Tyler Technologies, Inc. Q3 FY2025 earnings call

• Third quarter results exceeded expectations across key revenue and profitability measures, with momentum continuing from the first half of the year.
• Cloud strategy is central, with cloud living approach driving agility and continuous improvement. AI innovation is amplifying cloud power for better client experiences.
• Key growth pillars: completing cloud transition, leveraging large client base, growing payments business, expanding into new markets.
• Notable third quarter wins include deals with Hillsborough County, Arizona, South Carolina, Coweta County, and Columbia, Missouri, showcasing progress in AI-driven solutions and public safety market.
• M&A activity: 2 acquisitions closed in 2025, with active pipeline; disciplined approach to M&A considering valuation and management bandwidth.

Total revenues grew by almost 10%, led by 20% SaaS revenue growth and 11.5% transaction revenue growth. SaaS bookings grew 5% sequentially and 5.8% year-over-year to a new all-time high. Total annualized recurring revenue was approximately $2.05 billion, up 10.7%. Non-GAAP operating margin expanded to 26.6%. Cash flows from operations and free cash flow were solid at $255.2 million and $247.6 million, respectively. SaaS revenues contributed 20% to total revenue growth, transaction revenues 11.5%, and SaaS bookings were a key driver with a new all-time high.

• Total revenues expected between $2.335 billion and $2.360 billion, midpoint implies ~10% growth.
• GAAP diluted EPS expected between $7.28 and $7.48, non-GAAP diluted EPS between $11.30 and $11.50.
• Free cash flow margin expected between 25% and 27%.
• 2026 SaaS revenue expected to grow approximately 20%, recurring revenue growth within 10%-12% range excluding Texas payments wind down.
• 2025 guidance reflects solid progress towards 2030 goals, with AI and M&A offering upside potential.

• No fundamental change in public sector demand seen, but potential impacts from DOGE, federal government shutdown, and normal business uncertainties exist. However, no material impact on demand from recent events mentioned.
• Lumpiness of large deal timing could affect revenue recognition and bookings consistency.

Q: Maybe just the first -- I'll go with a tactical question first around some of the numbers and then maybe a high-level one. So maybe, Brian, for you, just understanding and helping us bridge the decline in kind of net new annual SaaS bookings year-to-date in the quarter on tough comps from last year, but the confidence in SaaS revenue growth for next year at 20%. Maybe just help -- give us a little bit of context for when the implementations, when those conversions need to happen from that prior booked business to hit that number? Like how much visibility do you have on that relative to previous years? And maybe some guardrails on those estimates for next year? And then why pull some of the segmented guidance for this year?

A: As we look -- and as we said, this is a preliminary look at 2026 as we're building out our plans, but we expect that SaaS revenues growth will be in that 20% range. It's really built up from all of the factors and our visibility into those that drive SaaS revenue growth. Part of that is new SaaS bookings, both those that will happen next year and those that have already happened. And as we've talked about, there can be a lag from 1 to multiple quarters. Sometimes these deals are phased in as they hit revenue. So some of that growth is coming out of the bookings that we saw this year and the bookings that -- some of them even that we saw last year as those are phased in. So effectively out of our backlog. There's also the impact of flips. We've talked about the trajectory of flips continuing to be on the uphill side. So those are still growing both in terms of number and in terms of size. So our expectations around flips next year are layered into that. And then there's our -- the renewals, the price -- the sales to new customers, which actually reflect the majority of new SaaS bookings are coming from add-on sales to existing customers, not the new name deals that we also disclosed. And then there's the pricing impact of our annual increases that we see on renewals. So as we look at all those -- how we build up all of those, those -- we have, I'd say, at least as good a visibility as we have in any normal year. And that is what drives that confidence around that 20% range for growth next year. And on your question about segmented guidance, I assume you're asking about the breaking out revenue guidance by line item. We've given that early in the year to help with modeling in general. But now that we're down to the fourth quarter, we really don't have any significant changes around what we've given in the past. So we've tried to simplify things a bit and just go with the overall revenue guidance.

Q: Can you just remind us the moving parts of how the Texas payments contract 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 Parks deal. Is that at a full run rate now? And are there any other notable payments deals ramping in transactions disrupting the normal seasonality for decline into Q4?

A: The Texas contract continues to move towards wind down. I think we currently expect revenues from Texas for the full year to be kind of in the $39 million to $40 million range, which is maybe down just a tick from, I think last quarter, we said $41 million. So as we get more clarity as it transitions out, that's the level we expect to be. There's probably a little bit that carries over into next year, maybe $4 million or $5 million. So that delta between the $39 million to $40 million this year and $4 million or $5 million next year is what will come out of next year. With the California parks, which was a big basically software and services, but mostly software paid for as transactions. That contract started last August. So we lapped it during this quarter. So going forward, although that -- the revenues from that contract will continue to grow, I'd say it's not fully ramped, but most of that growth or most of the incremental revenues from that are now built into our base. I don't think there's anything that fundamentally changes the seasonality. We did call out -- Lynn mentioned one large transaction-based deal we signed this quarter with the State of Colorado for our inmate services Financial suite. So again, that's software that's being provided under a transaction-based arrangement that will add a couple of million dollars a year of revenue, but no individual deal that's on the scale of something like California. Also, in this quarter, we signed a payments deal with Chesterfield County, Virginia that fully ramped up. We think it will be about $1.5 million deal. There are some other payments transactions that are in the queue right now that, as you know, we don't announce awards or where we sit. But we like the trajectory right now of our payments transaction business.