Q3 2025 Tyler Technologies Inc Earnings Call
Speaker #2: Hello and welcome to today's Tyler s technology third Quarter 2025 conference Call . Your host for today's call is Lynn Moore , president and CEO of Tyler Technologies .
Speaker #2: At this time , all participants are in a listen only mode . Later , we will conduct a question and answer session , and instructions will follow .
Speaker #2: At that time . In order to address your questions and stay within the allotted time , please limit your question to one question per person .
Speaker #2: You may get back into the queue for a follow up . And as a reminder , this conference is being recorded today , October 30th , 2025 .
Speaker #2: I would like to turn the call over to Hala Elsherbini Tyler , Senior Director of Investor Relations . Please go ahead .
Speaker #3: Thank you , 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 #3: 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 2025 .
Speaker #3: Lynn will end with some additional comments , and then we'll take your questions . During this call . Management may make statements that provide information other than historical information and may include projections concerning the company's future prospects , revenues , expenses , and profits .
Speaker #3: Such statements are considered forward looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 , and are to certain risks and uncertainties which could cause actual results to differ materially from these projections .
Speaker #3: 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 .
Speaker #3: A reconciliation of GAAP to non-GAAP measures is provided in our earnings release . We have also posted on the Investor Relations section of our website under the financials tab .
Speaker #3: A schedule with supplemental information , including information about quarterly recurring revenues and bookings on the events and Presentations tab . We posted an earnings summary slide deck to supplement our prepared remarks .
Speaker #3: Please note that all subject comparisons we make on the call today will relate to the corresponding period of last year , unless we specify otherwise .
Speaker #3: Lynn .
Speaker #4: Thanks . Our third quarter results once again exceeded expectations across our key revenue and profitability measures , continuing the momentum we saw in the first half of the year .
Speaker #4: Total revenues grew by almost 10% , led by 20% . SaaS revenue growth and 11.5% transaction revenue growth . We're also pleased to report solid bookings in Q3 as total SaaS bookings grew 5% sequentially and rose 5.8% year over year to reach a new all time high .
Speaker #4: Our results reflect a high level of execution across our team as we advance our cloud strategy to lead the public sector's digital transformation .
Speaker #4: Our leading sales indicators , including RFP and demo activity , remained steady , reflecting a healthy new business pipeline throughout the year . We have not seen any fundamental change in public sector demand , nor have we seen any material impact on demand from dosage or related initiatives or more recently , the federal government shutdown .
Speaker #4: As we've discussed previously , we view efficiency mandates as a long term tailwind for our software and services across a large replacement market of aging .
Speaker #4: Mission critical systems . We continue to operate in a resilient budget environment with allocations increasingly directed towards technology investments as a key lever for maximizing efficiency and productivity .
Speaker #4: We are executing our strategic priorities from a position of strength grounded in durable fundamentals that reinforce our leadership position and competitive differentiators . Our four key growth pillars remain central to this strategy .
Speaker #4: Completing our cloud transition , leveraging our large client base , growing our payments business , and expanding into new markets . Operationalizing our cloud first strategy is fully embedded as the cornerstone of how we deliver , innovate , and scale our cloud living approach will bring together technology and talent to drive agility and continuous improvement , ensuring consistency across releases and improved time to value for clients .
Speaker #4: Building on this foundation , our purpose built AI innovation is amplifying the power of the cloud , creating more seamless , connected client experiences , deepening relationships , and expanding cross-sell and upsell opportunities across our portfolio .
Speaker #4: I'd We continue to We build momentum in the public safety market with competitive wins that demonstrate the breadth of our integrated offering and market strength .
Speaker #4: like to highlight a few third quarter wins that illustrate progress against our growth objectives . With a broader list of key deals included in our quarterly earnings deck .
Speaker #4: Public safety deals this quarter included contracts with Coweta County , Georgia in the metropolitan area of Atlanta for our full enterprise , public safety suite and a cross-sell win with the City of Columbia , Missouri .
Speaker #4: An existing enterprise ERP client . We're also pleased to see market success from our recent acquisition emergency networking with the first statewide win for our national emergency response Information System .
Speaker #4: With the state of Pennsylvania serving more than 2000 , fire agencies across the state . Finally , we signed a statewide contract with the Colorado Department of Corrections for our inmate services financial suite , which is expected to generate approximately $2 million in transaction based IRR .
Speaker #4: Now , I'd like Brian to provide more detail on the results for the quarter . And our updated annual guidance for 25 . Thanks , Lynn .
Speaker #4: Total revenues for the quarter were .
Speaker #5: $595.9 million , up 9.7% . Subscriptions revenue increased 15.5% . Within subscriptions , SaaS revenues grew 20% to $199.8 million . As we've discussed previously , there is often a lag from the signing of a new SaaS deal or flip to the start of revenue recognition that can vary from one to several quarters .
Speaker #5: Because of this , as well as the timing of SaaS renewals and related price increases , SaaS revenue growth and SaaS bookings both year over year and sequentially may fluctuate from quarter to quarter .
Speaker #5: Transaction revenues grew 11.5% to $201.3 million , driven by higher transaction volumes from both new and existing clients . Increased adoption and deployment of new transaction based services , and higher revenues from third party payment processing partners .
Speaker #5: Total bookings for Q3 were up 2.6% year over year . Total SaaS bookings , including new SaaS deals , lips of on premises clients , expansions and renewals reached a new quarterly high , up 5% sequentially from Q2 and up 5.8% year over year .
Speaker #5: This bookings growth was driven by higher flips as well as expansions and renewals from our installed base . Total IRR from new SaaS deals and flips signed this quarter was approximately $30.8 million , up 8.5% sequentially from Q2 and down 3.3% from last year .
Speaker #5: IRR from flips rose 64% , while new SaaS IRR declined 39% against a difficult comparison from the exceptional number of large deals last year .
Speaker #5: As a reminder , the lumpiness of large deal timing was also evident in last year's fourth quarter . New SaaS bookings , which also included several large deals .
Speaker #5: Our total annualized recurring revenue was approximately $2.5 billion , up 10.7% . Our non-GAAP operating margin expanded to 26.6% , up 120 basis points from last year , reflecting a continued positive shift in revenue mix towards higher margin SaaS and transaction revenues and efficiency gains across our cloud operations .
Speaker #5: Cash flows from operations and free cash flow were solid at $255.2 million and $247.6 million , respectively , down slightly year over year , mainly due to the timing of working capital changes .
Speaker #5: We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $973 million . Our annual guidance for 2025 is as follows .
Speaker #5: We expect total revenues will be between $2.335 billion and $2.36 billion . The midpoint of our guidance implies growth of approximately 10% . We expect GAAP diluted EPs will be between $7.28 and $7.48 , and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate .
Speaker #5: We expect non-GAAP diluted EPs will be between $11.30 and $11.50 . Our estimated non-GAAP tax rate for 2025 is expected to be 22.5% .
Speaker #5: We expect our free cash flow margin will be between 25% and 27% . We expect research and development expense will be in the range of 202 to $205 million .
Speaker #5: Other details of our guidance are included in our earnings release and in the Q3 earnings deck posted on our website . In addition , while we are currently in the middle of our 2026 planning process , I want to share an early view of our revenue outlook for next year .
Speaker #5: While we continue to evaluate our investment priorities for 2026 , we currently expect SaaS revenues to grow approximately 20% and we anticipate total recurring revenue growth will be within our long term target range of 10 to 12% , excluding the impact of the wind down of the Texas payments contract , our 2025 guidance and 2026 revenue outlook reflects solid progress towards our 2030 goals .
Speaker #5: Although long term growth and margin expansion will not be linear . Now I'd like to turn the call back to Lynn .
Speaker #4: Thanks , Brian . We're pleased that our third quarter performance again surpassed expectations , and I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our clients digital transformation through enhanced cloud capabilities , improved client experience , and the next wave of AI modernization .
Speaker #4: We remain on track to achieve our 2030 targets , executing well and delivering across all key priorities . Importantly , our 2030 plan did not contemplate potential additive growth from M&A or AI , but we expect upside potential from both of those growth opportunities .
Speaker #4: Our balance sheet remains healthy , and we currently have more than $1 billion in cash and short term investments . Our $600 million convertible debt matures in March of 26 , based on our internal modeling and interest rate movements .
Speaker #4: Since we issued the convert , it has proven to be an efficient component of the financing of the Nic acquisition . As we grow free cash flow , our historical capital allocation priorities remain unchanged and include internal investments , M&A , and opportunistic share repurchases .
Speaker #4: We repurchased approximately 300,000 shares in Q3 , in part to offset potential dilution from our convertible debt following our repurchases . The stock saw further weakness to levels we believe represent an attractive long term value proposition .
Speaker #4: But most of the decline took place after our blackout period commenced on the M&A front , we have closed two acquisitions this year myGov and Emergency Networking , and our M&A pipeline is active .
Speaker #4: We continue to follow our proven playbook , adding competitive products or functionality that are adjacent to or complementary with our existing core business .
Speaker #4: We expect to leverage our established sales channels and client base to grow acquired businesses faster than Tyler's overall growth rate. Looking ahead to 2026 and beyond, you'll see us take a more proactive, intentional approach to M&A within our general guidelines.
Speaker #4: While staying disciplined on valuation over recent years , we've discussed a higher bar for M&A . Yet since the Nick acquisition , we've closed 11 transactions of varying sizes for total purchase price of nearly $400 million .
Speaker #4: The higher bar reflected both management bandwidth and balance sheet considerations . Going forward , we'll continue our disciplined valuation approach and consider management bandwidth , but I'd expect to use our significant free cash flow .
Speaker #4: And if circumstances warrant reasonable levels of debt to drive future growth through M&A and when appropriate , fund opportunistic share repurchases . Now , I'd like to make a few comments addressing some of the market noise around AI for more than 25 years , Tyler has successfully navigated the public sector through successive waves of technological transformation from the emergence of web browsers in the.com revolution to mobile computing , cloud migration and now artificial intelligence .
Speaker #4: Each shift brought similar promises new entrants with new technology would disrupt established players , and each time we learned the same fundamental lesson technology alone never wins .
Speaker #4: In the public sector . Durable outcomes come from deep domain expertise , trusted client partnerships , and disciplined execution . That's been our edge , and it still is today .
Speaker #4: We are building on those same principles and expect to guide the public sector into the next era . One that's driven by AI , and we are confident that no company is better positioned than Tyler to lead this transformation .
Speaker #4: AI's effectiveness depends on quality data . Our 15,000 plus clients generate vast amounts of data daily through our systems , and they trust us to govern it responsibly through well structured data , partnerships and governance frameworks .
Speaker #4: We can leverage this client data with appropriate permissions and safeguards to build AI solutions that truly understand government operations and complex workflows . Our clients are ready , and they're seeing results .
Speaker #4: Early deployments of products like document automation and priority-based budgeting are delivering 10% to 30% productivity gains and 2 to 3 times ROI on targeted processes, while maintaining the level of reliability and trust that our clients demand.
Speaker #4: Looking ahead , I view our AI opportunities in three categories . First , internal efficiencies where we'll invest in set specific ROI targets .
Speaker #4: For example , we're currently scaling our investments in AI tooling for all 2000 of our product development team members , rolling out the tooling , training and enablement required to innovate and deliver at the speed of AI .
Speaker #4: Second , competitive differentiation with existing products to win more business and provide more meaningful upsell opportunities . And finally , new products through M&A or internal development that drive revenue growth .
Speaker #4: Agentic AI , operating as a digital extension of the workforce , has a natural path to modernization monetization because it delivers clear , obvious and measurable outcomes such as our saved backlogs , reduced or revenue recovered .
Speaker #4: When that value is proven , we believe Tyler can capture a fair share of the ROI by simply as a predictable annual SaaS fee tied to the value .
Speaker #4: It's also interesting to note that some of our forward-thinking clients are starting to blend their software and labor budgets, allocating more of the latter towards their digital workforce.
Speaker #4: As digital labor shows , impact agencies can reallocate portions of labor spend to software . If this trend continues , we believe it will further expand Tyler's opportunity .
Speaker #4: In summary , and in my opinion , some of the noise around AI and vertical software has been a bit overblown . I've quipped that AI itself is fueling displacement fears , and there's still significant hype reminiscent of the.com era with every technology cycle or transformation , there are shifts that redefine markets and leadership positions .
Speaker #4: And yet , Tyler continues to endure , thrive and lead . To me , the question people should ask is who is best positioned to lead the public sector through this next transformative cycle ?
Speaker #4: I contend it's Tyler . Now we'd like to open Q&A .
Speaker #2: We will now begin the question and answer
And then, um, uh, there's the, uh, the pricing impact of our our annual increases that that we see on renewals. Um, so as we look at all those how we build up all of those? Um, those, um, we have I, I'd say at least as good of visibility as we have in any normal year. Um, and uh, that, uh, is what drives that, uh, confidence around that 20%, um, range for growth next year.
And on your question about um, segmented guidance. I I I assume you're asking about the
Breaking out Revenue guidance by line item, um, as we've given that early in the year to um, help with um with modeling in general. But uh now that we're down to the fourth quarter, um we really don't have any significant changes around what we've given in the past. So um we've tried to simplify things a bit um and uh just go
With the um, overall Revenue guidance.
Got it and then Lynn, maybe for you, maybe.
You, you talked about not really seeing an impact from budgets, uh, and budget cycles. And Doge uh which makes a lot of sense. When I, I guess you you it felt like the commentary around m&a was maybe a little bit more pointed so maybe I'll just ask the question around. Uh, how much should we anticipate from an organic? Uh, from a total Topline contribution, maybe for fiscal? 26 and Beyond are, is this a change in terms of the the the point or so? From m&a, that that that that we've kind of come to expect? Are you? Are you thinking maybe more can come? Because the opportunity set is so much broader than it's been before because of AI or or what's the the signal that you want us to take away from that comment?
I, I think really the signal, is 1, uh, we've done 2 deals this year. They were relatively small, um, we do have an active pipeline. Um, they're not necessarily large deals, I wouldn't expect, uh, 26 to have a, a meaningful impact more than, than that sort of 1 percentage range. Um, assuming other deals may or may not go. Really, the comment is based around the fact that, hey, you know, the last several years, um, we've talked about the need to strengthen our balance sheet and we've talked about management bandwidth, not just because of m&a deals, but also, we have a lot of strategic initiatives going on and through
After um, they were a partner of ours, but that's a proven model for us. We get to know them out in the market. Um, our, our ability to close on deals when we knock on doors, or we establish relationship versus a broker bringing it to us as much higher. And I think we're just in a position where I feel like um, we have the more of the ability both, um, again from a balance sheet perspective, and management perspective, everything to, to sort of go back to more of our traditional approach, pre Nic.
Your next question comes from line of Terry Tillman of truist Securities. Your line is open.
Yeah. Hey Lynn, Brian and holla. Um it's good to see this flag in the ground on the 20% South growth. I had a bunch of questions but I'll keep it to 1. Um and you know there's a maniacal, focus on your all supplemental. Um information on your IR section of the website and it is often on that new SAS uh and flips SAS bookings. I I I love how you brought up the idea of add-on sales. Um, could you maybe doubleclick on, you know, kind of approaches you all been taking to be much more programmatic to drive those add-on sales and expansions and just where are you in? Kind of getting the benefits of that focused effort. Thank you.
Yeah, Terry. It's it's been a focus of ours. For some time, our inside sales teams have been outperforming generally against their quotas, for the last couple years, but we're still, I would say in the very early stages. I think it that 2030, um, targets we talked about having at that time, 2 to 3 products per client. And our goal is to get to 10 to 12 or even more. If we had particularly, we do more m&a. That's it's more opportunity. Um, we're still pretty early in that but it is a big factor of of what we, um, of how we approach the business. Um I think the other thing I want to talk about going back to Alex's question about the markets is um you know what we've what we're seeing now is, you know, our we've said for the last several quarters RFP activity is is steady. Demo activity is steady up. Um but for whatever reason, and we've talked with our sales, guys in q1 and Q2 for whatever reason, some some procurements were put on pause and we're starting to see that be released. And we feel good about our Q4, uh, sales Outlook, um, for example in in
Enterprise Enterprise, Enterprise Erp Solutions, Q2 and Q3 had the highest number of rfps that we've seen in the last 2 years. Um, that demand just like, historically doesn't go away. Um, we're there to capture it, um, it's I think that was for whatever reason, it was a post to arpa hangover. Um, it was a short blip but we've seen that before in in, in larger cases whether it was pre n, post 911, Great Recession. Coid. Um Whenever there was for whatever reason, a pause as we were there now this obviously was
Never nothing to that extent. Um but that's part of our confidence as we move forward.
Thank you.
Your next question comes from line of Joshua, Riley of needam. Your line is open.
Great. Thanks for taking my question. Uh, can you just remind us the moving parts of how the Texas payments contract, uh, winding down is going to impact transaction revenue for the balance of the year. And then offsetting that is the ramping of the California state park steel is that at a full run rate now and are there any other notable payments deals ramping and transactions? Uh disrupting the uh normal seasonality uh for decline into Q4, thank you.
Yeah, the um Texas. Um, contract continues to move towards wind down. I think we currently expect revenues uh, from Texas for for the full year to be kind of in the 39 to 40 million range which is maybe down just a tick from. I think the last quarter we said 41, so as we get more clarity as as it transitions, uh um out um that's the level we expect to be. There's probably a little bit that carries over into next year maybe 4 or 5 million dollars. Um, so that Delta between the 39 to 40 this year and 4 or 5 next year is what will uh um come out of next year's um with the California Parks which was a big basically software and services that mostly software paid for as transactions.
Um, that contract, um, started last August. So we lapped it during this quarter. Um, so going forward, um, although that the revenues from that contract will continue to grow. I'd say it's not fully ramped but uh,
Most of that growth, uh, most of the incremental revenues from that are now built into our base.
Where that's being provided under a transaction based Arrangement, that'll add a couple million dollars a year of Revenue, but but uh, no individual deal. That's on this, on the scale of of something like, uh, California.
Yeah. Josh we also in this quarter, we signed a a payments deal with uh Chesterfield County, uh, Virginia that fully ramped up. We think will be about a million and a half dollar deal. Um, there are some other, uh, payments transactions uh, that are in the queue right now that as you know, we don't we don't announce Awards or or where we sit, but uh, we like where we like the trajectory right now of our uh, payments transaction business.
Thank you.
Your next question comes from Kalia of Barclays. Your line is open.
Okay, great. Hey guys, thanks for thanks for. Taking my my question here and great to hear the 20% SAS uh SAS growth for next year as well.
Um, maybe for my 1 question Lynn, it's really for you really appreciated your points on on AI and you're prepared and you're prepared comments and I I want to marry that with kind of Tyler's move to SAS.
You know as as more of the bass moves the SAS what is and without getting getting too specific? What do you sort of see on Tyler's road map? That's going to maybe grow that Revenue opportunity in terms of AI and the public sector.
And maybe relatedly have you seen any changes from competitors? As perhaps AI becomes more of an offering in in public sector? That's been, that's been a question that I've gotten as well curious if you could comment.
Yeah, I think, um, I haven't seen anything material out of competitors. Um, I do think your analogy with SAS is a good 1. It's 1. I've, I've I've used internally, which was as you as you recall, we historically had an on premise license business. We had a SAS offering. We were Cloud agnostic. And then in 2019, um, we made the Strategic shift and we said, look, we're we're the leader in this space. We're going to lead the public sector to the cloud. We're not just going to be reactive and that's the mindset that we have right now. Internally is we're going to leave the public sector through this next cycle of transformation, um, which is AI. And you know, we're best positioned to do it. I I mentioned some of those things on the, you know, in in my prepared remarks, our access to data, um, our deep domain expertise, you know, our know-how, both internal resources. We've got Partnerships with AWS open, AI anthropic. Um, but a big 1 also is trust our clients trust us. Um, this is a journey that they're they're ready to take, um, but they really want someone, a trusted partner to, to be moving forward with them.
And that was this big theme that our connect conference last year. Um, and it's it's something that really resonates with our clients. So it's really capitalizing on our position. Um, we're making investments in AI, uh, we've got products right now that that are clearly AI driven. Um, we've got, uh, plans for next year to ramp up more Investments on AI. Um, but 1 thing I want to be clear is
I'm not going to I'm not going to jump on the AI hype train. Um, we've got those products, uh, it's part of our strategy. Um, I'm I'm not going to go out and put out, you know, big numbers, um, that that a lot of people are doing. Um, we're going to, we're going to continue to be like. We've always been, we're going to tell you what we're going to do, and then we're going to go do it. Um, and that's that's going to be our approach, but we are, um, we are excited about where we are. We're excited that our clients are ready. Um, but again, it's this stuff doesn't happen overnight, as you know, it's, it's going to take time.
Super helpful and thank you.
Your next question comes from Moline of Kirk matern of everquote isi. Your line is open.
Uh, yeah. Thanks very much and Lynn, interesting to hear about how some clients are starting to marry their, um, you know, software and labor budgets together. Um, my question is pretty similar or at least a follow on what socket asks on the AI front, which is, you know, how are you? I guess, I realize it's early, but how are you envisioning discussing, sort of pricing for AI functionality with your clients. I mean, you guys have had a long partnership with your clients, where I think there's been some, you know, sort of value, exchange between you and your, your customer.
Does that change at all in an AI world? Meaning, you know, is it, or is it just sort of, we're delivering more? We can take price as a result. Um, you know, do you price per agent? I was trying to get a sense and I I realized it's early but I was thinking more specifically around some you know as you bring in more AI functionality into the Erp Suite. You know some of your core offerings. Thanks.
I also spoke about there will be areas of AI um that I think are really going to be about in, you know, improving our competitiveness. Um, and perhaps elevating a, a bundle of of or Suite of products as opposed to maybe necessarily a separate module, um, but but you're right having to, um, you know,
Needing our, our ability to sell the value on the ROI is what's going to be, uh, critical in terms of separate monetization lane.
Thanks.
Your next question comes from line of Rob Oliver of beard. Your line is open.
Great, thank you, good morning. Uh, my question is on the
Uh, customer conversions or Pace of flips. Um, 2-part question 1, uh, you know, Lynn have the have the drivers of flips uh, changed at all. I know you guys have cited security and and you know, certain customers customers being ready to Monee uh modernize um, in the past and you know, are there, are there additional factors that could um offset that um like you know, AI Readiness or concern on AI. Um, and then for Brian just around the conversion math. If you could just remind us how that's looking today and and any color around crosselle, uh, on top of that would be helpful. Thank you very much.
Yeah, Rob, I think actually um security, you know, was his, his historically been a foundational. Uh, selling point. I think it's shipping now to the value that you're getting in the cloud. Um, and the the value of the, the enhancements. Um, the upgrades, um, we have not yet. Um, we are in the, we are in the process of, of, formulating, a consistent, uh, 1, Tyler approach to how we're going to to our clients, um, as to our messaging around the cloud. Um, we're still, uh, doing more of a, a carrot versus a stick approach. Um, but that's evolving, um, and but the carrot is, the value is the value prop, that you're going to get by being in the cloud. Um, versus not being in the cloud and, and that will include to your comment. Um, you know, AI features and functionality
And it'll also add that the the 1 session item around. Um, the pace of flips and the, the Readiness of clients to flip is, uh, goes hand in hand with our, um, version consolidation. And, um, as we've continued to eliminate, um, older versions of products and move more, and more customers onto the current version of products that puts them in a position, um, to be able to migrate to the cloud, where we ultimately have 1 Cloud version of each product. And we've made a lot of progress with that, especially with our, our, our core, uh, Key Products over the last couple of years. Um, we and we continue to do work on that, um, but
That has put more and more customers in a position which also supports, um, uh, an increase in in the pace of flips, over these next couple of years. Um, the math around the flip still, um, sort of on a like, for like basis, still, um, holding pretty steady at that 1.7 to 1.8 x uplift, um, from their maintenance revenues. Um, it, it's a bit anecdotal at this point, but I, I think we are seeing, um, an increase in, um, add-on sales, upsells. Um, whether it's additional services or additional modules or products, um, as customers, um, move to the cloud that provides that opportunity to have a conversation with them about other products, um, that they could, uh, um, get from Tyler and and deploying the cloud at the same time. Um, and, and I think we're, we're more intentional about that. Uh, today than we, than we may have been in the past.
Thank you. Your next question comes from. Matt Van Vliet of Cantor. Your line is open.
Hey, good morning. Thanks for taking the question. Um, I I guess when you look at um the number of sort of subverts that you play in um it it sounds like some of the courts in Justice and then um, the the Erp financial side have been particularly strong. Uh, the last few quarters curious, if there have been any areas where you've seen some weakness and and maybe any reasons you've identified there,
um maybe in the areas that have have shown a little bit more of that arpa um hangover even on the K through 12 side, maybe the the SR funds in addition to arpa, um, just help us in understand kind of where in the business, um, is seeing some positives may maybe wear some negatives are
Yeah I would say uh Matt generally in the first quarter or 2. Um we talked about decisions. Um,
Filtered across uh, products weeds, it, filtered across our Erp, uh, Enterprise Erp Suite. It did filter across some of our Justice Solutions. Um, Public Safety is having a really great, uh, sales year. Um, see our courts and Justice Solutions. Um, I think their, um, the softness that they saw in the first half, really caused by sort of delay, of deals is starting to ramp back up, and as I mentioned, that's the, that's the case. Also, with our, with our Enterprise Erp, um, you know, Federal obviously has been, uh, impacted by um, a lot of the noise that's out there. Um, but as a reminder, it's a, it's a, it's a pretty immaterial part of our business.
Thank you.
Your next question comes from the line of Ken Wong of Oppenheimer. Your line is open.
Fantastic. Thanks for taking my questions. Brian, I wanted to maybe dig in a little deeper on Alex's Quest. Alex's question about 26. SAS Revenue you touched on some of the components, you know, the stuff coming off. Backlog stuff coming in from new, uh, at this stage in the planning cycle and any sense whether or not you like 26, might have a a larger backlog component that gives you guys the confidence like, how how should we think about that relative to, you know, 25 or or, or past years?
Um, I'd say structurally, there's not a big difference. Um, probably a again given the the
Number of big deals. We did last year that are still filtering in. Um, there's probably a little bit more that comes from that backlog. Um, just because like you saw quarters last year where, um SAS ARR, bookings growth was 60% and 50% um, obviously our revenues didn't grow by that level, so that's those bookings. Uh, some of those still have not fully hit revenues. Um, and then there's just this continued increase in sales to our customer base, which is where the vast majority of those new of those SAS Revenue growth comes from. Um, it's both pricing and its add-on sales and, um, selling other modules or other es Suites of products to existing customers. Um, and those, um, when pointed out as we make more Acquisitions and as we invest in more product development, we have more things to sell to those customers. Um, we've made structural changes around our sales
Organizations. For example, adding the new state sales organization that are also um helping position us to drive more of those sales into the existing customer base. Um, so and then we talked about the trajectory of flips. So probably I'll have a minor more amount coming from backlog. Um, but also uh,
Just our general outlook around, um, cross-sells, upsells, and new sales next year. Um, how we gauge the pipeline? So, you know, we've talked about, um, for several quarters the market activity, the number of RFPs, the number of demos we're doing, um, being um, kind of.
steady at this.
Sort of historically elevated level. So a very robust pipeline of business but but, uh, we have long sales cycles that can typically be a year, 18 months in large deals sometimes, um, well even longer than that. Um, so that
Pipeline activity continues to support. Um, a really solid sales Outlook as well.
You know Ken just just to jump on that a little bit 2024 was a was a record sales year and we experienced a little bit of softness in the q1 that carried over a little bit to Q2. But as we said at the time this was not something systemic. This was not a sustained. Um,
A sustained issue. And and what we've seen is what we expected is that as the year has gone on our sales continue to ramp up and we expect it to continue to ramp up in Q4, um, and it was just it was a temporary blip but it was no fundamental change in any of the markets or are offerings or, um, you know, our competitiveness. Um, and, and we've seen it before in bigger in, in, in bigger, um, situations. Um, but for my my perspective, there's nothing that's that's fundamentally.
Changed about our trajectory and our 2030 targets.
Fantastic. Thank you for the color, guys.
Your next question comes from the line of Jonathan ho of William Blair. Your line is open.
Hi, good afternoon um or good morning. Can you hear me, okay.
Yes. Yep. Oh yeah, sorry. So um you just wanted to understand um you know when it comes to some of your newer products like emergency response and prison transactions can you help us understand the growth opportunity here and potential cross? Sell synergies with some of your other systems.
Yeah. Um you know, those both of those product lines, you know are are
Are resident. Uh, are are Corrections resident services? Um, has a big Tam. I I I don't have it in front of me. I remember when we did the acquisition, um, I believe we thought it was north of a hundred million dollars, um, and it actually represented a cross-sell opportunity. Um, we utilized the relationships, uh, in Colorado. Um, from the Nic acquisition, uh, married with our sales sales people, uh, on the Justice side to create that opportunity. So that that's pretty big, uh, the emergency networking acquisition, uh, small acquisition but important 1 because um, they they had a of of their fire incident reporting system is 1. That is current and meets uh 26 compliance and that's a big deal, so it's going to drive growth. They're, they're smaller deals. Um, but it's something that we're excited about. It's something that we can take and leverage, you know, Pennsylvania where we got the Statewide, it's the state with the highest number of fire agencies in the country and for us to win that deal. And and actually the initial
Deal was kind of small, but it had it has expansion opportunities which we're already seeing, uh, and get that success and then take that and transport it, uh, across the country. Um, we'll also help Drive. Um, our Public Safety sales, that's really a key characteristic, um, that we look at in a lot of Acquisitions. We do, um, these tuck in types that even if they're, um, relatively
Small. At the time, we acquire them. Um, we expect them to grow at a rate that's significantly in excess of Tyler's core growth rate. Um, as we leverage, our sales organization, put that product in the bag in the bags, of many more sales reps than that, that business had on its own and, um, sell it both to existing Tyler customers in in related products and, um, bundle it in new sales, um, which is what we're doing with emergency networking and, and we've seen that Playbook work extremely well over the years. Um, a lot of examples like our Enterprise supervision product um, that uh, that have proven up that so that, that really is a, a common characteristic of a lot of our acquisitions.
Thank you.
Your next question comes from the line of Gabriella. Borg of Goldman Sachs, your line is open.
Hey, good morning, thank you. Well, and I wanted to follow up on your comments on the AI because there's been some frustration in the software ecosystem. This year, on just how, how long it's taking to see rural productivity gains uh, in knowledge workers and that the application layer. And so my question to you is there's this perception that government typically moves slower than Enterprise basing your conversations, what are you seeing in terms of the Zeitgeist customers being willing to engage other, some products that they're more willing to engage in that all this for AI, use cases specifically,
And to the extent, they're all limiting factors. What do you see a company doing to address those limiting factors directly? Thank you.
Yeah, thanks Gabriel. I mean, you know, clearly our our sector to to typically move slower than the private sector, um, that probably was part of our uh, approach when we used to talk about it. Probably about a year ago that we were taking a, a disciplined approach. Um we're seeing clients being more receptive today uh, than others. A lot of it has to do with uh things around their Workforce, um is their Workforce, you know, continues to age and reach retirement and they're not replacing it. Um, they're starting to see the need and the demand for that. That's the whole, um, you know, the whole agentic Ai and and the digital worker. Uh, we've seen places in our business, where I think it's it's been, it's more receptive today than other places in our business. Um, certainly in the court space, we I talked about the document automation which was our CSI, acquisition a year ago, we're seeing a little more receptiveness uh in our Erp space, uh for things like our priority based budgeting, um, and some other modules.
Um, AP Automation and and things like that. So um it's not I wouldn't say that, you know, it's it's it's you know, the the Dam's been broken so to speak but uh, there is receptiveness to it. We will continue to push it um, because we, uh, we will we will we will lay out that Roi value to our clients. And I think
um, uh, uh
Point solution or a startup. Um, that just comes in with an AI solution, um, on top of of, uh,
of, uh, other products. So they really they trust us to, um, understand their needs and and to, uh, marry that with, um, the way we manage their complex workflows, um, so that trust factor is, is, uh, important in their receptiveness AI? Yeah. And yeah, I'd be remissed. And I also mentioned, you know, our our products in the state space, um, resident assistant, uh, resident engagement, automated field, Ops, uh, and you know we we did a deal. This this quarter with the South Carolina Department of administration uh, for Resident engagement um, product. And it was about a million dollars in ARR, um, but but the solutions that were able to provide to help citizens navigate the complex web of government operations to find their needs and to meet find what they're looking for and and meet their needs is, is also somewhat compelling.
Thank you for the call.
Your next question comes from the line of Mark Chappell of Loop Capital Markets. Your line is open.
Hi. Thank you for taking my question. Um, when it sounds like, uh, it was a strong quarter for your Public Safety business. Uh, Q4 also tends to be, uh, a strong period for Public Safety. I was wondering if you could just provide some, uh, additional color on maybe your public sector, excuse me, Public Safety pipeline, uh, and a setup for a Q4. If you could
Yeah, Mark, um, you you're right we had a good. We had a good quarter uh in sales in public safety. Uh, we've got a lot of momentum in public safety. Um, and I'm expecting some some good sales in Q4 as well. Uh, we closed a few good deals. Um, we don't talk necessarily about the competitors we beat, but I'm certainly happy with some of the the wins that we had and because of the competitive people that we beat, um, and it's, it's, there's momentum there and it's something that's got excitement up in, in our Troy division. Um, you know, we're still the leader in the public safety space as it as it leads to as it relates to Cloud. Um I think this I think this quarter we're uh or that through this year we're about 93% year-over-year, um, ahead and and subscription uh versus last year. Um, and so you know that's it's a good place to be. Now we're not going to sit on our Laurels. There's going to be more competitive Investments. We're going to make, just like we do the board, but um, I like our position there.
Great, thanks. And then, uh, Brian, just building on an earlier question around flips, I believe flips were growing about 25% this year. Just wondering if you could comment on growth expectations for flips next year, and also if you could maybe just provide an update on what percent of the install base has moved to SaaS.
yeah, we um
Don't guide actually to a flip number. But we have said that the trajectory
both into next year and really for the next 2 or 3 years. We've talked about a peak in the 2728 time frame. Um, so that trajectory both in terms of the number of flips and the size of flips. So the average size of flips is increasing. If you look at the cohort of customers that are still on Prem it's more heavily weighted towards large customers Statewide court, systems, large counties. Um, so there is more Revenue in that, uh, base that's still on Prem. Um, so we do expect that Trend to continue to be upward and to the right. But, uh, are not giving a specific number for how we expect that to grow as just like with new sales, there's lumpiness around large flips. Um and um those are um a little less predictable about exactly what quarter, or even um what year they're going to fall in. Although we're certainly in conversations with virtually every customer about their um long-term plans to move to the cloud.
um, the um
uh,
So that's kind of where we stand on that. Um, the second part of your question. Um,
What was that?
Thank you.
Your next question comes from Len of Michael, Turan of Wells Fargo. Your line is open.
Hey, this is bronin on for Michael uh just wanted to ask about the cross sell opportunity, you talked about that 8 to 10 product goal for for a few months now. So just wanted to know like what are the key drivers to bridge that Gap from the current 2 to 3 products? That customers kind of have right now. And is this going to require some m&a or new product development?
Yeah, Michael. Um, there's a number of factors that that drive that, um, you know, 1 factor is, uh, you know, we're still in the process of getting all our products, uh, to a single Cloud version, um, which will help that, uh, our approach to sales. We're taking a, a hard look right now, um, at our overall approach to sales holistically, um, and not really in a position to go into details on that right now. But if I say that that's a significant R is, is to how we look at how we, how we view a client, how we look at territories, how we view their bag of products. Um, there's other things about it, too. You know, these other initiatives, that we got going on, I talked about, you know, getting down to a cloud version. That's our Cloud living. Um, initiative, our client sat initiative, making sure all our clients are extremely happy. Um, is a, is a huge, um, huge component of of of cross sales. And upsells as to save our our clients aren't happy, they're not going to buy more.
Of our products. And, and we've Unleashed a lot of it. As, you know, we, we hired Andrew call our new Chief client officer. Uh, we started some 1 Tyler, uh, initiatives around client experience. Um, standing up and getting, uh, a better 1, Tyler approach to client success, um, and things like that. So there's a lot of motions in the background. It's not 1 specific thing. Um, and some of these are are bigger motions than others. But, um, you know it's it's a it still remains to be a significant opportunity for us over the next, you know, 5 to 10 years.
Not next question.
Your next question comes from line. If Pete Heckman of Da, Davidson your line is open.
Hey, good morning. Welcome to my questions have been answered, but just a couple of follow-ups that remind me. Um, you know, this was a big year, uh, for, uh, R&B catch up. Uh, what are we thinking? As you know, I I think in the longer term, um,
Framework that you had provided. You were thinking that our do you have an approximate maybe 5% of Revenue in 2030? But uh it it looks to me like it, you know?
You know, it's certainly about that now. And so we extrude, we fix it at the plateau and then, you know, come down as a percentage as revenue grows. Or would we be expected to continue to maybe grow at an accelerated rate in 2026?
I think in general. Um, as we look at a long-term over multiple years, um, we expect R&D would grow in line width or slightly below our overall Revenue growth that that uh, um, so as a percentage of Revenue it would be stable or come down. Um as we've talked about in the past this year and on into the next couple of years, there's an impact on R&D from sort of a geography change. So as as um, we continue to evolve in our Cloud transition, that resources that were formerly classified. In cost of sales are being redeployed in R&D. And so there is a move of expense that's part of the reason for that growth. Um, but as we look at this year and and on into next year, um I'd say we are expecting an elevated level of R&D. Um, so we're we're seeing actual increases above our Revenue increase as we invest in various initiatives. Some of
Which Lynn talked about including um, incremental Investments around AI.
Okay, that that that's helpful and and and uh good reminder on the reallocation and then just in terms of, you know, with the with the Texas uh payments deal deconversion. The the the really the the majority that happening for next year that creates a bit of a drag and and it and if we're thinking of of SAS, SAS growth at 20%, um, I guess what's the under
Your line growth rate of payments that we should be thinking about, um, you know, to get to a, a kind of a thinking about where subscriptions growth ends up next year. Um, you know, in terms of thinking about like is is, is the right way to think about transaction Revenue.
Growth x uh the Texas payments something in the mid to high teams.
um, I'd say yes, X, the the impact of Texas, um, low double digits
Certainly on a combined basis that you know just because of Texas you know we will see subscription Revenue growth fall you know just kind of more towards the the mid teens next year versus you know what it looks like. It's going to be 18% this year. Is that is that the right way to think about it?
I think that's generally the way to frame it. Uh, but again, the only guidance or directional guidance we've talked about today is really around the total.
SAS growth and subscription growth in the...
Um, recurring Revenue growth in the 10 to 12% range.
So, the recurring Revenue growth being the SAS maintenance and transactions combined, so you can kind of back into the what that leaves for transactions. If you, you take apply the 20% to the, um, uh, to the South and that trans that that recurring Revenue growth excludes the impact of the, uh, Texas, um, transition
Okay, okay, that's helpful. I appreciate it again. Thank you.
Your next question comes from the line of Trevor Walsh of Citizens. Your line is open.
Great. Hi team. Uh, thanks for taking my question. Um Brian maybe for you but uh Lynn feel free to uh, weigh in as well. Um, appreciate all the color around kind of 2026 and kind of Topline, um, type of Outlook. But can you maybe just give us a sense of how, from a profitability standpoint kind of where some of the levers you think going into 26, uh, that might be pulled and also on that front. Could you give us an update on the the data center? Uh closure at? I think there was 1 targeted for the end of this year and if I my memory serves that was going to have a location. It's kind of in the early part of next year. So maybe if we could just get an update on that, um, process just as part of your answer, that'd be terrific. Thanks
Sure, um, the, um, uh, margins we've said, um, you know, we're not giving guidance on margins for next year. Um, we we have said that, that progression of margins will not be, um, linear over the next several years. Um, it's been a bit of an elevated level for the last couple of years. We're a little bit ahead of plan, as we've seen some head of our long-term trajectory as we've seen, um, some of the benefits of the cloud transition earlier. We've also seen more, um, Opex benefits earlier. Um, so I would expect that margin expansion next year, will not reach the same level of margin expansion that we're seeing this year.
Um, but certainly on track to, um, achieve, um, or exceed, the trajekt the targets that we've already established for 2030. Yeah, I would, I'd say Trevor. That's right. We, we're too early in the process to to talk about margins. I will say, um, we have approved in greenlighted some Investments, uh, that were not in this year's budget, um, that are coming online. Now, investments in our products, invest both competitive and AI, uh, Investments. And I, I would expect, um, some of that additional elevated investment next year. Um, on the data center closure, you're right. Uh, we have exited the the arrma data center, huge milestone, um, huge congratulations to our teams. Um, we did that a little bit, a couple months early and you know, we talked about this in 23 about exiting, the Dallas data center on time and and now we've done it with the armit data center, 1 thing. I want to caution about that exit is that does not necessarily equate to immediate cost savings. There are some
Transitional headwind costs that are short-term. Um, I I not prepared to give you a window of that, but clearly over the long term, it's a, it's a Tailwind to margins.
Your next question comes from the line of clerk Jeffries of Piper Sandler. Your line is open.
Hello, thank you for taking the question. Um, I just wanted to do a follow-up on some of the commentary on flips. I just, um, Lynn, Brian, how much is version consolidation still a limiting factor across the product base? I think it was framed at the beginning of the year that you were at a schedule with ERP at a 95% level and Justice at 75%. Um, I just wanted to wonder, you know, just wanted to ask about, you know, 2026 going into next year. Where are you at in that version consolidation? What limiting factors really are left, um, just to frame the ability to really have capacity for greater flips this year? Thank you.
Will flip them out and those are 2 different functions that are going on. You need 1 to get to the other um and we've made significant progress there.
And your last question comes from the line of Charles Strawser of CJ's Securities. Your line is open.
Hi, good morning, just uh, on the flip the conversation. Just looking at the time, it takes the customer to go live in the cloud kind of once they've signed on to flip. Are you seeing noticeable improved efficiencies allowing you to convert the customers at a faster clip?
Thank you, General. Our experience has been pretty good. I'd say we've probably gotten better at it; it varies from client to client. There's typically a lot of planning done.
Well, in advance often months and in some cases multiple quarters before they actually signed the flip. Um, but we've seen pretty good experience in terms of the time from when they signed to when, um, they actually go live in the cloud. Um, the state of Idaho court system, for example, I think was um, you know, in the, in a matter of just a few months. Um we've seen um so I'd say our experience probably is is really good there. Um, it's more around.
The client doing a lot of planning in advance, um, and working it into their overall, it roadmap. Um, we've certainly seen situations where, um, often because of a ransomware attack, um, that the decisions are made very quickly and we're able to bring customers up, um, in the cloud, sometimes in a matter of days. Um, so, um, that doesn't have to be a really long lead time but but it varies from client to client, each client's got different levels of complexity and we have been able to do things pretty quickly. Maybe not full functionality, um, but I would say that as we get, as, as we continue to move forward. Yes. I think we're getting better and more efficient. Um, I couldn't quantify what that is at this point.
With no further questions, I'd like to turn the call back over to Lynn Moore for closing remarks.
Uh, thanks JL and and thanks everybody for joining us today. If you have any further questions, please feel free to contact Brian Miller or myself thanks again and have a great day.
This concludes today's conference call. You may now disconnect.