Tyler Technologies, Inc. (TYL) Earnings Call Transcript & Summary

Hello, and welcome to Tyler Technologies Third Quarter 2026 Conference Call. Your host for today's call is Lynn Moore, Executive Chair, President and CEO of Tyler Technologies. [Operator Instructions] And as a reminder, this conference is being recorded today, October 29, 2026. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Thank you, and welcome to our call. With me today is Lynn Moore, Executive Chair, President and CEO; and Brian Miller, our CFO. Also joining us today on today's call is Chief AI Officer, Franklin Williams. Franklin will participate during the portions of the discussion to provide additional context on our AI strategy, commercialization efforts and adoption trends across the business. While we expect Franklin to periodically join future earnings calls when relevant, he will not be a regular participant each quarter. In an effort to streamline our earnings communications and provide timely context around our quarterly earnings release, we published our prepared remarks yesterday shortly after posting our full quarterly results release to the news section of our Investor Relations website. We have also posted on the Investor Relations section of our website under the Financials tab, a schedules with supplemental information and an earnings summary deck to supplement our prepared remarks. After I give the safe harbor statement, Lynn will have some opening remarks, and we'll move directly to our Q&A session. During this conference call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses and profits. Such statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections. We refer you to our Form 10-K and other SEC filings for more information on those risks. Lynn?

Thanks, Hala. Our third quarter results reflect continued strong execution across the business. We delivered 11% recurring revenue growth, including SaaS revenue growth of 21.2%, expanded operating margins by 150 basis points and generated record quarterly free cash flow of $277 million. Public sector demand remains healthy, supported by ongoing modernization priorities, strong client engagement and an active pipeline. Budgets remain supportive of continued investment in mission-critical technology and AI is increasingly being evaluated as an extension of broader modernization initiatives. Total SaaS bookings increased 14% reflecting continued momentum in cloud adoption and digital transformation efforts across government. We made meaningful progress on several of our strategic growth initiatives during the quarter. Cloud migration remains one of the most significant drivers of long-term value, and momentum continues to build. Following our July outreach to on-premises enterprise clients, highlighting the value, incentives and urgency of moving to the Cloud, we have seen strong engagement across our client base and increasing activity among large clients advancing their transition plans. We also reached a key milestone with our first implementation of our multi-tenant solution for an existing enterprise ERP client representative of our complete Cloud Living commitment. This is an important step toward a common code stream that enables continuous innovation, automated quarterly release upgrades and more efficient delivery. With broader cloud living rollouts on track for early 2027, we are well positioned for an accelerating pace of migrations beginning in '27. We also advanced our AI strategy with growing deployments, expanded agent capabilities, and continued validation of our commercialization approach. Client adoption continues to grow with approximately 300 deals containing AI across the portfolio. We also continue to execute our disciplined capital allocation strategy through the acquisition of CODY Systems and significant share repurchases. Year-to-date, we have repurchased approximately 8.5% of our shares outstanding with almost $1.4 billion remaining in our authorization. We entered the fourth quarter well positioned to deliver a strong finish to '26 and confident in the long-term growth initiatives that underpin our Tyler 2030 objectives. With that, let's open the call for questions.

[Operator Instructions] Your first question from the line of Matthew VanVliet with Cantor. Your line is now open. Please go ahead.

I guess, when you look at the pace of SaaS flips that you've had over the last couple of quarters, we're seeing a little bit of an uptick, but maybe not an acceleration, quite to the level that some were expecting. Is there anything on a seasonal basis that you're seeing that may be limiting the upside in this quarter, just so far this year? And then how much of the Cloud Living initiative and sort of push there should actually catalyze maybe a further acceleration to get more customers to make that SaaS flip?

Yes, sure, Matt. I don't think there's anything really seasonal to the flips. I think if you look at the way we've approached things over the last several years, our approach has changed. I think, if you look back 4 or 5 years, we took a little more deliberate approach for a couple of reasons. One, I don't think the market was quite ready. And two, I'm not sure Tyler was quite ready. What we've done in the last few years around version consolidation and is now with our Cloud Living initiatives, I think we're at the point where now we can be much more proactive, and we're starting to take those steps. So we talked about -- after the -- in the July call about the fact that I had sent out a letter to all of our local enterprise clients. Each of those clients then received a touch point, a direct contact from their reps. And we're putting together now pricing strategies to sort of help people make that move. We're also in a position now where we're starting to starting to do things, I think, more on the -- what we'd traditionally call disincentives or sticks, which is we -- our first flagship product this past quarter actually started to announce with its client base, end of life for support, as well as the last version release with new product upgrades on the on-prem version. So we're going to continue to do those things in the coming quarters, which will, I think, continue to accelerate our flow to the cloud. I will say that the receptiveness from our clients with this new to more proactive approach has been really strong. They welcome it. We talked about this before. We talked about it with Connect and our Client Advisory Board. Some of our clients need that little push. They need to help selling the flips inside their own departments, and we're putting together strategies to help accelerate that. So we feel confident about where we are today in our overall 2030 flip plan.

Your next question from the line of Terry Tillman with Truist Securities. Your line is now open. Please go ahead.

It's good to see the updates on the AI side and the deal activity, the early deal activity. I am getting some questions from folks on the SaaS revenue growth and the guide for the year. So I was going to ask about that. It's kind of a multi-parter. I think you all brought down a little bit the high end of the SaaS revenue guidance range. There was something in prepared remarks around timing of new sales and just kind of when that plays out in the year. So could you talk a little bit about is there like a cadence dynamics that's changed a little bit on when you're signing the deals or some of the early revenue that you would see from these SaaS deals? And then, also like what would CODY provide in 4Q? I know it's small, but like what kind of SaaS revenue contribution there?

Yes, Terry. If you look at our outlook for SaaS sales for the year, it really hasn't changed meaningfully from where we were a quarter ago or 2 quarters ago, but the timing has moved a little bit. And so we've seen some deals, especially some larger deals that have signed either later in the quarter or later in the year. So it's become just a little bit more back-end loaded. Again, the sales -- total sales number pretty consistent. So as a result of that shift in the timing into a little bit later in the year, we've recognized the revenue that we're able to recognize under those new deals and flips included in that has come down a bit. So it's really around timing. As we look at the fourth quarter, we're already off to a good start in terms of the fourth quarter, we've already signed in October, a large ERP deal, probably the largest ERP deal we've signed in several years as well as the flip of the statewide court system. So again, really around timing within the year affecting on a really pretty marginal basis, the amount of revenues that we'll actually see this year from those new deals.

Your next question from the line of Tamjid Chowdhury with Guggenheim Securities.

Excluding the Texas contract churn, it seems like a transaction revenue growth is actually pretty strong at like 14%. Can you give us more color on what's driving that? And I think in the prepared remarks, there was some language around transaction funded deals, I think, in New Jersey state police. Can you talk about like the pipeline of that sort of deal over the next 12 months?

Yes. Transaction growth has been strong. It's exceeded our expectations a little bit this year. I think there are a couple of different vectors there. One is, we continue to have a lot of success in our strategy of integrating our payments platform with our software solutions and selling transactions back into our existing customer base that use those systems that have payments embedded in them as well as with new software sales increasingly, including payments. So that continues to drive incremental growth. But as you mentioned, we do continue to see a number of new SaaS deals that are funded as transactions. And as a reminder, those deals don't show up in SaaS revenue growth nor in SaaS bookings. They show up in transactions but with SaaS-like margins. And these are things like digital motor vehicle titling solutions. This quarter, we had a deal in the regulatory space. That was a different kind of solution funded under transactions. So these are funded with -- not through SaaS fees, but user fees that are associated with the transactions, a route that are managed by that software. And that is a part of the pipeline for next year. We have a number of opportunities in the digital motor vehicle titling arena as well as around regulatory and outdoor recreation is the other area where we've seen deals, and we had a couple of those this quarter, including the Louisiana State Parks. So while it's not the primary way we're -- our software model works, it is a model that's very attractive, especially the state government clients, because they don't have to budget funds. They're not appropriated funds, and they're not affected by budget pressures. So it is a growing part of our SaaS new deals, and you need to keep that in mind as you look at our SaaS bookings growth and our SaaS revenue growth.

Your next question from the line of Saket Kalia with Barclays. Your line is open. Please go ahead.

Brian, maybe just to dovetail on that last point, I want to talk about sort of SaaS bookings and ACV sort of broadly. I think ACV from new SaaS deals and conversions was up pretty strong, I think, north of 30%. SaaS bookings growth was, of course, lower. You talked about transaction funded SaaS deals. But maybe you could also talk about how bookings duration, maybe the combination of those two, how they might be impacting that SaaS bookings number?

Yes. Clearly, the transaction funded deals are not showing up in that number. And if they were under a traditional SaaS arrangement would actually contributed fairly significantly to that percentage growth. The duration is a factor here. Last year for new SaaS deals, last year in Q3, our average duration of contracts was about 3 years. This quarter, it was just a little over 2 years. So that 30% difference in the duration really accounts for that difference between the ACV growth and the TCV growth at 14% versus the 30% plus. And -- to some extent, that's intentional. We have continued to try to shorten the initial terms of our SaaS agreements, and a lot of our flips come in as 1-year agreements and as well as some of our new deals. So that duration can bounce around a bit, but this quarter, it definitely was a factor in that difference between total bookings and ACV.

Your next question from the line of Ken Wong with Oppenheimer & Co. Your line is now open. Please go ahead.

Great. I wanted to touch on the 300 AI deals that you mentioned, Lynn. When taking a look at how those deals might have played out under a normal situation versus embedding the AI? And any comments you can put out there as far as the uplift in TCV, ACV, basically, the ARPU around those deals have looked like?

Yes. So this is Franklin Williams. I'm happy to address that. So I think with a lot of the things we saw in those 300 deals, what you're seeing is that embedded strategy play out. You're seeing us basically be able to attach these solutions, whether it's AP automation, fraud risk and compliance to broader deals that we're bringing into the market. I think in each of those, the kind of attach, the uplift that we're seeing there is probably still in the single digits with some of those solutions, but it is very real and it is very much growing as well.

I'd add to that, Franklin, that generally what we're seeing. I know we've had a lot of questions about this. But what we're seeing in the market and what we're seeing from our clients is they want these embedded solutions. They are not looking for bolt-ons from outside sources. We're also not seeing RFPs that are specifically calling out AI for AI's sake. What they're wanting is functionality and that functionality that we're being able to deliver in our systems with AI capabilities to continue to differentiate our products.

Your next question from the line of Kirk Materne with Evercore ISI. Your line is now open. Please go ahead.

Actually, Lynn, I just want to follow up on that last point, which is you've obviously gone back to a lot of your customer base about flips over the next 12 months. Do they want that AI functionality as part of them flipping over? Or is it sort of like, look, get me over like-for-like and then we'll add to that? I'd imagine that might be part of the reason you're maybe looking to shorten contract duration at the outset, so you can come back and upsell them new AI functionality sooner rather than later. But I was just kind of curious where are we on that? Can they do sort of -- can they take up AI functionality at the time they're doing the flip? Or is it easier for them just to sort of go from on-prem to cloud and then address AI whenever a year or 2 years down the road?

Yes. I think the AI piece of that as it relates to flips will be sort of part of what we're talking about that bucket of incentives. So that as we move forward, AI features will only be in our cloud release and not on our on-prem release. And I think you'll continue to see us do that. To your first comment or one of your earlier comments and I kind of touched on it in the last question is the spectrum of clients wanting AI is kind of all over the board. The market is still has some slow receptiveness, but there's also some people that are a little more innovative, but they're not really calling out AI for AI's sake. There's still a lot of hesitation. There's still are going to fall back on the things that I think really differentiate us from anybody else out there, which is the data and the trust that we provide. They're looking to us to help make their jobs better and their citizens' lives better. But again, they're wanting it to come from inside our systems, not external bolt-ons.

Your next question from the line of Parker Lane with Stifel. Your line is now open. Please go ahead.

Brian, you talked about some of the larger deals that you're signing coming in later in the quarter or later in the year. Is that simply a function of customer-specific factors? Or is there something more broadly that's causing that dynamic in the business?

Yes, it's not really a market condition. It's really customer-specific. And it's been the part of our business for a really long time that large deals can be lumpy and the timing can be unpredictable. They tend to move a little bit more slowly through the pipeline. And even when they get down to kind of the signing line, often there are delays that we see. And so it's hard to predict exactly where they fall. But -- and I think one of the keys is really, even though we've had really strong SaaS bookings growth through the first 3 quarters of the year, it really hasn't been on the back of large deals. It's really been driven by a lot of volume of kind of traditional midsized deals and smaller deals, while we've said that the pipeline does contain a normal volume of larger deals, and I think we'll see some of those in the fourth quarter. But it's really kind of customer-specific. No trend or kind of market dynamic that's affecting it. It's fairly normal.

Your next question from the line of Alex Zukin with Wolfe Research. Your line is now open. Please go ahead.

Maybe just a two-part or Lynn for you. Maybe if you can opine, is the current cybersecurity environment having any impact on accelerating flips or moves to both in new business for your Cloud or AI products. And then, Brian, just to clarify again, really strong SaaS ACV bookings, but the decel and organic SaaS revenue growth to 16%. Maybe just detail a little bit more specifically about the timing impacts that are leading to that? And how should we think about this improving when sizing? How SaaS growth should move back towards your mid- to long-term growth targets?

Yes. Thanks, Alex. On your first question, I think the short answer is yes. Cybersecurity continues to drive momentum to the Cloud, and we'll continue to drive all of our modernization and security features that are available both with the Cloud. And one of the things that we're principled about with our AI offerings is to make sure that the security is in there and it goes back to the concept of trust with our clients. You read about cybersecurity in the news, but I can assure you that there's a lot more issues going on within the client base that will be out there publicly. But yes, it is a driver.

And in terms of the SaaS growth rate, we remain very confident in that long-term 20% through 2030 that we've set as a target. We're a bit below that right now. And for this year, again, the timing of some of the deals, especially some of the larger deals, coming a little bit later in the year and therefore, delaying the start of revenue recognition a bit. There also can be some variance around how long that lag is from when we sign a deal, whether it's a flip or a new SaaS deal to when we start to recognize revenues. And that's a factor affecting this year a bit. But again, as we move into the fourth quarter, we're pretty confident around our sales objectives in the fourth quarter and that as we move into 2027, that we're on the right trajectory. And certainly, as we think about how flips contribute to that 20% or north of 20% SaaS revenue growth, there should be an increasing contribution from those over the coming quarters and years, that push us above that level.

Yes. If I could just -- if I could dovetail on that, Alex, I'd say a couple of things. Coming into this year, if you looked at our sales quotas across the board, they were elevated, and we are outperforming sales from last year on our internal basis, but more holistically, we've got a lot of strategic initiatives going on. We talk about them all the time. One of the things that we've been really looking at over the last couple of quarters is a more holistic review of our sales engine generally and how it complements with our marketing engine, looking at things like coverage, SAM, quotas, number of reps, et cetera, and starting to look at market data-driven insights to help drive sales. And I think we're going to see some more investments in our sales and marketing coming into -- going into '27, you'll probably see a little bit of that in the revenue line next year. But there's a significant focus to continue to expand our sales and sales coverage and it's something that's a strategic priority for us.

Your next question from the line of Allan Verkhovski with BTIG. Your line is now open. Please go ahead.

On the EPS guidance for the full year, you left that unchanged when in past Q3. We've seen you take that up a bit. So can you highlight maybe what we should take away there besides maybe some of the impact from the revenue timing shift you called out for why, with your buyback activity, that we're not seeing the EPS guide come up?

Yes. A little bit of a shift in timing and SaaS revenues as a small EPS impact as we've continued our buyback, it is accretive. We see lower interest income as we use those funds, but the lower share count provides an EPS growth. But overall, we've left the range the same. We haven't narrowed the range, and we still expect to be within that range. So there's various puts and takes, but ultimately, we're still in that same range for the year.

Your next question from the line of Rob Oliver with Baird.

Great. Lynn, in your prepared remarks, you talked a little bit about the accelerated pace of SaaS bookings and conversions for next year that you expect. It sounds like that's in response to, kind of, the letter you put out or the Clarion call you put out to your customers back in the summer to get everybody on board with the cloud plan. And I just would love to get a little bit more color on kind of the receptivity you got to that, '27 sounds as if it's perhaps even a little bit more quickly than we expected. And were there particular areas of pushback, readiness issues? Any color there? And then as you think about that in the context of the kind of 2030 targets of getting up to 85% conversion, how you are comfortable relative to that?

Yes, Rob. I'd say the receptiveness to the letter, the proactive outreach by each of our reps that have contact with the clients, the things we're doing around pricing strategies, it's becoming very welcomed in the market. I want to caution, we did say we would expect flips to accelerate. We expected that anyway. Turning that excitement and receptiveness and trying to pinpoint exactly how that's going to play out in '27. I can't specifically speak to that today because there will always be other factors. However, the receptiveness that we've seen gives me even more confidence in our target for 2030. And I think that's still on track. I also mentioned we've talked before about disincentives which are really more things geared around. Hey, let's nudge a little bit more when are we going to stop having new on-premise releases with value, when are we going to start doing end of life for support, things like that. Those are going to start rolling out -- we already did one, I mentioned, it was one of our major flagship products. That messaging will continue into '27, which we'll continue to nudge the base. What we're hearing from our client advisory board and our other client focus groups, is they appreciate the nudge and they are welcome and receptive to where we're heading.

Your next question from the line of Joshua Reilly with Needham. Your line is now open. Please go ahead.

Great. As we look at the public safety market, we were just at the IACP Conference and a key theme there was around vendor lock-in and going all in with 1 vendor. What are you seeing given some of the PR challenges in that industry in terms of any impact to spending trends and this vendor diversification concept versus going all in with just 1 vendor, how might that help Tyler going forward?

Yes, Josh. Yes, this was -- I didn't attend the IACP Conference, but I certainly got the debrief. My understanding was it was the largest conference ever, I think, over 19,000 attendees. The feedback that I've received is that the funding environment in public safety remains very strong. We left that, that conference with, I think, about 2x the leads that we have in the past. We really like our position in public safety. Our competitiveness and our products is still really strong in the market. We don't talk about specific wins against competitors, but I can assure you, I take note each quarter with certain wins and certain competitors that we do favorably against. And so, I really like our position. It's also an area I talked earlier about sales and expanding our coverage, and we've been doing some things in sales there, I think, to continue to take advantage of our position in the market. In terms of the comment on sort of 1 vendor versus multi vendors, I'm not -- I haven't seen anything that's driving a material difference in deals right now, but it's something we'll keep an eye on.

Your next question from the line of Andrew Sherman with TD Cowen. Your line is now open. Please go ahead.

I wanted to ask about the state and also the federal business because you highlighted a bunch of those deals. What drove the strength there? How did those each track versus your expectation? And how are the pipelines for those looking into next year?