Tyler Technologies (TYL) Earnings Transcript

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DATE

Thursday, February 12, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — H. Lynn Moore
• Chief Financial Officer — Brian K. Miller
• Vice President, Investor Relations — Hala Elsherbini

TAKEAWAYS

• Total Revenues -- $575.2 million, a 6.3% increase, driven by strength in SaaS and transaction lines.
• Recurring Revenue Growth -- Up 11%, led by SaaS revenue growth just over 20% and transaction-based revenue growth of 12%.
• Free Cash Flow -- Fourth-quarter record of $236.9 million, up nearly 10%, producing a free cash flow margin of 41%.
• SaaS Bookings -- Grew 9.6%; annual contract value (ACV) from flips signed reached $28.1 million, increasing 64.5% year over year and 54.8% sequentially.
• Operating Margins -- Non-GAAP operating margin was 24.1%, down 30 basis points; full-year non-GAAP operating margin rose to 26%, up 150 basis points.
• Bookings -- Total Q4 bookings $601 million, flat year over year amid a tough comparison with the prior year’s large deals and ARPA-driven activity; full-year total bookings up 1.4%.
• Annualized Recurring Revenue -- Approximately $2.06 billion, up 10.9%.
• Notable Deals -- Significant SaaS and payments contracts closed with LA County (California), Travis County (Texas), Marin County (California), Riverside County (California), Multnomah County (Oregon), Maryland Administrative Office of the Courts, and the New Mexico Department of Corrections.
• Major Contract Reserve -- A one-time noncash loss reserve led to reversal of $8.8 million license and $0.9 million professional services revenues due to a contract dispute, with no impact to recurring revenue or cash.
• Texas Payments Contract -- Ended in Q4; contributed $36 million in 2025, $4 million less than expected for the year; gradual wind-down affected Q4 revenue versus forecast.
• 2026 Revenue Guidance -- Forecasting $2.5 billion to $2.55 billion in total revenues; implied growth of approximately 8.3% at midpoint.
• 2026 EPS Guidance -- GAAP diluted EPS expected between $8.30 and $8.61; non-GAAP diluted EPS expected between $12.40 and $12.65. Estimated non-GAAP tax rate is 23% for 2026.
• Segment Guidance -- Subscription revenue growth expected between 12% and 15%; SaaS revenue growth forecasted at 20.5%-22.5%; transaction revenue growth of 5%-7% (excluding Texas, 10%-12%); maintenance revenue to decline 5%-7%; professional services to grow 3%-5%; license revenue to grow 15%-17% (excluding the contract reserve, would decline 30%-32%); hardware and other revenue to decline 17%-19%.
• Free Cash Flow Margin Outlook -- 2026 free cash flow margin expected to be 26%-28%.
• Capital Structure -- Ended with $1.16 billion in cash/investments and $600 million in convertible debt due for repayment in March.
• AI Commercialization -- "The Tyler resident AI assistant has gone live in six states"; Indiana reported approximately 17,000 monthly users and nearly 50,000 questions per month routed to government services.
• Acquisitions Activity -- Four strategic acquisitions completed in 2025; definitive agreement signed to acquire ForTheRecord, a digital court recording vendor specializing in AI-powered transcription.
• Share Repurchase Authorization -- $1 billion buyback program announced, replacing the previous plan.
• State Sales Team Impact -- State-focused sales initiatives contributed to several of the largest ARR deals, including the New Mexico Department of Corrections win.
• Payments Business Model Evolution -- Merchant fee revenue expected to grow, with a shift underway toward more "gross model" payment arrangements, reducing reliance on third-party "net model" partnerships.

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RISKS

• A one-time reserve for an unresolved state government contract dispute led to a reversal of nearly $9.7 million in revenues in Q4, representing an unusual negative impact on license and services lines.
• Ending of the Texas payments contract resulted in 2025 revenue coming in $4 million below internal expectations for Q4 and contributed to a lower-margin revenue mix.
• Hardware revenues are expected to decline because of intentional focus on higher-value segments and low-margin characteristics, while professional services revenues are expected to grow 3% to 5%.

SUMMARY

Tyler Technologies (NYSE:TYL) delivered robust SaaS, transaction, and recurring revenue growth while expanding free cash flow margins and closing out 2025 with solid operational metrics. Management issued 2026 guidance with SaaS growth above 20%, high confidence in pipeline momentum supported by strong RFP activity, and stated that most SaaS growth is already backed by bookings. An accelerated cloud transition, major deals with state and county agencies, and a $1 billion share repurchase authorization highlight the company’s proactive capital management and execution strategy.

• Partner relationships with AWS, Anthropic, and OpenAI are being leveraged to accelerate AI feature rollouts across core platforms, with new agentic AI pilots slated for early-access integration in Q1.
• Full-year free cash flow reached $620.8 million, and the balance sheet remains debt-light after scheduled 2026 repayments, supporting both M&A and capital returns.
• Guidance explicitly excludes contributions from the pending ForTheRecord acquisition, which is expected to close late Q1, underscoring conservative forecasting practices.
• Management attributed softer services bookings partially to a $10 million contract revenue reversal and also reaffirmed a deliberate strategy to limit the growth of low-margin hardware and professional services in favor of SaaS and transaction-based revenue.
• Public sector demand fundamentals remain favorable, with elevated levels of RFP and demo activity signaling continued secular momentum for digital modernization spending.

INDUSTRY GLOSSARY

• SaaS Flip: The migration of an existing on-premises software client to a Software-as-a-Service model, typically accompanied by new contract terms and value expansion.
• ACV (Annual Contract Value): The normalized annual value for each SaaS or recurring contract, excluding one-time fees, providing a clearer view of recurring revenue pipeline.
• Gross Model Payments: Payment processing arrangements where full gross transaction value is recognized as revenue, as opposed to only net fees from third-party models.
• ARPA: American Rescue Plan Act; stimulus funding for public sector agencies that drove a temporary increase in deal activity and bookings.
• Agentic AI: Artificial intelligence systems designed to autonomously perform tasks, make decisions, and interact within operational software workflows.

Full Conference Call Transcript

H. Lynn Moore, our president and chief executive officer and Brian K. Miller, our chief financial officer. After I gave the safe harbor statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and our annual guidance for 2026. 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.

Such statements are considered forward looking statements under the safe harbor provision of Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which should cause actual results to differ materially from these projections. We would refer you to our Form 10-K and other SEC filings for more information on those risks. Also in our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. 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, a scheduling and supplemental information including information about our quarterly recurring revenue and booking On the events and presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Please note that all gross comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Lynn?

H. Lynn Moore: Thanks, Holla.

Operator: Our fourth quarter results provided a solid finish to 2025.

H. Lynn Moore: A year that demonstrated the resilience of our business and end markets. Throughout 2025, we demonstrated what decades of disciplined execution look like. Navigating shifting macro sentiment while advancing our strategic priorities and delivering on key performance metrics. Recurring revenue growth and free cash flow are two key metrics both surpassed expectations in the fourth quarter. Recurring revenues grew 11%, led by SaaS revenue growth of just over 20% and transaction based revenue growth of 12%. Free cash flow was a fourth quarter record up nearly 10% with our free cash flow margin expanding to an exceptional 41%. Public sector market fundamentals and the demand environment remain strong.

Generally healthy budgets are supporting an active pipeline, and RFP and sales demo activity remain at elevated levels. As agencies prioritize modernization of aging mission critical systems essential to their digital transformation, workforce optimization, and efficiency initiatives. Our sales organization delivered solid execution in the fourth quarter, as total SaaS bookings grew 9.6%. In particular, we saw strong momentum from flips of on premises clients to the cloud, Both the number and the value of flips signed during the quarter represented new quarterly highs. Annual contract value from flips signed this quarter rose 645% over last year and 54.8% sequentially.

We are well positioned to capitalize on the significant opportunities ahead, supported by a proven business model and clear competitive advantages. Our four key growth pillars guide our execution. Completing our cloud transition, leveraging our large client base, growing our transactions business, expanding into new markets. Our transaction based business continues to be a significant growth driver, and I wanna highlight the progress we made during 2025. We consolidated our payments operations across Tyler under our new industry proven leader, Ryan O'Connor, executing a unified payment strategy that positions us to capture greater value and drive operational efficiencies. We are focused on value added transaction services that are deeply embedded in our solutions across multiple use cases.

Like utility billing, municipal courts, licensing and permitting, property taxes, and parks and recreation. This full end to end integration provides significant value for our clients by streamlining operations and improving citizen experiences while also creating a differentiated competitive position for Tyler. Now I'd like to highlight a few fourth quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We expanded our relationship with one of our major state enterprise clients, signing contracts for digital motor vehicle titling, which will be transaction funded and SaaS contracts for a statewide cashiering solution well as our recreation dynamics and data and insight solutions.

In Alabama, signed SaaS contracts for our enterprise ERP solution with two of the state's largest school districts. The Jefferson County Schools and the Huntsville City Schools. We also signed a SaaS agreement for our enterprise jail solution with Riverside County, California. An existing court software client. I mentioned earlier it was one of one of our biggest quarters ever for flips. Contracts signed in Q4 for Flips of on premises clients included LA County, California, flipping their enterprise permitting licensing system while also adding our fire prevention mobile sys solution in the cloud as well as payments.

Enterprise public safety flips with the cities of White Plains, New York and Beverly Hills, California, our first public safety flip in California. Two of the six largest counties in Texas, Travis County and Collin County, signed a contract to flip their enterprise justice solutions. Contra Costa County, California also is flipping their enterprise justice solution while adding traffic court, including payments, to their portfolio of Tyler solutions. And enterprise ERP flips with Marin County, California and Madison, Wisconsin. We also continue to see sales success in transactions, with key wins and an active pipeline of opportunities that reinforce the strength of our unified payment strategy.

Key fourth quarter wins included a payments contract with Multnomah County, Oregon, an existing appraisal and tax software client, We also signed a contract with the state of Maryland Administrative Office of the Courts, an existing enterprise justice software client for payments and disbursements. Finally, our state sales team is building early momentum, opening new doors and advancing strategic statewide opportunities. Through strong internal alignment and collaboration, we signed a statewide contract this quarter with the new net New Mexico Department of Corrections, for our inmate services financial suite warehouse management administration suite. Now I'd like Brian to provide more detail on the results for the quarter and our annual guidance for 2026. Thanks, Lynn.

Total revenues for the quarter were $575,200,000 up 6.3%. During the quarter, we recorded a onetime noncash loss reserve related to a contract dispute with a state government client. In early twenty two, we received a notice termination for convenience under a software license contract with that client. Upon receipt of the termination notice, we ceased performing services and sought payment as contractually owed fees in connection with the termination for convenience. This type of dispute is very unusual for us, and we have disclosed it existence in our financial statements since 2022. Since then, we have attempted to resolve the dispute and filed a lawsuit to enforce our rights and remedies under the contract.

Although we believe our products and services were delivered in accordance with the terms of our contract and that we are entitled to payment in connection with the termination for convenience, At this time, the matter remains unresolved. While we are continuing to pursue our claims, we have no remaining balance sheet exposure. The reserve resulted in the reversal in the fourth quarter of approximately $8,800,000 of license revenues and $900,000 of professional services revenues. There is no impact on recurring revenues or cash. Excluding the impact of this reserve, revenue growth in the quarter would have been 8.1%, Our operating margin would be 120 basis points higher. And EPS would be $0.17 higher.

Subscriptions revenue continued to exhibit strength and increased 16.1%. Within subscription, SaaS revenues grew 20.2% and eclipsed $200,000,000 in a quarter for the first time. As we've discussed previously, there's often a lag of one to several quarters from the signing of a new SaaS dealer flip to the start of revenue recognition. 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.

Transaction revenues grew 12.1% to $1,967,000,000 dollars driven by higher transaction volumes for both new and existing clients increased adoption and deployment of new transaction based services, and higher revenues from third party payment processing partners. As previously discussed, revenues under the Texas payments contract ended in Q4. Actual revenues from the contract in the fourth quarter were approximately $3,000,000 which is almost $4,000,000 less than we anticipated going into the quarter. Total bookings in Q4 were solid at $6.00 $1,000,000 essentially flat with last year's fourth quarter against a very difficult comparison. For the full year, total bookings grew 1.4%. Total SaaS bookings, including new SaaS deals, flips of on premises clients, expansions, and renewals.

Grew 9.6% year over year. As we've discussed previously, last year's fourth quarter bookings included an unusually high number of large deals including a $25,000,000 eight year agreement with the state of Maine. As well as some pull forward of deals because of deadlines for the commitment of federal ARPA funds. Bookings growth this quarter was driven by strength in flips, expansions and renewals. Coupled with solid new client activity. Total staff bookings for the full year grew 4%. Annual contract value from Flip signed this quarter was $28,100,000 up 64.5% over last year. And up 54.8% sequentially from Q3. Our total annualized recurring revenue was approximately $2,060,000,000 up 10.9%.

Our non GAAP operating margin was 24.1%, down 30 basis points from last year. For the full year, our non GAAP operating margin was 26%. Up 150 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. Cash flows from operations and free cash flow were both robust and reached new highs for a fourth quarter at $243,900,000 and $236,900,000 respectively. For the full year, free cash flow was $620,800,000 with a free cash flow margin of 26.6%.

We ended the quarter with cash and investments of approximately $1,160,000,000 and $600,000,000 of convertible debt outstanding, which we expect to repay when it matures in March. Our annual guidance for 2026 is as follows. We expect total revenues will be between $2,500,000,000 and $2,550,000,000. The midpoint of our guidance implies growth of approximately 8.3%. We expect GAAP diluted EPS will be between $8.30 and $8.61 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate. We expect non GAAP diluted EPS will be between $12.40 and $12.65 Our estimated non GAAP tax rate for 2026 is expected to be 23% up a half percent from 2025.

We expect our free cash flow margin will be between 26-28%. We expect research and development expense will be in the range $242,000,000 to $247,000,000 Other details of our guidance are included in our earnings release and in the Q4 earnings deck posted on our website. I'd like to add some additional color around our revenue guidance. We're pleased that our SaaS and transaction revenues are growing in line with or ahead of our 2030 objectives. And that lower margin revenues like services and hardware are growing at a slower rate. Subscription revenues in total are expected to grow between 12% and 15% Within subscription, SaaS revenues are expected to grow between 20.5% and 22.5%.

Transaction revenues are expected to grow between 5-7%. As we've discussed for some time, our payments contract with State of Texas ended in the 2025. Transaction revenues from that contract totaled approximately $36,000,000 in 2025. Excluding the impact of the Texas contract, our expected transaction revenue growth in 2026 would be between 10-12%. And our expected total revenue growth would be between 9-11%. Maintenance revenues are expected to decline 5% to 7%. Professional services revenues are expected to grow 3% to 5%. License revenues are expected to grow 15% to 17%. Excluding the impact of the contract loss reserve recorded in the 2025, license revenues would be expected to decline 30% to 32%.

Hardware and other revenues are expected to decline 17% to 19%. As 2025 included revenues associated with deliveries of hardware under two large contracts for our student transportation and enforcement mobile solutions. Also note that our guidance does not include the impact of any potential acquisitions in 2026 including the recently announced pending acquisition of ForTheRecord. While we expect that transaction to close late in the first quarter, it is subject to regulatory approval and the timing is therefore uncertain. Now I'd like to call the turn the call back to Lynn.

Operator: Thanks, Brian.

H. Lynn Moore: I'm pleased with our fourth quarter performance. Closing year of solid performance that exceeded our expectations. 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 an elevated client experience at every touch point, and the next wave of AI modernization. I'd like to provide a few brief updates on AI. As we discussed during our third quarter call, there's a lot of noise in the market. But in the public sector, technology alone doesn't win. For more than twenty five years, Tyler has guided clients through successive ways of transformation and our approach remains the same.

Deep domain expertise, trusted client partnerships, and disciplined execution. We're seeing that approach translate into real adoption. Over the past year, the Tyler resident AI assistant has gone live in six states. Alabama, Hawaii, Indiana, Mississippi, Nebraska, and South Carolina. Strengthening our broader resident engagement portfolio and making digital government more accessible and responsive. Indiana continues to be a strong proof point with approximately 17,000 residents using the assistant each month. Generating nearly 50,000 questions directed to government services. That level of sustained usage helps agencies manage a high volume of routine questions through self-service reducing the need for manual responses and freeing staff time higher value work.

We also saw continued commercial momentum with our AI enabled solutions in Q4. Highlights included contracts for priority based budgeting with the out Alabama Department of Corrections, in the city of Plano, Texas. We also signed a contract with Fairfax County, Virginia for our AI resident assistant solution our first resident assistant win at the county level. On the product side, we are transitioning Agenic AI concept to disciplined deployment. we will initiate early access with select customers In Q1, integrating agentic capabilities directly into our enterprise permitting and licensing and supervision platforms. By embedding AI into the operational workflows that drive daily decision making, we expect to unlock significant efficiency service improvements.

Following validated performance with early adopters, we plan a phased expansion through 2026 and beyond. Importantly, building this road map together with clients. Our enterprise ERP AI client advisory board held its initial meeting last month, reinforcing feedback we've also heard in forums like last year's Tyler Connect, our course and justice executive forum, and our state connected forum. Clients don't want bolt on tools that add complexity. They want practical AI that is deeply integrated into the systems they already run governed appropriately, and that solve real world problems in a dependable trusted way. That's exactly where Tyler's deep domain expertise trusted partnership, and disciplined execution differentiates us.

And why we believe no one is better positioned to deliver it. As we grow free cash flow, we remain highly focused on our disciplined capital allocation and being responsible stewards of Tyler's capital to drive long term shareholder value. We continue to balance investments across multiple areas by making targeted investments in product development and r and d with particular focus on improving cloud operations, and scaling AI solutions that demonstrate clear ROI for clients. We're also building enhanced feature sets that advance product differentiation, and reinforce our market leadership while maintaining disciplined spend that drives both innovation and internal efficiency. During 2025, we completed four strategic acquisitions that deepen our capabilities and expand our addressable market.

We recently signed a definitive agreement to acquire For the Record. A digital court recording pioneer with over thirty years of experience as a trusted category innovator. We've had a minority investment in For the Record since 2015, a natural extension and significant addition to our courts and justice portfolio for the record elevates agencies with advanced platform including AI powered, multilingual transcription technology that perfectly complements our own courtroom technologies. Solving a critical need for a court reporting industry that faces growing challenges. Its proprietary cloud enabled software is specifically designed for the complexities of today's courtrooms and will help create a seamless courtroom ecosystem expanding efficiencies for judges, clerks, and attorneys.

By bridging the data courtrooms generate every day, with the digital case file, and accelerating tasks that data can inform through AI, these solutions offer a new category of judicial intelligence to our offerings. We look forward to welcoming the team after closing and to working together to drive our shared mission of improving access to justice through transformative technology and deliver a truly comprehensive solutions that benefits the industry. Last week, we announced our board's authorization of a new share repurchase program of up to $1,000,000,000. Replacing our previous repurchase authorization This announcement underscores our confidence in the trajectory of our business and reflects our view that Tyler shares represent an attractive value at current levels.

Our reliable cash flow generation and extremely strong balance sheet enable us to opportunistically return capital to shareholders while continuing to invest for sustained growth. Each year, we become foundationally stronger and better positioned to on our long term growth strategy and we remain on target to achieve our 2030 goals. We look forward to updating our progress toward our 2030 objectives, and providing additional insight into our purpose built AI strategy and broader strategic initiatives during our upcoming investor day scheduled for June 9 in Frisco, Texas. We hope to see you there. Now we'd like to open up the lines for Q&A.

Operator: Thank you. We'll now begin the question and answer session. If you would like to ask a question, please press 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset and then press 1. If you would like to withdraw your question, simply press 1 a second time. As a reminder, please limit your question to one question so that we may stay within the allotted time. And we'll pause momentarily to assemble our roster. And our first question comes from the line of Matthew David VanVliet with Cantor. Your line is open.

H. Lynn Moore: Hey, good morning. Thank you for taking the questions. I guess kind of a multi part question on SaaS flips I guess how should we think about the level this quarter on a go forward basis? Is this kind of a new baseline given the success you've had and the ability to help do those flips quickly and efficiently for customers. Then second part with that, how should we think about any upcoming renewal cohorts Any anything to call out from a sizer quantity there that might influence a greater success on the flip side? And how tight has that been so far? Thank you. Yeah, Matt. On the first part, we don't guide to a flip number.

We have said that we expect flips to continue to grow. From the level they're at now. They certainly can vary from quarter to quarter. We've said that we still expect the peak, especially with respect to large clients, to be in the 2027 through 2029 time frame. But I guess it would be accurate to say that this is the base that we expect to continue to grow from. Don't think there's anything particular to call out around renewal cohorts. We obviously have very high renewal rates. The timing of renewals varies across the year.

We are having continued success, and Lynn mentioned a couple of those flips that had add on components to them, so we are having continued success with selling additional products and services to existing clients as they flip to the cloud, and we expect, continue to expand that opportunity. Alright. Great. Thank you.

Operator: And our next question comes from the line of Joshua Christopher Reilly with Needham. Your line is open.

Brian K. Miller: All right, great. Thanks for taking my question. As we think about the ACV from new SaaS deals, can you remind us the comp issues for Q4? It seems like that was a good number adjusting for the large deal activity a year ago. And I know you don't guide to it, but, should we expect growth off that $53,000,000 figure that you did in 2025 and 2026. Thank you. Yeah. We don't guide the specific bookings numbers, but we do expect bookings to grow SaaS bookings to grow in 2026. And when we've given some commentary on the market conditions that support that expectation and Q4 was a really good solid sales number.

Last year's fourth quarter, as a reminder, had a number of large deals, especially deals that were multimillion dollar SaaS deals. Biggest was a $25,000,000 eight year deal with the state of Maine for resident engagement portal. We had an $11,000,000 deal with Kenosha, Wisconsin for ERP. And three other deals that were over $4,000,000. Also, those deals last year had a longer duration. This year, the average duration of the SaaS of the new SaaS deals was closer to our sort of standard at two point three years. Last year, it was three point seven years.

So there was a duration component to last year's bookings as well as just an unusually large number or high number of large deals. This year, the mix of deals, the number of large deals was I'd say, more normal. I'd say too, Josh. The individual factors that still go into a client's decision to flip still exist. But I do think one of the factors one of things I talk about, whether it's flips or other things around Tyler, is momentum builds momentum. And the more success that clients see their neighbors and peers having, helps to helps with that decision.

But there's still sometimes, you know, budget concern budget issues or technology issues or version issues that we're still dealing with. But, clearly, the more success we have, it will it will continue to build and create more success in the future. Thank you. And our next question comes from the line of Terrell Frederick Tillman with Truist.

Operator: Your line is open.

Hala Elsherbini: Good morning, Lynn, Brian and Hala. Thanks for taking my question. It's a two part question. I saw in one of the slides on some of the deal activity, it was a the state sales team in New Mexico did a corrections deal. I know y'all been working on building out some of the kind of state focused sales teams more, to get more out of the opportunities you have there. So maybe if we could, double click into that And the second part of the question, somewhat unrelated is, when we look at the SaaS revenue, you gave the guide for '26. Is there any way to think about sequencing each quarter?

I mean, could there be quarters where it's sub-twenty, some quarters where it's well above 20? Just anything more you could share on kind of the flow. Yeah. Sure, Terry. I'll I'll start. Brian, I'll let you take the second one. Yeah. Our state sales team this was an initiative we really started a little over a year ago. It's taken some time to sort of build out and we're still in the early stages of it. But we're pretty excited with the results that we've seen so far. The collaboration across Tyler, the ability for that state sales team to leverage their relationships, to get Tyler products in through those connections.

Know, it's one of the reasons we acquired NIC to begin with. That deal in New Mexico a deal that doesn't happen without that state sales team. And it's collaboration across them and a couple of other divisions. We don't often talk about we don't really actually don't often. We don't talk about awards. We only talk But the state sales team also had really good, sales success in Q4. about bookings. But generally speaking, the success that sales team had really encouraging, particularly with some larger deals over 1,000,000 in ARR. Q4, Some of that take time to ramp up, some that can expand over time.

But we're we're excited about where it is, but we're early innings with that. And but it's something that's I think that we're gonna continue to leverage over the upcoming years. And, yeah, the midpoint of our guidance for SaaS growth is 21.5%. I don't think there's anything in particular that stands out with respect to any single quarter being varying a lot, from that 20 plus percent to range. It can vary with timing of that lag from when we sign something to when the revenues actually hit. As well as the timing of flips. But generally, I think growth would be expected to be fairly consistent across the year. Great. Thanks.

Operator: Our next question comes from the line of Alexei Gogolev with JPMorgan.

Brian K. Miller: Hello, everyone. Can you talk a bit more about partnerships that you have with various AI players, the management and traffic quarter. Maybe you can elaborate on the recent evolution of those partnerships. So with the partners we use in conjunction with our AI development activities, we do work with Anthropic and AWS and with and OpenAI. We have active relationships with all of those major players connection with the development work we're doing to bring AI into our products.

Operator: And our next question comes from the line of Ken Wong with Oppenheimer.

H. Lynn Moore: Fantastic. Thanks for taking my question. You know, you guys called out the tough comps through most of 'twenty five due to the ARPA pull forward. As you guys look to 'twenty six, is how comfortable are you that you know, that ARPA dynamic was kind of limited to just that twelve month time frame. Any potential that there's some deals in the pipeline that came out of '26 and beyond? Okay. Yeah. I don't you know, it's it's obviously early in '26. Think what I would say generally when I look at the market, and the leading indicators, the market looks really healthy right now. Our win rates continue to be strong.

We talked earlier last year, particularly in the first half of the year, where there was a little bit lighter bookings. And at the time, we were saying there really wasn't a change in the market. There were just more of a delay. We talked about an ARPA hangover. We also talked for whatever reason, some decisions just weren't being made. When you step back and you look at these leading indicators, for example, our public administration group, 2025 saw the highest number of RFPs that we've seen in five years.

Now RFPs take a long time to work their way through, to work through an award, to work through a contract, to work through revenue, but that's a pretty good leading indicator. Our sales, like I mentioned earlier, we don't like to talk about awards. But sales activity in sequentially throughout 2025. And into 2025. We mentioned some things going off the state sales team. So and also really, really strong sales. At public admin group. Our justice group tends to be a little bit lumpier. Public safety has got a lot of momentum. So what we're seeing in the market is a good healthy demand. We're not seeing anything at this point of delays on deals.

And it gives us confidence in the plan that we put out. Fantastic. Thank you for the color.

Operator: And our next question comes from the line of Michael Turrin with Wells Fargo Securities. Your line is open.

Brian K. Miller: Hey, great. Thanks. Appreciate you taking the question. I wanted to just go back to the SaaS revenue line there. Given the initial guidance looks for a bit of a reacceleration in the coming years. So Brian, I wanted to just understand

S. Kirk Materne: the context of that a bit better. You've mentioned flips. How big a factor are those? And how much visibility do you have into that line given current bookings trends into the coming year?

Brian K. Miller: Yeah. And I think at the end of Q3, when we

S. Kirk Materne: gave our sort of initial look into 2026 SaaS revenues and talked at that point about a confidence that growth would be above 20%. And now our actual guidance is in that 20 and a half to 22 and a half percent range. We talked about the factors that build up to that revenue growth. The majority of that I think, in around 13% of the growth comes from or 13% growth comes from things that are already booked at the end of the year. And some of those are things that we signed even going back into the 2024.

So the whether it's, the revenues from those deals actually starting, the or those that we had a partial year of revenues for in 2025 now having a full year of revenues in 2026. So a sizable portion of that growth comes from things that are already in hand. And as we've talked about,

H. Lynn Moore: bookings,

S. Kirk Materne: grew sequentially, SaaS bookings throughout the year. And so that, we have a high degree of confidence, and there's still some movement around the timing, but those would be, pretty well in hand.

Brian K. Miller: About

S. Kirk Materne: three to 4% will come from flips, We have a pretty good view of those flips based on either things that are already in the works with clients or conversations we're having with clients around the timing of those flips. So fairly good confidence around the flip number. And then the balance comes from a much smaller part actually comes from new bookings that, are in our pipeline that we'll sign in 2026 and have partial year revenues from So I'd I'd say our visibility is similar to what we've had in prior years. But with the majority of that coming from things that are already booked we have pretty high confidence around that growth.

H. Lynn Moore: Yeah, Michael. I mean, we take a bottoms up approach, as Brian said, and know, you take your existing run rate. You've got the uplift from that. You got full value run rate. We had some flips last year that pushed that were in our plan that we're expecting to happen this year. And then, obviously, new clients will contribute somewhat this year and then more meaningfully in '27. Thanks very much.

Operator: And our next question comes from the line of Saket Kalia with Barclays.

S. Kirk Materne: Okay, great. Hey, guys, thanks for taking my question here.

Brian K. Miller: Brian, I actually thought the duration point that you made on SaaS bookings

S. Kirk Materne: was really important, and I think that was a new disclosure. Or maybe just emphasize more And the reason why I say that is a lot of us look at SaaS bookings, which to your point, were up 4%. For twenty five. But think by my calculations, duration actually went down by nearly 40%.

Brian K. Miller: And so maybe the question is, is there a way that you think about the annualized value of SaaS bookings

Robert Cooney Oliver: Because I think the view is that 20% I mean, we just heard it in prior questions. The view is that 20% SaaS revenue growth is gonna be tough to do given mid single digit bookings growth but it feels like duration is a significant headwind. So can you just talk through that dynamic a little bit?

S. Kirk Materne: Yeah. I mean, in terms of total SaaS bookings, the duration in especially in the last two quarters of this year, was a significant headwind given not only just the number of large deals, but the number of deals that had sort of longer than our standard term. We generally lead with three years on new SaaS deals, and we've had some of those in last year, especially the main deal, the largest deal had an eight year term to it. So, that has been a factor. In the total SaaS growth. In Q4, actually, if you look at the annual contract value, from new deals and flips, that grew 12% year over year.

Brian K. Miller: And

S. Kirk Materne: so when you take out the duration factor, the growth was higher than the total SaaS growth. So you're correct in your observation, and, we would expect that duration sort of normalizes more towards that three year standard. But, but it is a it does mask a bit of the strength and the last quarter's bookings.

Robert Cooney Oliver: Very helpful. Thank you.

Operator: And our next question comes from the line of Aleksandr J. Zukin with Wolfe Research. Your line is open.

Brian K. Miller: Yes. Hey, guys. Thanks for taking the question. I guess maybe

S. Kirk Materne: two for me. The first one, around maybe just bookings growth expectations, on an annualized basis. For fiscal twenty six, as you kind of sit here today, just give us a sense for you know, the mentioned the buying environment improving, but are you seeing any accelerating sales cycles driven by you know, either increased want for AI adoption or increased, fear around other factors driving a faster time, to SaaS conversion. And to the extent that you know, again, we're not used to the SaaS revenue guidance yet relative to the many years prior being moved up, this quickly. How should we think about the linearity and seasonality of the SaaS business?

And is this a metric you would expect to kind of

Robert Cooney Oliver: you know,

Brian K. Miller: update higher every quarter? Or as we move closer

S. Kirk Materne: through the year. It kinda should we rein in our expectations on that front?

Brian K. Miller: On

S. Kirk Materne: well, we don't guide to a bookings number for next year. We other than the statement, we said we expect SaaS bookings to grow in '26 over 2025 And as we talked about the market conditions, the activity in RFPs, The that strengthen our pipeline all give us confidence around that. Think we expect the growth to be fairly consistent across the year. And that does each quarter, there's really solid sequential growth in SaaS. Revenues. And know, other than that, I don't think there's a there's much more to add.

H. Lynn Moore: I don't know. You know, we'll we'll modify,

S. Kirk Materne: you know, guidance throughout the year as we always do, based on conditions. But the other thing I as we pointed out in the prepared remarks, the FTR acquisition is not included in our current guidance. We'll revise our guidance after that closes and the timing of that is uncertain, although we expect that to be towards the end of the first quarter, but it is subject to regulatory approval. So that as well as any other potential acquisitions are not included in that guidance

Brian K. Miller: number. And so, Alex, we Got it. I mean, not a surprise, but we obviously have internal sales numbers, internal bookings numbers, not just for '26, but actually multiyear. The further out you get, the harder it is. But we have all that internally that we that we drive towards. But, again, we don't publish that. Like we don't we don't pub generally publish awards. As your question around an accelerated sales cycle, I don't think we're seeing anything that's either slowing cycles down or accelerating them at this point. I would say, that respect, it's it's more of a back to normal. Whereas earlier last year, that might not have been the case.

But I think sitting here today, it's it's it's kinda business as usual in that regard. Yeah. I think in the current year, we're not seeing any

S. Kirk Materne: meaningful impact of AI either driving accelerated growth or

H. Lynn Moore: or

S. Kirk Materne: slowing growth public sector. Certainly has a high interest in AI, but typically are not the first adopters. So we think more of the impact on sales comes further down the road. Got it. And then maybe just one on the free cash flow. And capital allocation. On free cash flow, just maybe

Brian K. Miller: contextualize the free cash flow margin guide. I think there's still a cash tailwind from no incremental cash tax payments. Tied to the R and D impact that you lapped. But what's driving the starting guide?

S. Kirk Materne: Is there is that conservatism? And then on capital allocation, you know, look. The buyback is one of the biggest you've ever done. Certainly, in the last few years. Is that also a statement in any way around you know, tempering, M and A enthusiasm? Or kinda how do you how are you looking to balance that going forward?

Brian K. Miller: You wanna start with the first one? Yeah. I'll start with the free cash flow.

S. Kirk Materne: We certainly expect free cash flow in absolute dollars to grow. We expect the margin to expand as well. So the range of free cash flow growth is, from a margin perspective, is point higher than the range last year. There are a lot of different puts and takes around it, growth in earnings or the primary driver of that. So that's the primary starting point. Cash taxes, there's some movement around that. I think we expect state taxes and some of the federal tax benefits to from a cash perspective to be a little lower than we had previously anticipated. The cash tax is a little bit higher, I guess, is the way I should say it.

But, generally, the earnings growth is the biggest driver there.

H. Lynn Moore: And how it's on capital allocation, buyback, I would say, one of the things I'm actually most excited about right now is our balance sheet. Our balance sheet and free cash flow are the it's the strongest point they've ever been that I've been at Tyler. And that leads to two things. Clearly, it leads to, M&A opportunities, which we're we're closing on a deal that I think we announced the purchase price was worth of $200,000,000. At the same time, announcing a significant share repurchase authorization. We closed four deals last year. That gets me excited. You know, we our 2030 goal is to get to a billion in free cash flow.

And when you think about the free cash flow we're gonna generate over the next four to five years and the opportunity that creates Tyler, our unique leadership position, to invest in the things that we're doing whether it's additional AI or product R&D or it's through M&A that's bringing, new competitive stuff in or the share repurchase. It puts us in a really good position, particularly in a market right now where there's noise.

There's noise in the software market, and I view that as an opportunity it's an opportunity for us to continue to show our strength, It's it's an opportunity to continue to differentiate us from a lot of our competitors, including some that have been, PE owned and others that might have paid really high and then have and may have some high debt, and maybe wondering what's happened to the multiple multiples right now. So it gets us a really a really good spot on the share repurchase specifically. Yes. It's the largest that we've sort of ever authorized in terms of dollars. But I think it's it's warranted given our balance sheet.

Our outlook, not just this year, but really looking out three, four, five years, and currently where the stock sits, it's something that I think you'll see us, take advantage of.

Operator: And our next question comes from the line of Charles S. Strauzer with CJS Securities. Your line is open.

Robert Cooney Oliver: Hi, good morning.

Brian K. Miller: Picking up

S. Kirk Materne: on the capital allocation question that was just answered. It When you look at the M&A opportunities that are out there that maybe a quarter or two ago weren't there because of the because the valuations have basically contracted

Robert Cooney Oliver: severely.

S. Kirk Materne: You know, are you seeing potential opportunities there that maybe more intriguing in the near term versus buybacks?

H. Lynn Moore: I would say, in a general sense, yes, Charlie. I've had that discussions specific discussion with some of the executive team. There's been no question not just in the last year, but going back five, six, seven years, there have been deals that we've looked at where the valuations were just getting sort of, I think, ridiculous. And it would be my sense that people have to re adjust. This is a little different than you know, about three, four years ago when we went through a rotation of capital out of software. When we're in a period of high interest rates and higher inflation. We didn't really see valuations change.

And I think I think this environment should lead to that. The other difference is four years ago, our balance sheet wasn't in the position it was. So those are the things that get me excited about the future. We're gonna continue to look at M&A just because we have a real good visibility on multi multiyear free cash flow. We're not be reckless. We're gonna continue our disciplined approach. We're gonna look for the right deals at the right time. But, yes, it's something that, again, makes me excited about the future, and I'm really glad we're in the position we're in today, given where the market is and given where sit externally.

Operator: And our next question comes from the line of Mark William Schappel with Benchmark. Your line is open.

S. Kirk Materne: Hey. Thank you for taking the question.

Brian K. Miller: Brian, I just wanna double click on the SaaS net new ARR growth of 12%. Here in Q4, which I think is great on a very tough comp.

S. Kirk Materne: Would love to get some color on where you thought that would have been when you gave the preliminary guide last quarter for 20% SaaS revenue growth in 2026 And maybe just how much of your incremental confidence is being driven between the new bookings you're seeing from new SaaS deals versus conversions? Yeah. I mean,

S. Kirk Materne: we've set a lot of the strength in the bookings. Come not just from conversions, and a really solid pipeline of sort of new name deals, but also around renewals and expansions with existing customers. So a lot of add on sales to existing customers, some of those coinciding with a flip of an on prem customers. And good growth around renewals and pricing on those renewals. So I'd say fourth quarter bookings that inform our guidance for this year We're we're pretty much in line with what we expected when we gave that early look at 2026 growth.

We even said back at the beginning of the year in '25, when bookings were a bit slow, that we expected to see strong growth sequentially through the year, and we did, in fact, see that So the underlying market conditions continue to support that. And I'd say, generally, the order played out as we expected.

Operator: And our next question comes from the line of Clarke Jeffries with Piper Sandler. Your line is open.

S. Kirk Materne: I wanted to confirm, if the Texas contract kind of rolled off mid quarter or at the end of the quarter And just generally, within the guide for transaction revenue next year, what are your rough expectations for merchant fees? Thank you.

Mark William Schappel: Yeah. Texas didn't just end. It's

S. Kirk Materne: in a single, you know, in on a cliff. It wound down throughout the year really starting early in the year. As some of the services, migrated away. And, originally, the contract was,

Mark William Schappel: to it's by terms ended in August,

S. Kirk Materne: We extended that as the new provider wasn't fully ready to take over all of the services. And so there was, some uncertainty throughout the second half of the year about what the revenues would be. At the end of Q3, we expected that Texas revenues for the full year would be around 40,000,000 and that for the fourth quarter, they ended up being about almost $4,000,000 below that expectation. We ended up with revenues from Texas being around 36,000,000 that it was a very low margin contract, so it didn't have

H. Lynn Moore: as meaningful an impact on, on

S. Kirk Materne: operating margin, but it did part of our shortfall in revenues in Q4 was related to that contract producing a little bit less revenues than we expected for the year. Merchant fees for the full year will be up more of a I don't think we've guided to emergency number, but we do expect those to grow. As we've talked about, most of the growth in our payments business is in the gross model. So we're continuing to expand the sale of payment services to embed it with our software, those are generally provided under a gross model. We've also mentioned that we continue to expand services and grow volumes under our existing arrangements.

And our tending to move away from some of the third party arrangements that have been on a net model. So more of our payments business will be on gross model and that will drive more growth in merchant fees.

Hala Elsherbini: My apologies. Go ahead. Thank you very much. That's it.

Operator: And our next question comes from the line of Peter Heckmann with D. A. Davidson. Your line is open.

Brian K. Miller: Hey. Good morning. Long call. Just had a quick question here.

S. Kirk Materne: In terms of the, amount of acquired revenue in your guidance from the four deals closed last year, is that is it up $14,000,000 $15,000,000 for the full year, a good assumption? And then in terms of for the record, you know, for annualized revenue, should we think about something close to maybe 45 or 50,000,000? Yeah. That would be, the ballpark, for the record. Somewhere in that range, we'll we will update our guidance for the year to incorporate that once that closes. And, yeah, you're in the in the ballpark. It would be somewhere, you know, a little north of $10,000,000 for the revenues from the businesses we acquired during 2025.

H. Lynn Moore: I would caution you too. I agree. We're we're not in a position today to make any sort of guidance on for the record, whatever ballpark. That we're talking about. Keep in mind that for the record has been going through a transformative set SaaS cloud shift.

S. Kirk Materne: With their product offering.

H. Lynn Moore: And so that will be ongoing. And so whatever ballpark we have, it'll be a mix of SaaS and less profitable type revenue, but that will continue to grow and replace just like a cloud transition that we went through.

Operator: And our next question comes from the line of Parker Lane with Stifel. Your line is open.

Brian K. Miller: Hi, this is Matthew Kickert on for Parker. Thanks for taking my question. You mentioned

Robert Cooney Oliver: 10% to 12% underlying growth for the payments and transaction segment next year.

S. Kirk Materne: Is that something you view as a run rate

Brian K. Miller: coming out of 2026? And just more broadly, what

Robert Cooney Oliver: would be some of the levers for midterm growth? On that segment? Thank you. Yeah. That range is

S. Kirk Materne: is exactly in line with, I think, that 10 to 13% we talked about as our sort of midterm growth rate for transaction business going back to our twenty three Investor Day. So that is the right in the range that we expect to be kind of the run rate going forward. That's driven by our strategy of expanding the transaction business within our existing software customer base by integrating or by selling integrated payments to those software customers, both new customers and existing customers. It's higher volume, driving greater adoption of online services. And driving higher volumes. Through the existing customer base. Longer term, there'll be, more and more contribution from adding disbursements to the portfolio.

And then we do have instances where we're providing software products to clients but getting paid under a transaction based arrangement. So rather than that showing up in SaaS bookings and SaaS revenues, it's showing in transaction revenues. One of the deals Lynn called out this quarter a deal for motor vehicle digital motor vehicle titling solution for one of our state enterprise customers is under that kind of arrangement. So that also contributes to the low double digit SaaS growth or transaction growth.

Operator: And our next question comes from the line of Keith Michael Housum with Northcoast Research. Your line is open.

Brian K. Miller: Good morning, guys. Just trying to unpack those bookings numbers a little bit. I know we've been talking about the SaaS bookings primarily, but if I look at your services and other bookings year over year, it's down about 22%. You know, down significantly in the fourth quarter. Can you perhaps just unpack why that is for the year over year decline? How to think about that going forward?

S. Kirk Materne: Sure. Probably the biggest factor there is the contract reserve, the $10,000,000 contract reserve we took in Q4. Impacted bookings. So it created, basically, negative license revenues. Most of that was reversal of license revenues so that also effectively comes out of bookings. That's the biggest factor there, and that was, I think, 8,800,000.0 of licenses and a little less than around a million of professional services.

In general, professional services, which we have talked about for a long time, is being very low margin or negative margin business for us, While we have a number of initiatives to improve our efficiency and profitability around the pro services business We also don't want to grow that segment of our business at the same rate the rest of our business grows. So we're having success in delivering software more efficiently with fewer services. Really

Robert Cooney Oliver: actively,

S. Kirk Materne: trying to limit the amount of custom development work we do that falls in professional services. So part of that is by design that we don't want to grow services at low margins at the same rate, similar to hardware. So you know, that positive change in the revenue mix is reflected in lower bookings in those categories. So really focused on the higher growth in the more valuable revenue lines in SaaS and transactions.

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

H. Lynn Moore: Thanks, Abby, and thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian K. Miller and myself. Thanks again, and have a great day.

Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

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