do you see that? How should we think about that playing out in the P&L over the course of the next year or two?
Lynn Moore: I think in the last, you know, several quarters, we're actually starting to see a little bit more uplift than we had expected. But I think what it does is, when you step back, and you look at our long-term Tyler 2030 goals, I'd say what's been happening over the last several quarters now is really validating what we've set out to do and what we've said we're going to do. I would like to, when you think about timing, one of the things we've constantly said is that as we look out to 2030, it won't be linear, but again, each quarter where I start to see some of these, what I'm now calling, momentums, makes me feel even more confident about what we're doing and what we've set out to do. Thank you for your question. The next question is from the line of Saket Kalia with Barclays. Your line is now open.
Speaker Change: Yeah, Aleks, I would say...
Speaker Change: I think in the last...
Aleks: You know several quarters. We're actually starting to see a little bit more uplift than what we had expected But I think what it does is when you step back and you look at our long-term Tyler 2030 goals, I'd say what's been happening over the last
Aleks: Several quarters now as it's really validating, you know, what we what we set out to do and what we said we're going to do.
Aleks: I would like to, you know, when you think about timing, you know, one of the things we've constantly said is that, you know, as we, as we look out to 2030, it won't be linear.
Aleks: But again, each quarter where I start to see some of these, what I'm now calling momentums, makes me feel even more confident about, you know, what we're doing and what we've set out to do.
Speaker Change: Thank you for your question. The next question is from the line of Saket Kalia with Barclays. Your line is now open.
Saket Kalia: Okay, great. Hey, guys, thanks for taking my question here and echoing the nice result in the quarter. Brian, maybe my question is for you. I wanna just talk about the payments business a little bit. I think you said, mid to high team growth and revenue growth in the second half, and you correct me there if I'm wrong. But is there a way that you think about the payments business as sort of an equation, right?
Saket Kalia: Okay, great. Hey guys, thanks for taking my question here and echo the nice result in the quarter.
Brian Miller: Between kind of same store sales growth plus sort of share gains, or maybe set another way, kind of a net revenue retention in that business plus the new logo, how do you think about sort of that equation, even anecdotally, as part of that kind of mid to high team growth rate in the second half? Yeah, I think and obviously the change from the the, Unknown Attendee, Michael Turrin, Unknown Attendee, Mark Schappel, Unknown Attendee, [inaudible] Transaction volumes, or we add additional services in a state that drives more revenues, but with it with that same customer.
Saket Kalia: Brian , maybe my question is for you. I want to just talk about the payments business a little bit. I think you said, you know, mid to high teams growth, revenue growth in the second half, and you correct me there from wrong.
Speaker Change: But is there a way that you think about kind of the payments business?
Speaker Change: as sort of an equation, right? Between, you know, kind of same store sales growth.
Speaker Change: plus sort of share gains, or maybe said another way, you know, kind of a net revenue retention in that business plus new logo. How do you think about sort of that equation, even anecdotally, as part of that kind of mid to high teens growth rate in the second half?
Speaker Change: Yeah, I think, and obviously the change from the
Speaker Change: you know, sort of low single digit growth in the first half to the mid to high teens in the second half mostly revolves around that, the impact of us lapping the
Speaker Change: the growth to net change from one of our state contracts mid-year last year. But if you break down that kind of high-teens growth, I think generally sort of that...
Speaker Change: And it's a high level, but the sort of the same, same, same store growth or the same customer growth.
Speaker Change: It is typically kind of high single digits, maybe approaching 10%, but kind of in that range is how we think about it. Some of that around our digital solutions division state contracts where they either have higher...
Speaker Change: transaction volumes or we
Speaker Change: add additional services in a state that drive more revenues, but with that same customer. And then the difference going up into the mid to high teens is sort of our new customer growth, and that's really reflecting the impact of
Brian Miller: And then the difference going up into the mid to high teens is sort of our new customer growth, and that's really reflecting the impact of driving the payment platform into our local government customer base and attaching it to both new and existing software customers. And we've talked about those being higher, higher margin, higher premium pricing kinds of engagement. And those are the ones we're talking about, you know, for example, this quarter that added $8 million of new ARR from new customers in our customers in our associated with our software customers. So, that's kind of generally how we think about that split.
Speaker Change: of driving the payment platform into our local government customer base and attaching it to both new and existing software customers that we've talked about.
Saket Kalia: higher margin, higher premium pricing kinds of engagements.
And those are the ones we're talking about, you know, for example, this quarter that added $8 million of new ARR from new payments customers in our associated with our software customers. So that's kind of generally how we think about that split.
Brian Miller: And I think when we think when we outline when we were looking up to Tyler 2030, we looked at transaction growth. It was really, we're projecting a long-term CAGR of sort of low double-digit growth. One of the things we're also seeing, Saket, is that we've gotten a lot better at onboarding our clients. We have a lot more efficiencies there, and so we're actually starting to get revenues recognized sooner. And then, over time,
And I think when we think, when we, I think we outlined when we were looking up to Tyler 2030, we looked at transaction growth. It was really, we're projecting long-term CAGR of sort of low double-digit growth.
One of the things we're also seeing, Saket, is we've gotten a lot better at onboarding our clients. We're getting a lot more efficiencies there, and so we're actually starting to get revenues recognized sooner.
Brian Miller: The point about sort of same store sales is how it is trying to drive further and further adoption across that client base is a significant driver. Thank you for your question. The next question is from the line of Terry Tillman with Truist. Your line is now open.
And then over time is, you know, to your point about sort of same store sales is how, is trying to drive further and further adoption across that client base is a significant driver.
Thank you for your question. Next question is from the line of Terry Tillman with Truist. Your line is now open.
Terrell Frederick Tillman: Yeah, good morning. Congratulations on behalf of me. Hi, Lynn, Brian, and Hala.
Yeah, good morning. Congratulations for me. Hi, Lynn, Brian , and Hala. I had one question. It might almost be two parts, so just bear with me. First, in terms of Idaho, congrats, Lynn, on the successful go-live. It sounded like four months. That's pretty strong. I'm curious, though, you know, you said that's an important milestone. I know you have some really large on-prem or kind of private cloud customers in court.
But also, you know, maybe some that are more ready to move. How are you thinking about some of these other potential large court flip opportunities, whether they're actionable this year?
Unknown Attendee. And then Brian , just the second part of this question is, with CSI, Resource X, AR Inspect, I was intrigued last quarter because there were some big deals there. I think you said it was about a $4 million kind of quarterly run rate on those AI-based kind of solutions. Does that still hold or is it picking up from there? Thank you. Unknown Attendee. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah.
Lynn Moore: I had one question, and it might almost be two parts, so just bear with me. First, in terms of Idaho, congrats, Lynn, on the successful go-live. It sounded like four months.
Yeah, good question, Terry, on the Idaho SAS flip. You know, our courts...
There's only so many state court implementations out there, and so getting that first one out there.
On time, live, and referenceable was a pretty impressive feat by our people. And I'm going to make a little sidebar comment because we've talked about it before over the years. But I think one of the things that's really impressive about our teams.
is all the work that we do behind the scenes. You know, we talk a lot about the numbers, but there's a lot of work that goes into getting these clients up and actionable, whether it's a SAS Flip or even just a new implementation. And our teams just did an incredible job. And as you know,
Lynn Moore: That's pretty strong. I'm curious, though, you said that it was an important milestone. I know you have some really large on-prem or kind of private cloud customers in courts, but also, you know, maybe some that are more ready to move. What are you thinking about some of these other potential large court flip opportunities, whether they're actionable this year or into next year?
This entire business is a reference business.
And there were a lot of state courts who had inquired, have been asking about the SAS Flip. But they all were sort of keeping an eye on Idaho. So do I expect that to translate into...
Other large statewide SAS flips or just other large court SAS flips. I do I'm not going to say that they're going to start happening, you know in the month of September But I think as you look out over the coming quarters, you'll start to see that momentum grow and build in that in that market
Speaker Change: Yeah, with respect to the three acquisitions from last year that have strong AI capabilities,
They continue to perform really well in terms of the new business market and they are continuing to grow. We highlighted last quarter a couple of large deals and I think we mentioned a few of those this time as well. I think we've been really pleased with
Brian Miller: And then, Brian, just the second part of this question is, with CSI Resource X and AR Inspect, I was intrigued last quarter because there were some big deals there. I think you said it was about a $4 million kind of quarterly run rate on those AI-based solutions. Does that still hold, or is it picking up from there? Thank you. Yeah, good question, Terry, on the Idaho SAS flip. You know, our courts, there's, there's only so many state court implementations out there.
Lynn Moore: And so getting that first one out there, on time, live, and referenceable was a pretty impressive feat by our people. And I'm going to make a little sidebar comment because we've talked about it before over the years. But I think one of the things that's really impressive about our teams is all the work that we do behind the scenes. You know, we talk a lot about the numbers, but there's a lot of work that goes into getting these clients up and running, you know, whether it's a SaaS flip or even just a new implementation. And our teams just did an incredible job.
Lynn Moore: As you know, this entire business is a reference business. And there were a lot of state courts who had inquired about the SAS flip, but they all were sort of keeping an eye on Idaho. So do I expect that to translate into other large statewide SAS flips or just other large court SAS flips? I do.
Brian Miller: I'm not going to say that they're going to start happening, you know, in the month of September, but I think as you look out over the coming quarters, you'll start to see that momentum grow and build in that market. Yeah, with respect to the three acquisitions from last year that have strong AI capabilities, they continue to perform really well in terms of the new business market, and they are continuing to grow.
Brian Miller: You know, we highlighted last quarter a couple of large deals, and I think we mentioned a few of those this time as well. I think we've been really pleased with the speed at which those have started to contribute, and we're able to leverage cross-sells. Of course, that's part of the thesis behind all of those acquisitions, that we can leverage our existing sales organizations and our existing customer base and new deal opportunities to grow and sell more of those newly acquired products. And I think we've been really pleased with the speed at which we've been able to execute on those and, .........
the speed at which those have started to contribute and we're able to leverage cross-sells. Of course, that's part of the thesis behind all of those acquisitions that we can leverage our existing sales organizations and our existing customer base and new deal opportunities to exploit that
Sell more of those newly acquired products, and I think we've been really pleased with the speed at which we've been able to execute on those.
particularly you know CSI adding that to some of our large quartz deals. Resource X already had some large client
Brian Miller: And we're continuing to see those come on board as well, and they are in spec. We called out several state deals there this quarter, so those are all performing really well and contributing nicely. Transcripts provided by Transcription Outsourcing, LLC.
engagements and we're continuing to see those come on board as well and they are in spec. We called out several state deals there.
So those are all performing really well and contributing nicely, kind of out of the box. Yeah, there's a lot of buzz for these out in the marketplace, Terry. And, you know, as Brian said, it's getting there.
Operator: On the one hand, it's a great playbook that we've run for many years, a tuck-in acquisition that we can get in the hands of our sales teams and get out to our installed base, but also in areas like ResourceX, for example. It's a differentiator for us in our new enterprise ERP sales. So it's both a competitive advantage in new sales but also a huge opportunity to deploy through our installed base. Thank you for your question. The next question is from the line of Josh Reilly with Needham & Co. Your line is now open.
It's kind of two-fold. On the one hand, it's a great playbook that we've run for many years, a tuck-in acquisition that we can get in the hands of our sales teams and get out to our installed base. But also in areas like ResourceX, for example, I mean, it's a differentiator for us in our new enterprise ERP sales.
So it's both a competitive advantage in new sales, but also a huge opportunity to deploy through our install base.
Thank you for your question. Next question is from the line of Josh Reilly with Needham & Co. Your line is now open.
Joshua Christopher Reilly: Yeah, thanks for taking my question. Just on the Dallas data center closure, can you just remind us in the income statement where the expenses for that data center lie and what's the implication for our second half modeling with that shutting down? And then, just secondarily, on the margin front, can you just give us some color on what drove the margin improvement in services? Thank you. I'll take the first part of it.
Thanks for taking my question. Just on the Dallas Data Center closure, can you just remind us...
In the income statement, where the expenses for that data center lie and
What's the implication for our second half modeling?
with that shutting down. And then just secondarily along the margin front, can you just give us some color on what drove the margin improvement in services? Thank you.
Brian Miller: We, most of the costs for the data center are up in cost of,,,,,,,,,,,,, Those, the first data center that closed, the Dallas data center, is a COLO facility, so there's not a real estate impact there. So those costs will be, you know, will be part of our Margin Profile. In the second half of the year, but also to remind you that around the second data center, which we expect to close around the end of next year, the bubble costs, or the duplicate costs of running that data center and incurring costs in AWS as we migrate customers out, those costs continue to increase until they go away because we continue to move more customers out of that data center as we progress towards its closure.
I'll take the first part of it. Most of the costs for the data center are up in costs of...
Subscriptions. So they're up in the gross margin line. There's also, I mean, there's depreciation, there's operating costs, and there's some personnel costs.
Those, the first data center that closed, the Dallas Data Center, is a COLO facility, so there's not a real estate impact there. So those costs will, are, you know, are, will be part of our, our...
margin profile in the second half of the year.
But also remind you that around the second data center, which we expect to close around the end of next year, the bubble costs or the duplicate costs of
running that data center and incurring costs in AWS as we migrate customers out.
Those costs continue to increase until they go away
Brian Miller: So the impact of the closing of the first data center is somewhat offset by the ongoing impact of the second data center. So, and then we'll get a bigger bump at the end of, after that data center closes in 25. So again, overall, I think operating margins are probably pretty consistent in the second half of the year with where they are here in Q2. Yeah, I'd say, I'd add to that, Josh, one of the things that's gratifying to me is, you know, we outlined this vision of closing the data centers a couple of years ago, and we're basically hitting it on track.
Out of that data center as we progress towards towards its closure, so.
The impact of the closing the first data center is somewhat offset.
by the ongoing impact of the second data center. So, and then we'll get a bigger bump at the end of after that data center closes in 25. So, so again, I think.
Overall, I think operating margins are probably pretty consistent in the second half of the year with where they are here in Q2.
Yeah, I'd say, I'd add to that, Josh, one of the things that's gratifying to me is
You know, we outlined this vision of closing the data centers a couple of years ago and we're basically hit it on track.
Brian Miller: And that takes a lot of work by a lot of people. And again, it continues to validate some of the things that we outlined a couple years ago as we started our cloud transformation, so that's gratifying to see.
And that takes a lot of work by a lot of people.
And again, it continues to validate.
Some of the things that we've outlined a couple of years ago as we started our cloud transformation. So that's gratifying to see. You know, the other obvious upside of getting out of the Dallas Data Center and eventually out of the ARMA Data Center is all the future CapEx savings.
Brian Miller: You know, the other obvious upside of getting out of the Dallas data center and eventually out of the ARMA data center is all the future CapEx savings. You know, we would have spent a lot of money over the next five, seven years adding to those capabilities had we not done that. Your question around pro services and gross margins is a couple of things. I would say, one, it's been an enhanced focus, sort of a top-down focus from the management team over the last year plus.
We would have spent a lot of money over the next five, seven years.
Adding to those capabilities had we not done that. Your question around pro-services gross margins, it's a couple of things. I would say one, it's been an enhanced focus.
Brian Miller: It's something that we're dissecting and have continued to dissect and look at things around really focusing on those gross margins, utilization, things like that. The other thing that's been driving it is we're starting to see a little more stability in our workforce. We've been seeing that for several quarters. Turnover is a lot lower.
sort of a top-down focus from the management team over the last year plus.
It's something that we're dissecting and have continued to dissect and look at things around.
You know, really focusing on those gross margins, utilization, things like that. The other thing that's been driving it is we're starting to see a little more stability in our workforce, and we've been seeing that for several quarters, so turnover is a lot lower.
Brian Miller: In the professional services area, when you experience elevated turnover, which we did coming out of COVID, and we did during that period post-COVID when people were transferring out and going to the "grass is always greener," it's tough because it takes a long time to get people trained up to speed and get to a point where they can be out in the field and be billable. I think it's part of what we're seeing overall in the labor market, but having that return of more stability and more consistent historical Tyler turnover levels is certainly helping, but it's also been an enhanced focus from the management team.
And in the pro-services area, you know, when you experience elevated turnover, which we did coming out of COVID, we did during sort of that period post-COVID when, you know, people were transferring out and going through the grass is always greener, you know, it's tough because it takes a long time to get people trained up to speed and get to a point where they can be out in the field and be billable.
And so, you know, I think it's part of what we're seeing overall in the labor market. But having that return of more stability and more consistent, you know, historical Tyler turnover levels is certainly helping. But it's also been an enhanced focus from the management team.
Brian Miller: I think the ongoing move to the cloud helps us there as well, because, in a general sense, we're able to deploy software more efficiently in the cloud. Version consolidation helps us as well, on both services and support. Yeah, and to that point, Brian, I guess, you know, remote delivery of services is something we really started around COVID, and clients continue to have more and more acceptance of that delivery model. Thank you for your question. The next question is from the line of Peter Heckmann with DA Davidson. Your line is now open. Hey, good morning.
I think the ongoing move to the cloud helps us there as well because in a general sense we're able to deploy software more efficiently in the cloud. And version consolidation helps us as well to some extent there on both services and software.
and support.
Yeah, and to that point, Brian , I guess, you know, remote delivery of services, you know, it's something we really started around COVID and clients continue to have more and more acceptance of that delivery model.
Thank you for your question. Next question is from the line of Peter Heckmann with DA Davidson. Your line is now open.
Peter James Heckmann: Most of my questions have been answered. I just wanted to follow up on the NIC transaction and just see if you're seeing any changes in terms of those self-funded state-level IT portal deals. If the states are looking for something different, something more, and then just curious about the – it looked like you had good renewal activity here in the first half, but do you – I guess, what's your perception of other states migrating to that self-funded portal model in the future, or do you think it's more likely that you'd do something more on an agency-by-agency basis at the state level? Well, it's a little bit of both.
Hey, good morning. Most of my questions have been answered. I just wanted to follow up on the NIC transaction and just see if you're seeing any changes in terms of those.
Self-funded state-level IT portal deals if the states are looking for something different something more
and then just curious about the look like a good renewal activity here
in the first half, but do you?
I guess, what's your perception of other states?
migrating to that self-funded portal model in the future.
or do you think it's more likely that you'd do something more on an agency by agency basis at the state level?
Lynn Moore: Peter, you know, the state-funded model is what Old NIC, now DSD, grew up with, and I think there's going to be continued demand for that type of model as budgets are constrained. We talked about it last quarter, the significant deal we signed with last quarter, the quarter before the California State Parks, without which that deal could not have happened. It's the largest contract in Tyler's history, and that deal could not have happened absent the self-funded model.
Well, it's a little bit of both.
Peter, you know, the state funded model is what?
old NIC, now DSD, grew up with. And there's, I think there's going to be continued demand for that type of model as budgets are constrained. We talked about it last quarter, the significant deal we signed with, last quarter, the quarter before the California State Parks.
which that deal could not have happened. It's the largest contract in Tyler's history.
and that deal could not have happened absent the...
Lynn Moore: I do think we are also going to continue to see more and more agency by agency; that's part of our strategy, getting more products in on a targeted agency basis that's probably more aligned with the more historical Tyler model. We've done some things internally over the last couple of quarters, really focusing on the last year. We've done an internal realignment between our platform solutions division and our digital solutions division so that we can take advantage of both of those opportunities, align our sales teams, eliminate some overlap, but really start to drive both types of sales as we go forward. Thank you for your question. The next question is from the line of Jonathan Ho with William Blair. Your line is now open. Hi, good morning.
Self-Funded Model
I do think you're going to, we are also going to continue to see more and more agency by agency. That's part of our strategy, getting more products in on a targeted agency basis. That's probably more aligned with the...
you know, more historical Tyler model.
We've done some things internally over the last couple of quarters, really consummated in the last year. We've done an internal realignment between our platform solutions division.
and our Digital Solutions Division, so that we can take advantage of both of those opportunities, align our sales teams, you know, eliminate some overlap, but really start to drive both types of sales as we go forward.
Jonathan Frank Ho: Can you give us a little bit of additional color about your thoughts around cybersecurity and what this could potentially mean in terms of either upsell opportunities or an accelerated transition to the cloud? Just want to get a sense for how much this is sort of impacting the industry as a whole. Thank you. Yeah, Jonathan. I mean, as we know, it's a reality.
Thank you for your question. Next question is from the line of Jonathan Ho with William Blair. Your line is now open.
Hi, good morning. Can you give us a little bit of additional color about your thoughts around cybersecurity and what this could potentially mean in terms of either upsell opportunities or accelerated transition to the cloud? I just want to get a sense for how much this is sort of impacting the industry as a whole. Thank you.
Lynn Moore: You know, we always say it's even, it's not a matter of if, it's when, and cybersecurity events have certainly impacted both our clients and others, public sector agencies that aren't our clients. It is a natural opportunity to accelerate discussions around moving to the cloud and flipping the cloud. We've had a number of those.
Yeah, Jonathan, I mean, as we know, it's a reality. You know, we always say it's even, you know, it's not a matter of if, it's when. And cybersecurity events have certainly impacted both our clients and other public sector agencies that aren't our clients.
A natural opportunity to accelerate discussions around moving to the cloud and flipping the cloud. We've had a number of those. We don't necessarily... I talked about a couple of public safety that happened last quarter. I don't really like to highlight them too much, but it's a reality that's going on in the market.
Lynn Moore: We don't necessarily, I talked about a couple of public safety issues that happened last quarter. I don't really like to highlight them too much, but it's a reality that's going on in the market. And one of the things that I think we're getting better at is as we're flipping clients to the cloud for whatever reason, but certainly in the cybersecurity area. As a result of cybersecurity, it is an opportunity to get them more modern and add some more products to the mix. So you know, again, it's out there. We're all dealing with it.
And one of the things that I think we're getting better at is, as we're flipping...
Clients to the cloud for whatever reason but certainly in the cyber security, you know as a result of cyber security is it is an opportunity
to get them more modern and add some more products in the mix.
Lynn Moore: And our goal really is to be as responsive to our clients as possible. And we've gotten better. I mentioned it in public safety. We've also gotten better at being able to stand up clients really quickly, maybe not with the full functionality that they might've had in an on-premise system out of the box, but enough to get them going, which also gives us an opportunity to sort of reevaluate all of their requirements and potentially upsell other items.
So, you know, again, it's out there. We're all dealing with it.
Lynn Moore: And so, yeah, it's just out there. Thank you for your question. The next question is from the line of Kirk Materne with Evercore. Your line is now open.
Thank you for your question. Next question is from the line of Kirk Materne with Evercore. Your line is now open.
Kirk Materne: Congratulations. Thank you. Thank you.
Lynn Moore: Unknown Attendee, Kirk Materne, Aleksandr Zukin, Peter Heckmann, Robert Oliver, John Marr, Unknown Attendee, Kirk Materne, Aleksandr Zukin, Peter Heckmann, Robert Oliver, John Marr, Unknown Attendee, Kirk Materne, Alexei Gogolev, Tyler Technologies Inc Yeah, I think Kirk, it's certainly a competitive differentiator right now, and I think we' There are always times when competitors sort of make a move, and then we make a move. I'd say right now that I like where we are with public safety.
Unknown Attendee Yeah, thanks. Congrats on the quarter. On the public safety side, when, you know, customers are now flipping, you know, in a bigger way towards cloud.
How does that change the competitive environment for you, meaning I'd imagine there are a lot of smaller competitors that don't necessarily either have the scale on the cloud side or potentially are as advanced as you all. Is that leading to better, I guess, win rates in that particular segment of your business as well?
Yeah, I think, Kirk, it's certainly...
It's certainly a competitive differentiator right now.
And I think we've seen this historically across different business lines. There's always times when, you know, competitors sort of make a move and then we make a move. I'd say right now I like where we sit with public safety. You know, we have the most comprehensive offering. We have the most comprehensive offering that can be deployed in the cloud.
Lynn Moore: We have the most comprehensive offering; we have the most comprehensive offering that can be deployed in the cloud. There are some smaller players who certainly have some cloud-native offerings but may not have the depth of functionality and may not really be good candidates for some of these larger deals, and whether or not they have the ability to execute on it.
Lynn Moore: What's been impressive, I think, over the last 18 months or so, 12, 18 months at public safety, is the execution on this strategy. It's a shift in mindset for that sales team, it's a shift in mindset for all the operational teams, and messaging that out to the market, it's responding, and it's something that's exciting to see. I remember a couple of years ago talking about how, boy, it could be several years, maybe five, six years before we were even at 50% SaaS levels in public safety, and it just shows you the changing dynamics in the market, and fortunately, we've been in a position through some of the work we did over the years to not only capitalize on it, but also, Thank you for your question. The next question is from the line of Gabriela Bor Your line is now open. Hi, this is Callie Valenti on behalf of Gabriela.
and and whether or not they're their ability to execute on it what's what's been impressive
I think over the last 18 months or so, 12-18 months at Public Safety is...
is the execution on this strategy.
It's a shift in mindset for that sales team, it's a shift in mindset.
for all the operational teams.
and messaging that out to the market, it's resonating and it's something that's...
Unknown Speaker I remember a couple years ago talking about how it could be several years, you know, maybe five, six years before we were even at 50%.
Thank you for your question. Next question is from the line of Gabriela Borges with Goldman Sachs. Your line is now open.
Gabriela Borges: Thanks for taking my question and congrats on the quarter as well. Given that a lot of your customers are now kind of in a new fiscal year, can you share some early observations on what customer budgets are looking like this year relative to last year? And then how much of this stronger demand that you're seeing is tied to these healthy budgets versus kind of just, you know, demand for cloud computing and some of the other factors you mentioned. Yeah, I don't know that. Yeah, we for a lot of our clients are on a June 30 fiscal year. But I don't know that we necessarily have significant insight into those budgets. They're pretty steady. They're pretty healthy,
Hi, this is Kali Valenti on for Gabriela. Thanks for taking my question and congrats on the quarter as well. Given that a lot of your customers are now kind of on a new fiscal year,
Can you share some early observations on what customer budgets are looking like this year relative to last year, and then how much of this stronger demand that you're seeing is tied to these healthy budgets versus kind of just, you know, demand for cloud and some of the other factors you talked about? Transcribed by https://otter.ai
Yeah, I don't know that, um, yeah, we, for, a lot of our clients are on June 30th, fiscal year.
But I don't know that we necessarily have significant insight in those budgets. They're pretty steady. They're pretty healthy You know, most of our sales procurement cycles are multiple years long Or certainly long not all multiple years, but they're they tend to be lengthy I think
Lynn Moore: You know, most of our sales procurement cycles are multiple years long or certainly long, not all multiple years, but they tend to be lengthy. I'm sorry, I lost my train of thought there. So yeah, I think the budgets are healthy right now, and I think our win rates are good. One of the things that we have noticed this year is, I think, probably a leading indicator, when you look across our product lines, all of the indicators are still strong.
I'm sorry, I lost my train of thought there. So yeah, I think the budgets are healthy right now. And I think our win rates are good. One of the things that we have noticed this year is I think probably a leading indicator is when you look across our product lines,
Lynn Moore: And really, most of our divisions, almost all of our products are either at or above sort of what their sales projection was for the year in terms of being mid-year. So that's a good tailwind as we look out over the next several quarters. And right now, we're not seeing any certain, certainly no negative changes in public sector budgets.
All of the indicators are still strong.
And really, most of our divisions, almost all of our products are either at or above sort of what their sales projection was for the year in terms of being mid-year, so that's
That's a good tailwind as we look out over the next several quarters, and right now we're not seeing any, certainly no negative changes in the public sector budgets.
Brian Miller: And I think the other side of that strong demand is this increasing desire for digital modernization, address, and doing more with less resources. So to the extent that they are really struggling with understaffing, a lot of workers left the public sector space during COVID, and, in general, the government has not rebuilt its workforce. So they're trying to perform these essential services with staffing constraints and really turning to technology as how they do that.
And I think the other side of that strong demand is this increasing desire for digital modernization and it's really how governments increasingly
do, you know, address
doing more with less resources. So to the extent that they have really struggling with understaffing, a lot of workers left the public sector.
Space during COVID and in general. Government has not rebuilt its workforce, so they're trying to perform these essential services
Brian Miller: So I think it's a little bit more than just the traditional replacing a 20-year-old system that's at the end of its life and is dying. They're being more strategic about it and saying, okay, new technology will help me do the things I have to do with either the budget or the personnel constraints that I'm forced to deal with.
with staffing constraints and really turning to technology.
as how they do that. So I think it's a little bit even more than just the traditional replacing a 20-year-old system that's at end of life and is dying. They're being more strategic about it and saying, okay, new technology will help me.
Do the things I have to do with either the budget or the personnel constraints that I'm forced to deal with.
Operator: Thank you for your question. The next question is from the line of Mark Schappel with Loop Capital Markets. Your line is now open. Hi, thank you for taking my question. Nice job on the quarter.
Thank you for your question. Next question is from the line of Mark Schappel with Luke Capital Markets. Your line is now open.
Mark William Schappel: John, question for you in your prepared remarks, you noted continued progress you're making around your product version consolidation efforts. Just wondering if you could elaborate on the progress you made during the quarter on that front and also what we can expect maybe in coming quarters here. Yes, sure, Mark. You know, obviously, version consolidation has been a big part of what I've been calling sort of phase one of our cloud transformation, and phase one is, you know, selecting AWS, product optimization, version consolidation, the flips, and exiting the data centers.
Hi, thank you for taking my question and a nice job on the quarter. John , a question for you in your prepared remarks, you noted continued progress you're making around your product version consolidation efforts. Just wondering if you could elaborate on the progress you made during the quarter on that front and also what we can expect maybe in coming quarters here.
Yes, sure, Mark.
You know, obviously, version consolidation has been a big part of what I've been calling sort of phase one of our cloud transformation.
Phase 1 is selecting AWS, it's product optimization, it's version consolidation, it's the flips, it's exiting the data centers. Version consolidation is critical.
Mark William Schappel: Version consolidation is critical for a lot of reasons. One is, you know, we need to get down to a single product; we need to get down to a cloud release. You know, we need to get our clients up to date on the modern versions, otherwise, you know, they're not really going to be flipping the cloud. That's part of the foundation for that. You know, we don't really go, you know. I don't know that you necessarily see quarter by quarter progress, but you see goals that are being hit and attained.
For a lot of reasons. One is, you know, we need to get down to a single product. We need to get down to a cloud release.
We need to get our clients up-to-date on the modern versions, otherwise they're not really going to be flipping the cloud. That's part of the foundation for that.
I don't know that you see necessarily quarter by quarter progress, but you see goals that are being hit and attained. Anecdotally, for example, in our enterprise ERP division, which is...
Mark William Schappel: Anecdotally, for example, in our enterprise ERP division, which was formerly our Munis product, we now have about 95% of our clients on a single version, whereas a couple years ago, there were several versions with, you know, maybe hundreds of clients on different types of versions.
formerly our Munis product.
We now have about 95% of our clients down on a single version, whereas a couple of years ago...
Lynn Moore: So, that's significant progress that's been made, and it's a focus across all of our divisions and all of our operating units, and they're making similar progress. Thank you for your question. There are no additional questions waiting at this time, so I'll pass the call back to Lynn Moore for any closing remarks. Thanks, Matt. And thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian Miller or myself. Thanks, everybody. Have a great day! That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
There were several versions with, you know, maybe hundreds of clients on different types of versions. So that's significant progress that's been made, and it's a focus across all of our divisions and all of our operating units, and they're making similar progress.
Thank you for your question. There are no additional questions waiting at this time, so I'll pass the call back to Lynn Moore for any closing remarks.
Thanks, Matt. And thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian Miller or myself. Thanks, everybody. Have a great day.
That concludes the conference call. Thank you for your participation. You may now disconnect your lines.