Q1 2025 Tyler Technologies Inc Earnings Call

Hello and welcome to today's Tyler Technologies first quarter 2025 conference call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

In order to address your questions and stay within the allotted time, please limit your question to one question per person. You make it back into the queue for a follow-up. As a reminder, this conference is being recorded today April 24th, 2025.

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

Speaker Change: Thank you Rob and welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer and Brian Miller, our Chief Financial Officer

Speaker Change: After I give the State Parvastatement, Lynn will have some initial comments on our Twitter and then Brian will review the details of our results and updates or annual guidance for 2025. Lynn will answer some additional comments and then we'll take your questions.

Speaker Change: During this call, management may make statements that provide information other than historical information. They may include projections concerning the company's future prospects, revenues, expenses, and profits.

Speaker Change: Such statements are considered forward-looking statements under the same harbor provision of the private security remediation reform act of 1995 and are subject to certain risks and certainties which could cause actual results to differ materially from those rich from these projections.

Speaker Change: We would refer you to our form 10k and other SEC files for more information on those risks.

Speaker Change: 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.

Speaker Change: We have also posted on the investor relations section of our website under the Financial tab, a schedule with supplemental information, including information about quarterly recurring revenues and bookings

Speaker Change: On the events and rehabilitation tasks, we've posted an earning summary deck to supplement our prepared remarks

Speaker Change: Please note that all gross comparisons we make on the call today will relate to the course funding period of last year unless we specify otherwise. When?

Thanks, Hala.

Speaker Change: Our first quarter results provide a strong start to the year, reflecting disciplined execution around our strategic initiatives.

Speaker Change: We exceeded expectations across key revenue and profitability metrics, and achieved double-digit total revenue growth, fueled by robust growth and subscription revenues

Speaker Change: Sass Reven is grew 21%, marking our 17th consecutive quarter of sass growth of 20% or more.

Speaker Change: Transaction-based revenues were ahead of plan and grew 18.5% driven by higher transaction volumes including increased adoption and deployment of new transaction-based services.

Speaker Change: Our non-GAAP operating margin expanded to 26.8%, benefiting from efficiencies across our cloud operations, a mixed shift to higher margin-sass revenues, and away from lower margin professional services and hardware revenues, and favorable operating expense trends. [inaudible]

Speaker Change: In addition, pre-cache flow of $48 million was ahead of our plan.

Speaker Change: Our cloud transition is driving efficiency gains through progress with version consolidation and cloud optimized releases that enhance scalability in Tyler's next generation cloud offering.

Speaker Change: Our cloud-first strategy further strengthens the resilience and durability of our business model.

Speaker Change: We are uniquely positioned to support our clients through their cloud journey as they embrace digital modernization and integrated technologies that prioritize efficiencies, optimize workflows, improve decision making and provide enhanced security.

Speaker Change: Our ability to deliver exceptionally strong results and maintain a positive outlook for the balance of the year in the midst of unpredictable macro conditions illustrates the stability of our business and the resilience of our model.

Speaker Change: While we are not completely immune to the macro-conditions affecting many companies, I can't say that any impacts we are currently seeing, whether from cuts and federal funding for agencies, caution around spending or potential tariffs on hardware are minimal and just around the margins of our businesses.

Speaker Change: We are not currently seeing any fundamental changes in demand or buying behavior [inaudible]

Speaker Change: The public sector market remains active as evidenced by RFPs and sales demonstration activity that are stable at elevated levels.

Speaker Change: Some procurement processes have slowed due to two things. One, a higher number of consultant-driven processes, which tend to elongate sail cycles, and two, additional scrutiny or uncertainty around the macro-environment.

Speaker Change: But these are fairly isolated and represent a minority of our pipeline . . .

Speaker Change: The strength of our pipeline reflects the benefits of our competitive position as the industry leader, together with a unified sales organization, collaborating at heightened levels to leverage our unmatched install base, identify and secure cross sell opportunities, and draw a multi-sweet deal momentum

Speaker Change: Additionally, we continue to expand synergies across Tyler at the state level, building out sales resources with a dedicated state sales team that will serve as a strategic bridge to leverage our deep state enterprise relationships, and identifying capture sales opportunities for software across Tyler.

Speaker Change: Our leadership team has experienced challenged macro environments in the past, and that experience gives us confidence in the resilience and stability of the public sector market and our business model.

Speaker Change: At the local government level, which makes up the vast majority of our revenues, budgets that support purchases from Tyler are primarily funded by property taxes, in addition to utility revenues and other locally generated sources.

Speaker Change: Revenue streams that tend to be reliable even in shifting economic environments

Speaker Change: This funding stability supports consistent long-term demand driven by the need to replace aging mission critical systems that have reached end of life.

Speaker Change: At the state level, the majority of our transaction revenues come through self-funded services or user fees that do not require appropriate funds from the state budget.

Speaker Change: Most of these services, like driver's license renewals, are nondiscretionary and are generally not impacted by economic conditions.

Speaker Change: This year, a new acronym, DOGE, has become part of our vocabulary. While less than 5% of our revenues come from the federal government, the focus on efficiency is becoming more visible at all levels of government.

Speaker Change: We have not seen and do not currently anticipate any meaningful negative impact on our business from Doge or similar initiatives. As the vast majority of the software and services we provide are considered essential and actually enhance efficiency.

Speaker Change: Rather than viewing these initiatives as a risk, we see opportunities in aligning with efficiency objectives such as those outlined in Doge, which emphasize modernizing technology as a key component of maximizing governmental efficiency and productivity. Thank you very much.

Speaker Change: In fact, Section 4 of the Executive Order Establishing Doge is entitled Modernizing Federal Technology and Software to Maximize Efficiency and Productivity [inaudible]

Speaker Change: And states that the U.S. D.S. Administrator shall commence a software modernization initiative to improve the quality and efficiency of government-wide software, network infrastructure, and information technology systems. The U.S. Administrator shall commence a software modernization initiative to improve the quality and efficiency of government-wide software,

Speaker Change: and that among other things, the USDS administrator shall work with agency heads to promote interoperability between agency networks and systems.

Speaker Change: As public sector agencies manage through the challenge of aging IT infrastructures and limited resources, we are well positioned to support their digital modernization and efficiency initiatives with our cloud-based integrated software solutions [inaudible]

Speaker Change: I'm pleased with the solid execution across Tyler supporting our four key growth pillars, completing our cloud transition, leveraging our large client base, growing our payments business and expanding into new markets.

Speaker Change: I'd like to highlight a few first quarter wins that illustrate our progress against our growth objectives.

Speaker Change: These include a full enterprise justice on premises to cloud migration with the Cleveland Ohio Municipal Court for approximately $800,000 in ARR.

Speaker Change: Our courts and justice team executed this SAS flip in just one weekend following a cyber security incident with operations quickly

Speaker Change: A five-year appraisal service is privatization contract with Gwinnett County, Georgia, valued at a total of $8.7 million.

Speaker Change: A fast contract with Fulton County, Georgia for Enterprise Records Management, representing $500,000 in ARR plus payments.

Speaker Change: This cross-sale deal leveraged our strong existing presence in Fulton County with our enterprise appraisal and tax and enterprise justice solutions.

Speaker Change: And building on our momentum from last quarter, we had seven wins for our AI-driven, priority-based budgeting solution including the cities of Dallas, Texas, Olympia Washington, and Bloomington, Minnesota.

Speaker Change: For the quarter, we signed a total of 106 flips to the cloud of on-premises clients with a 28% increase in the total contract value from flips

Speaker Change: In our state enterprise business, we secured three year extensions for our digital government services with the state of Connecticut and New Mexico, representing more than $8 million in AR.

Speaker Change: We signed 196 new payment deals across Tyler's software clients representing approximately 4.4 million in project in ARR.

Speaker Change: We also signed a five-year extension of our payment processing contract with the state of Florida, representing approximately $31 million in ARR.

Speaker Change: Now, I'd like Brian to provide more detail on the results for the quarter in our annual guidance for 2025.

Brian Miller: Thanks Lynn. Total revenues for the quarter were $565.2 million, up to $10.3%

Brian Miller: Subscriptions revenue increased 19.7%. Within subscription, SaaS revenues grew 21% to $180.1 million.

Brian Miller: Keep in mind that there is often a lag from the signing of a new SAS deal or a flip to the start of revenue recognition that can vary from one to several quarters because of this as well as the timing of SAS renewals and related price increases, that's revenue growth, both year-over-year and sequentially, may fluctuate from quarter to quarter

Brian Miller: Transaction revenues grew 18.5% to 194.9 million, driven by higher transaction volumes for both new and existing clients and increased adoption and deployment of new transaction-based services, as well as rate increases by third-party payment processing partners.

Total bookings for Q1 were down 1.9% year-over-year.

Brian Miller: Transaction Bookings exhibited solid growth, reflecting higher payment volumes from new and existing customers, as well as new services in areas such as outdoor recreation and digital motor vehicle titling.

Brian Miller: Seth's bookings declined from last year's Q1, which we attribute to several factors. As we noted on the previous earnings call, some deals that would have signed this quarter were pulled forward into Q4 because of the year end deadline for committing arpa funds.

Brian Miller: While we don't believe that there has been any fundamental change in demand, as evidenced by continued strengths in new RFPs and our deep pipeline, we have seen some instances of longer sales processes that we believe represent timing changes, rather than cancellation of procurements.

Brian Miller: As Lynn noted, we believe that an increase in consultant driven processes, as well as caution exhibited by some prospects in light of uncertain macroeconomic conditions are contributing to those delays.

Brian Miller: Seth Deals comprised approximately 96% of our new software contract value compared to 93% last year.

Brian Miller: During the quarter, we added 138 new SaaS arrangements and signed 106 SaaS flips of existing on-premises clients, with a total contract value of approximately $67 million.

Brian Miller: In Q1 of last year we added 200 new SaaS arrangements and had 90 flips with a total contract value of approximately 78 million.

Brian Miller: The average ARR from new SaaS contracts was approximately 53,000 down 3% over last year The average ARR associated with our Q1 flips was flat with last year at approximately $113,000 [inaudible]

Brian Miller: Our total annualized recurring revenue was approximately 1.95 billion, up 13.3%

Brian Miller: Arnon Gap, Operating Mars, and Expanded 26.8% to 26.8% Up 300 basis points from last year.

Brian Miller: The margin expansion reflects the impact of our cloud efficiency initiatives, a positive change in our revenue mix with lower professional services and hardware, along with leverage in operating expenses.

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 included in both revenues and cost of revenues.

Brian Miller: Cash flows from operations in pre-cash flow were ahead of plan at 56.2 million and 48.3 million respectively.

Brian Miller: We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $810 million and net leverage is zero.

Brian Miller: In light of our strong first quarter results and our positive outlook for the balance of the year, we have revised our annual guidance for 2025 as follows [inaudible]

Brian Miller: We expect total revenues will be between $2.31 billion and $2.35 billion and $2.35 billion.

Brian Miller: The midpoint of our guidance implies organic growth of approximately 9%.

Brian Miller: We expect gap diluted ETS will be between 750 and 780 and may very significantly due to the impact of discrete tax items on the gap effective tax rate

Brian Miller: We expect non-gap-deleted EPS will be between $11.05 in $11.35. We expect non-gap-deleted EPS will be between $11.35. We expect non-gap-deleted EPS will be between $11.25.

Brian Miller: Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%.

Brian Miller: We expect our free cash flow margin will be between 24 and 26% including an estimated impact of approximately $40 million of cash taxes related to Section 174 [inaudible]

Brian Miller: We expect research and development expense will be in the range of $193 million to $198 million.

Brian Miller: Other details of our guidance are included in our earnings release and in the Q1 earning stack posted on our website.

Brian Miller: I'd like to add some additional color around our guidance. While the annual growth ranges for most of our revenue lines are unchanged from our previous guidance, we now expect that transaction revenues will grow between 12 and 14% with merchant fees essentially flat year-over-year . . .

Brian Miller: This increase reflects the higher transaction volumes and rate increases that possibly impacted the first quarter, as well as an expectation that some payment services under the Texas contract may extend beyond August .

Brian Miller: We now expect that revenues for the year under the Texas contract will be approximately 37 million dollars compared to 45 million last year.

Brian Miller: We also expect that sales and marketing expense for the year will decline 2-4% due to alignment of sales compensation structures across Tyler.

Brian Miller: Excluding merchant fees that are absorbed under the Gross Revenue model, expected transactions growth in 2025 at the midpoint of our guidance would be approximately 17% and total growth would be approximately 10% [inaudible]

Lynn Moore: I'd like to turn the call back over to Lynn.

Lynn Moore: Thanks, Brian . Our team members continue to deliver results and execute at a high level against our strategic road map leading toward our Tyler 2030 vision.

Lynn Moore: are exceptionally strong results in the midst of unpredictable macroeconomic conditions illustrate that the ability of our business and the resilience of our model.

Lynn Moore: We provide solutions that manage mission critical functions across an extensive client base that offers tremendous long-term cross sell opportunities and our recurring revenues which comprise 86% of our total have proven to be very sticky.

Lynn Moore: And in this environment of heightened focus on government efficiency and digital transformation, we are uniquely positioned to help government to all levels achieve their goals [inaudible]

Lynn Moore: We continue to prioritize innovation and are making meaningful progress with our AI initiatives as we invest in innovation to empower the public sector [inaudible]

Lynn Moore: We are taking an intentional and responsible approach centered on three core pillars, productivity, decision-making and service delivery.

Lynn Moore: And our singular focus on the public sector allows us to leverage decades of experience to deliver software and services that empower clients to create smarter, safer, and stronger communities.

Lynn Moore: We look forward to highlighting our AI strategy at Tyler Connect 2025, which will be held in San Antonio from May 11th to May 14th.

Lynn Moore: Some 5,500 Tyler clients and nearly 900 Tyler team members will gather to learn, share best practices, collaborate and network [inaudible]

Lynn Moore: We look forward to seeing many of you there, including at our investor session at Connect on May 12th.

Lynn Moore: We will review our progress since our 2023 investor day with plans to host a full investor day next year.

Lynn Moore: We also look forward to introducing our recently appointed chief client officer Andrew Call at Connect.

Lynn Moore: Andrew's focus on enhancing client experience and building upon our one-tiler, client-centric approach is vital to creating seamless client experiences across Tyler's vast public sector client base and to achieving our 2030 vision.

I'd like to highlight additional recent leadership transitions and promotions

Speaker Change: Jeff Green has announced his intent to retire this June . Throughout his 22-year career with Tyler, Jeff has provided invaluable leadership and expertise, most recently as our Chief Technology Officer.

Speaker Change: Russell Gainesford has been appointed to succeed Jeff as Chief Technology Officer, where he now oversees the strategic leadership of our technology organization.

Speaker Change: Russell's vision for Tyler's technology discipline is an organizational structure that serves the needs of our clients, market, and business leaders.

Speaker Change: Joining rust on this effort is Franklin Williams, with an expanded role as Deputy Chief Technology Officer.

Speaker Change: He will work directly with Russell to drive our common technology strategy, developer experience and adoption of emerging technologies, including AI.

Speaker Change: Lastly, we recently published our 6th Annual Corporate Responsibility Report on our website. We're proud to share updates on our ongoing efforts that are aligned to our broader strategic objectives and invite you to review the report to learn more about our corporate governance achievements, team member initiatives and company impact.

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

Speaker Change: 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 are using a speaker phone, please pick up your handset and then press the star key and the number one.

Speaker Change: to withdraw your request. Again, press star one. As a reminder, please let me your question to one question so we may stay within the allotted time. We will pause momentarily to assemble our roster.

Speaker Change: Your first question comes from a line of Kirk Materne from Evercore ISI. Your line is open.

Kirk Maturin: Yeah, thanks very much. Thanks Lynn and Brian , good to talk to you. Lynn, maybe just two, I'll ask them just consecutively. I guess first for you Lynn, obviously you guys have been through a lot of macro cycles. What's the leading indicator you're looking at just in terms of sort of the health of the business? You guys mentioned your RFPs in particular, but I was just wondering if you could add a little color to what you're keeping an eye on. Just to make sure that the macro, you know, sort of volatility is not seeping in this sort of customer thought process.

Kirk Maturin: and then Brian for you. The air ore number was also down a little bit this quarter year of year. I assume it's a place in that broader commentary you had on sass deals, but I just wanted to add a little bit more color on that as well. Thanks.

Speaker Change: Yes, sir, Kirk, and that's a good question, and you're right, we have been through, some of us have been here a long time, we've been through some of these cycles [inaudible]

Speaker Change: What we do is look, we get together every quarter, we get with our sales teams, they give us an outlook, we track going back multiple quarters.

Speaker Change: RFP activity, demo activity, deals that are not happening without RFPs, and those are the things we focus on. RFP activity has been elevated for the last couple of years.

and it's staying steady at that level, our demo activity. Thank you very much.

Similarly,

Is steady, and in some cases actually up, so...

Speaker Change: You know, we're not seeing any real major impact from the macro environment right now. There's a few fringe things around those that we can talk about but generally speaking the environment from what we're seeing sitting here today remains largely unchanged from what we've been seeing the last 18 months or two years.

Speaker Change: And to your question about AR, you're correct that any change is really related to the...

Speaker Change: Your next question comes from a line of Ken Wong from Oppenheimer. Your line is open.

Speaker Change: and just love any color there from, from either of you.

Speaker Change: Yeah, I'll start, Ken. I would say generally, if you go back historically, we also don't talk about contracts that have been awarded and not signed yet and we've mentioned a few different things on bookings. [inaudible] I'm sorry, I'm sorry, I'm sorry

Speaker Change: One was, we did pull forward some deals at the end of Q4, particularly in our public administration suite. Our justice suite generally tends to be a little more lumpy, but I can...

Speaker Change: That's pretty good confidence that some of that lumpiness from Q1 will actually come back in Q2. I'd say the consultant thing is more anecdotal than really a driving factor right now. And so, you know, I think generally again, I...

Speaker Change: I just mentioned that my response to Kirk, every quarter we get together look at the results of the business but we spend a lot of time from our sales leaders diving down, looking at their plans, looking at the deals that were closed, looking at the pipeline .

Speaker Change: You know, looking at the awards that we have, seeing where we track against our internal plans. And so, you know, sitting here today, I would say Q1 was more of an anomaly than it was something of a trend. [inaudible]

Speaker Change: Your next question comes from a line-up of Terry Tillman from Truest Securities. Your line is open.

Terry Tillman: Yeah, hey Lynn, Brian, and Hala. Hopefully you can hear me okay.

Terry Tillman: It's a question that might actually be two parts, but sorry about that ahead of time. But just one thing is on the bookings, it was good to see that the contract value on flips up though year of year. And then the new deal obviously was down year of year, but if you look for the rest of the year.

Terry Tillman: in terms of visibility and just kind of execution risk and what seems you know kind of

Speaker Change: He's your plan for how does it feel on the flip side versus new SaaS bookings and then Brian the contract duration there was 2.7 years that definitely came down from 4Q anything to think about going forward thank you.

Speaker Change: Yeah, I'll start, Terry, you know, on the flip side, I think we're generally on pace when, and as I look out for the rest of the year, you know, I thought.

Speaker Change: I don't see any change from our internal plan from where we... [inaudible]

Where we started the year, there's...

Speaker Change: You know, always differences in different parts of the business, but we're seeing, for example, in the court space, we're starting to see...

More, more interest in our flips. We highlighted.

Speaker Change: Recently, our state of Idaho flip, and once you start getting some of that kind of traction, we're starting to see more interest there.

Speaker Change: So on the flip side, I think we're fine. And on that again, a little bit of softness this quarter but it's not softness in the market. It was more softness around timing.

And on the average duration

Speaker Change: It just bounces around a little bit from quarter to quarter. Our standard, sort of the standard term is three years. In this quarter, there were deals that ranged from one year to.

Speaker Change: five years. So I think generally we're going to be clustered around that three year average but just a mix on an individual client preference and can can affect how we move around that that standard three year number.

Speaker Change: Your next question comes from a line of Michael Turrin from Wells Fargo Securities. Your line is open.

Speaker Change: Hey, great. Thanks. Appreciate you taking the question. I want to just try to tie some of the comments together. We're getting questions on...

Michael Turin: The bookings and new deal metrics from Q1, Lynn mentioned some Q4 pull forward so it sounds like maybe it's more of that than the consulting commentary that may have had an impact on Q1 and then on the consulting commentary is there anything?

Michael Turin: you see internally that you can do on your side to just work around.

Michael Turin: Any impacts there on the fringe given your more focused on software? I think the public sector spend focus is more on software than services spend. So I'm just wondering if there any plays you can run that just can help continue to build on some of the momentum you're citing with RFPs. Thank you.

Speaker Change: Michael, I'll start. I'll reiterate that the comment on the consultants is...

Michael Turin: is, again, more anecdotal. I don't think that's a major driver. Obviously...

Some of our clients were trying to use ARPA funds.

Michael Turin: before the deadline. I think a lot of it has just been...

Michael Turin: What we've seen in certain parts of our business awards have delayed a little bit, but we've also continued to see the lumpiness in some of our other deals, and I want to emphasize that as we look out to the year and we look out on our internal sales goals, the little bit of soft bookings is not causing a concern for me. I think you'll see a pickup of some of these deals that we've been awarded, but not yet reached contract stage in Q1, falling Q2. Thank you.

Michael Turin: where the deal is being where we're a sub to a systems integrator or a consultant in terms of the services delivery. It's really how the procurement is being managed by the prospect.

Speaker Change: Your next question comes from a line of Alexei Gogolev from JP Morgan. Your line is open.

Alexei Gugulev: Hello everyone, Lynn, if I may ask one more question about the flips, I think in the past, you suggested that you had about 400 flips last year and we're hoping to see about 550 this year with 106 and Q1, are you still on track for that 550 target?

I think Alexei, I think we're...

Alexei Gugulev: I don't have that right in front of me, flips very from quarter to quarter, flips her up, what are they up from last year?

Alexei Gugulev: 18% in number. So if that holds, we'll be pushing close to 500. I think importantly, we're also on track with our flip dollars for the year. Yeah, I don't think we said it.

Alexei Gugulev: An exact target number, that's specific, but we did talk about an expectation of being in the averaging 120 to 130, a quarter for the year, but not necessarily sequenced or...

Alexei Gugulev: on a straight line kind of a trajectory so I think largely we expect our expectations around flips for the year have not changed.

Speaker Change: Your next question comes from a line of Joshua Reilly from Needham. Your line is open.

Joshua Riley: All right, thanks for taking my question. If we look at the payments business, volumes are quite strong this quarter. How much have driver vehicle history record polls maybe influence that growth improvement? And is there any unusual? No.

Speaker Change: Transaction Activity, we should be considering in Q1 and do you expect the normal sequential increase in transaction volumes peaking in Q2 with historical trends. Thanks, guys.

Speaker Change: Yeah, I think seasonally there's not really any change in that normal pattern. Driver history records are kind of flat, so that really hasn't been a big driver in transaction. The strength was kind of evenly split between, in terms of the increase over last year, between...

The State Market,

Speaker Change: So our visual services formally, and I see division plus e-filing. So we've seen strength in e-filing. We've got some of the new services like the California Park Steel that wasn't there last year that's now contributing. We saw strong performance in Florida. We've got a lot of work to do. We've got a lot of work to do.

and around our payments contract there, as well as in Texas.

Speaker Change: and also had some digital tiling services revenues come online so all those have contributed to to strengthen the state payments market.

Speaker Change: Both deployments of new customers and added adoption with existing customers has contributed to strength there and then there has been some impact that we expect to continue through the year from rate increases by third party payment partners.

Speaker Change: Your next question comes from a line of Saket Kalia from Berkeley's. Your line is open.

Okay, great. Hey guys, thanks for taking my question here.

Speaker Change: Brian , maybe for you, just give it all the questions on SaaS bookings or SaaS, you know, new ARR. I was wondering if we could unpack that just a little bit. Now maybe the question is...

Speaker Change: How much, if you had to estimate, how much do you think was sort of pulled forward in Q4 roughly? And then is there a way to think about how much was maybe awarded this quarter but wasn't contracted, which maybe adds to some of that lumpiness?

Does that make sense? Yeah it does. I'd say-

Speaker Change: It's hard to tell exactly, just like it's hard to tell exactly how much... [inaudible]

Speaker Change: Deal volume is directly attributed to Harper, but I generally say it's probably in a ten million dollar range of bookings.

give or take.

Speaker Change: that was pulled forward into last year's Q4. And the second part of the question, we really don't disclose awards.

Lynn Moore: that are not signed, but further to Lynn's comment, especially in the courts business, we have a number of those and those indicators.

Lynn Moore: Give us confidence that in the certain areas of our business, there were a little lighter in Q1 in terms of timing of booking, that we'll see, see those come back in Q2.

That's it, you know, on top of that, too, is let's look at... [inaudible]

Lynn Moore: There's business out there that for whatever reason we expected awards and contracts in Q1 and the award hasn't happened so it's not just that we've had awards that didn't get the contract but we're also still waiting on some awards that we expected to happen in Q1.

Operator: Your next question comes from a line of Charles Strauzer from CJS Securities. Your line is open.

Charles Strausser: Hi, good morning. Just looking at the R&D line and the guidance is quarter versus the guidance that you gave it initially the last quarter, it seems to be another pretty good jump in.

in the

Charles Strausser: in R&D spends any more color you can shed on that.

Charles Strausser: Yeah, we talked about some of the drivers when we gave our initial guidance around the increases in R&D. As we talked about earlier, there's a shift as we redeploy people out of cost of sales expense under the R&D line.

largely unchanged from our original expectation around $35 million.

Charles Strausser: of a shift there. We also have some costs of development expense that were resources that were devoted to capitalized projects last year that are now being...

Charles Strausser: Expense, and then really the change from our initial guidance to now is that we, which affects the gap R&D number but not the non-GAAP R&D number, is that we now are recording

Charles Strausser: The stock compensation expense associated with those R&D employees in R&D and in the past that was included in the G&A line. So, that's a geography change. And of course, it doesn't affect the non-GAAP number. [inaudible]

Rob Oliver: Your next question comes from a line of Rob Oliver from Beard. Your line is open.

Rob Oliver: DeSlower Contract Activity, and then I just wanted to check on the federal side for you guys on the BPM side. Just if you guys have done any audit of that business, to understand how you guys sit relative to Doge, I know it's a very small percentage portion of your business going back to 2019 acquisition, just wanted to check the box that we're comfortable there. Thank you for both, appreciate it.

Yes, thanks Rob. We're not hearing anything from our clients.

Rob Oliver: That would suggest that anything that's been funded by ARPA would be called back. And again, we can't always specifically identify whether a deal was funded specifically by ARPA. There are isolated incidents where we can. A lot of times when we talked about in the past, it was more freeing up also other resources.

Rob Oliver: We did have one really small deal with the Department of Education.

Rob Oliver: That was in our federal space, that was terminated, but that thing was maybe $100,000 a deal, give or take.

So not really seeing anything there. [inaudible]

Rob Oliver: I'll turn around, what was the second question? Yeah, just broadly around our federal book of business. Yeah, so they're robbing.

Rob Oliver: We've seen, first of all, as you pointed out, Federals less than 5% of our revenue. Thank you.

Rob Oliver: We've had a handful, literally four or five, maybe five terminations [inaudible]

Rob Oliver: in the federal space, all adding up to less than a million dollars. And you would, you know, kind of the usual suspects, you know, the Department of Education, I just mentioned HHS, US aid that doesn't come as much of a surprise, but again these were very small deals. [inaudible]

Rob Oliver: We're watching another maybe million or so to see but again pretty minimal which is also you know reflective of the size of the the the materiality to our business.

Speaker Change: Your next question comes from a line of Jonathan Ho from William Blair. Your line is open.

Jonathan Ho: Hi, good morning. I just wanted to better understand your commentary around what's happened with some of the transaction fee increases and pass-throughs, as well as the Texas contract, and maybe what your expectations are going forward. Thank you.

Thank you for watching. Bye.

Jonathan Ho: Yeah, as you know, we have a variety of payment streams around transactions, revenue streams around transactions and payments.

Jonathan Ho: existing relationships with third-party payment processors that basically we act as a reseller for, that we get a revenue share from and to the extent that those...

Jonathan Ho: somewhat unpredictable, and so we have seen the history in the last couple of years of those, increasing, and we saw some of those increases that were...

Jonathan Ho: A little above what our expectation was hit this quarter, and that'll flood through for the rest of the year so that now built into our model.

Jonathan Ho: in terms of Texas. I guess two things. One, as with many of our payment processing volumes, Texas did have a little...

Jonathan Ho: above our planned volumes, this quarter, so that contributed to some of our transaction revenue outperformance, but as they work through their transition...

with our contract to the new provider. [inaudible]

It appears that some of the timing of that

Jonathan Ho: We'll go beyond, for some of the services, we'll go beyond that August 30th.

Jonathan Ho: the 31st contract deadline. So we do have an extension in place that provides

Jonathan Ho: A structure where if necessary, we can continue to provide some of those services during the transition period. So we'll see how that timing plays out, but some of those revenues could extend a little bit beyond the end of August . [inaudible]

Speaker Change: Yeah, John , then just to follow up on that, the extension was signed for August of next year, but the expectation still is that Texas will move away by the end of the year, with most of the services still winding down, really through September and maybe some smaller ones continue through December .

Speaker Change: Perhaps adding another three to three and a half million dollars of low margin revenue, as you know, to our top line this year.

Speaker Change: Your next question comes from a line of Gabriela Borges from Goldman Sachs. Your line is open.

Gabriela Borges: Hey, good morning. Thank you. Lynn and Brian , your comments throughout the last 45 minutes have been very consistent in saying the areas where you see an impact from doge or from consulting or from deal scrutiny. All of those areas are very small. So my question for you is how do you think about the risk that some of these fringe issues on the margin become more mainstream as we go to the air? What would be a scenario where you see more of an impact as we go to the air and how do you think about sizing that? Thank you. Thank you.

Hala Elsherbini, Hala Elsherbini, Hala Elsherbini, Hala Elsherbini.

Gabriela Borges: Yeah, Gabriela, obviously we talk about it, we keep an eye on it through...

Gabriela Borges: You know, regularly we've been keeping on it for the last several quarters

Gabriela Borges: We see areas where there are potential, but at the same time we're also in contact with our clients.

and the feedback we're getting from our clients.

Gabriela Borges: is giving us the comfort to make the commentary we're making today.

I'll give you one anecdotal piece, for example.

one of our clients in Arizona.

Gabriela Borges: who was talking about Doge and the potential impacts of Doge there was talking about how they may be required to cut some services but what that's going to do is require them to have more automation.

Gabriela Borges: and in fact, want to buy more of our products. Right now, we're just watching it, but we're also in contact with our clients and that's sort of the basis for our commentary today. Thank you very much.

Speaker Change: Your next question comes from the line of Alekszukin from Wolf Research. Your line is open.

Alec Zukin: Hey, guys. Thanks for taking the question. I guess maybe just a two-parter for me on new sass deals versus on premise sass lips, is it?

Alec Zukin: Should we assume that new SAS DLA or R versus last year is going to be a little bit left around some of the laws and caution that you called or saw in Q1 work?

Alec Zukin: or Enville Conversions, the flip stride more of the SaaS growth this year than the new SaaS deals. And then on kind of leading from that, if you look at the outer form, if you look at the performance of SaaS, maybe help us just a little bit. [inaudible]

Alec Zukin: Skate the year on the SAS revenue line and where the puts and takes the kind of hitting the low end versus the high end of your full year guide on the SAS revenue line.

Current year sales.

Alec Zukin: Don't have as big an impact on the current year revenue given the lag from the time we sign something to the time that we start to see

with that revenue stream hit the income statement.

Alec Zukin: So the biggest driver around the variability of where we fall within that revenue guidance range is really around the flips, both the number of the flips and the timing of the flips [inaudible]

Alec Zukin: which order they hit in and how quickly we're able to start to see those revenue streams. [inaudible]

Alec Zukin: Bro, this year and continue to grow over the next couple of years so that will be a bigger contributor.

Alec Zukin: to the SAS Bookings Growth, but we do expect, we don't give guidance on bookings, but I wouldn't say that we expect SAS Bookings for the year to be down. Last year was a very strong year for SAS Bookings.

But as we said, the RFP.

R.P. Level, the pipeline. The pipeline.

Alec Zukin: A couple of quarters we haven't seen those big deals, but they can be very lumpy, but I wouldn't necessarily expect that Sad Bookings will actually be down for the year.

Speaker Change: Again, if you'd like to ask a question, press star one in your telephone keypad. Your next question comes from a line of Keith Housum from North Coast Research. Your line is open.

Keith Hoosom: Good morning, Keith. Brian , I just want to revisit the comment you made. We already have sales and marketing expenses being down. I think it was 2% to 4% year-over-year products. Keith, rather than more color on that. Did they have a benefit in the first quarter and which guys are doing there?

Keith Hoosom: Yes, we are expanding, we've talked about some of our expansion of sales resources.

Keith Hoosom: In terms of adding a dedicated state sales team that will be coming online this year, so there are...

Some...

Keith Hoosom: Some increases in expenses were being pretty thoughtful about how we spend some of our other sales and marketing dollars, but the biggest impact driving that [inaudible]

Keith Hoosom: that reduction for the year is around commissions expenses. So, under gaps, certain commissions expenses, most commissions expenses are required to be capitalized and amortized over

Keith Hoosom: Over the period they benefit, which for us is now a five-year period . . . . . . . .

and as we've restructured some of our...

Sales Compensation Structure

Keith Hoosom: and we've talked about changes we've made generally in some of the sales compensation as we look to standardize the cross-tiler in an effort to further support cross-cell activities. So that has resulted in

Some

Sales Compensation Inc

Keith Hoosom: Spence that was formerly expensed in the current period now being capitalized under Gap

Keith Hoosom: And so that change from last year is primarily responsible for that reduction in sales and marketing expense.

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

Keith Hoosom: Thanks Rob, 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.

Keith Hoosom: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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