Tyler Technologies Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Q2 results again exceeded expectations with total revenues of $596.1 M (+10.2% YoY), SaaS revenues grew 21.5% for the 18th straight quarter above 20%, transaction revenues +21.3%, non-GAAP operating margin expanded 200 bps to 26.5%, and free cash flow surged 80.9% to $88 M.
  • Positive Sentiment: Full-year 2025 guidance was raised: total revenues now forecast at $2.33 B–$2.36 B (~10% growth), non-GAAP EPS at $11.20–$11.50, and free cash flow margin expected at 25%–27%, benefiting from lower cash taxes under new legislation.
  • Positive Sentiment: The cloud-first strategy remains a key growth driver, evidenced by a 47.7% sequential increase in SaaS bookings, a robust pipeline in public sector markets, and deeper alignment with AI initiatives to boost cross-sell and upsell opportunities.
  • Positive Sentiment: Acquisition of Emergency Networking enhances Tyler’s TAM and strengthens its public safety portfolio with cloud-native fire records and EMS patient care reporting, positioning it as a market leader in compliant NEARS solutions.
  • Negative Sentiment: Professional services revenues fell 18.5% as Tyler deemphasized low-margin services and took implementation reserves, and license revenues are projected to decline 16%–18%, reflecting strategic refocus and timing of large deals.
AI Generated. May Contain Errors.
Earnings Conference Call
Tyler Technologies Q2 2025
00:00 / 00:00

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Operator

Ladies and gentlemen, hello, and welcome today's Tyler Technologies second quarter twenty twenty five conference call. Your host for today's call is Lynn Moore, president and CEO of Tyler Technologies. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. In order to address your questions and stay within the allotted time, please limit your question to one question per person.

Operator

You may get back into the queue for a follow-up. As a reminder, this conference is being recorded today, 07/31/2025. I would like to turn the call over to Hala El Sherbini, Tyler's Senior Director of Investor Relations. Please go ahead.

Hala Elsherbini
Hala Elsherbini
Senior Director - IR at Tyler Technologies

Thank you, Abby, and welcome to our call. With me today is Lynn Moore, our president and chief executive officer, and Brian Miller, our chief financial officer. 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 on our annual guidance for 2025. 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.

Hala Elsherbini
Hala Elsherbini
Senior Director - IR at Tyler Technologies

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 would refer you to our Form 10 ks 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 schedule with supplemental information, including information about our quarterly recurring revenues and bookings. On the events and presentations tab, we posted an earnings summary results slide deck to supplement our prepared remarks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Lynn?

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Thanks, Hollis. Our second quarter results again exceeded expectations and reflect continued momentum with double digit total revenue growth, strong profitability and exceptional free cash flow. Our performance continues to be supported by stable market demand and strong execution as we advance our cloud first strategy. SaaS revenues grew 21.5%, marking our eighteenth consecutive quarter of SaaS growth of 20% or more. Transaction based revenue growth was especially robust and ahead of plan, up 21.3% as quarterly transaction revenue surpassed $200,000,000 for the first time.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Our non GAAP operating margin expanded 200 basis points to 26.5%. In addition, free cash flow grew 80.9% to $88,000,000 significantly exceeding expectations. As we discussed on prior calls, we operate in a market defined by inherently long sales cycles, particularly for larger deals, which can create quarterly variability, but ultimately support long term growth. While we still are seeing some scattered delays or cancellations of procurement processes related to the macro environment and noise around federal funding, they are not material. Many of the sales processes that were delayed in Q1 were signed in Q2, and we saw solid sequential improvement in SaaS bookings in Q2.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

We're seeing no fundamental change in public sector demand or purchasing behavior, and our sales pipeline remains strong supported by generally stable and healthy budgets with funding priorities increasingly aligned to technology investments that drive long term efficiencies through digital modernization. In addition, client conversations at our recent Connect conference reinforce that the vast majority of Tyler clients do not expect federal funding, Doge, or other macro factors to impact their spend with Tyler. Our cloud first strategy is the foundation of our success and is anchored by unifying principles that drive toward a single release stream to better scale, innovate, and deliver improved time to value for our clients. By closely aligning our cloud strategy and client success efforts with our deliberate AI approach, we're unlocking the full potential of the cloud while creating deeper client connections through a unified experience that we believe will enhance cross sell and upsell opportunities. Our team continues to execute at a high level against our strategic roadmap, reinforcing our leadership position in the public sector and advancing our four key growth pillars: completing our cloud transition, leveraging our large client base, growing our payments business and expanding into new markets.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

I'd like to highlight a few second quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. Our largest SaaS deal of the quarter was an $11,000,000 contract that expands our relationship with the Arizona Supreme Court for enterprise supervision solution. We signed a contract for full enterprise justice on premises to cloud migration with the Superior Court in Santa Clara County, California, the sixth most populous county in the state. This is our first California port flip and represents more than $1,000,000 in SaaS ARR. It was another strong sales quarter in public safety, including a multi jurisdictional, multi product competitive SaaS win with the West Suburban Consolidated Dispatch in the Chicago area and a full public safety suite SaaS win in Anoka County, Minnesota worth more than $1,000,000 in ARR.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

The city of Dallas, Texas expanded its contract for our priority based budgeting solution. The city desired an accelerated deployment to leverage our AI powered application to identify and prioritize the highest value budget initiatives for the city and its constituents. The State of Alabama Department of Revenue selected our AI driven resident assistant solution. This win builds on our resident assistant projects currently in deployment in four other states, including Hawaii, Indiana, Mississippi, and South Carolina. We see a strong pipeline behind these wins as we build upon these successes.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

We were recently recognized as a leader and visionary in the first ever Gartner Magic Quadrant for cloud based ERP for U. S. Local government. We believe this represents a clear testament to the strength of our competitive position, innovation, and the differentiated value of our uniquely integrated suite of public sector solutions. Before I turn the call over to Brian, I'd like to highlight the acquisition of Emergency Networking earlier this week.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Emergency Networking, a Tyler partner since 2023, is a leading provider of cloud native software for fire departments and emergency medical services agencies, including fire records management and patient care reporting with advanced analytics. The addition of emergency networking solutions expands our TAM and adds an important piece to Tyler's public safety portfolio, solidifying our position as a market leader in compliant fire and EMS records management, including the National Emergency Response Information System or NEARS. We believe Tyler now has the most comprehensive suite of solutions for public safety agencies from law enforcement to first responders to EMS agencies. Now I'd like for Brian to provide more detail on the results for the quarter and our updated annual guidance for 2025.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Thanks, Lynn. Total revenues for the quarter were $596,100,000 up 10.2%. Subscriptions revenue increased 21.4%. Within subscriptions, SaaS revenues grew 21.5% to 189,600,000 As we've discussed previously, there's often a lag from the signing of a new SaaS deal or a flip to the start of revenue recognition that can vary from one to several quarters. Because of this as well as the timing of SaaS renewals and related price increases, SaaS revenue growth and SaaS bookings both year over year and sequentially may fluctuate from quarter to quarter.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Transaction revenues grew 21.3% to $215,500,000 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. As a reminder, Q2 is typically our highest volume quarter for transaction revenues encompassing peak outdoor seasons along with tax filing deadlines. Professional services revenues declined 18.5% to $58,600,000 due to both an intentional focus on deemphasizing low margin services as well as the impact of reserves related to projects that were in the implementation phase with agencies in two states. Total bookings for Q2 were 28.8%, up sequentially from Q1 and up 5.1% year over year as some delayed Q1 decisions signed during Q2. SaaS bookings in total for Q2 including new SaaS deals, expansions, renewals and flips were solid, up 47.7% sequentially from Q1 and up 8.2% year over year.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

During the quarter, we added 172 new SaaS arrangements and signed 118 SaaS flips of existing on premises clients with a total contract value of approximately $91,000,000 up 35.2% sequentially from Q1, but down 28.4% year over year against a difficult comparison reflecting the lumpiness of large deals. Total ARR from new SaaS deals was approximately $15,000,000 which more than doubled sequentially from Q1, but was down 7% year over year. The average ARR from new SaaS contracts was approximately $87,000 up 65.1% sequentially from Q1 and up 9.8% over last year. The number of SaaS flips grew modestly over last year to 118. Total ARR from SaaS flips was approximately 13,300,000 up 10.9% sequentially from Q1, but down 9.2% year over year.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Our total annualized recurring revenue was approximately $2,070,000,000 up 15.2%. Our non GAAP operating margin expanded to 26.5%, up 200 basis points from last year. The margin expansion reflects a positive shift in revenue mix towards higher margin SaaS and transaction revenues, efficiency gains across our cloud operations and favorable operating expense trends including leverage in sales and marketing and G and A expenses. As we discussed on previous calls, merchant and interchange fees from our payments business under the gross revenue model have a meaningful impact on our overall margins as they are included in both revenues and cost of revenues. We incurred merchant fees of approximately $53,000,000 in Q2 compared to $45,000,000 last year.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Cash flows from operations and free cash flow were robust at $98,300,000 and $88,000,000 respectively, driven by higher margins and working capital improvements. The recent passage of the One Big Beautiful Bill Act provided a permanent repeal of Section 174, which required capitalization of R and D expenditures for tax purposes along with favorable changes in the treatment of tax bonus depreciation. As a result, we currently expect that our cash tax payments in the 2025 will be approximately $55,000,000 lower than previously expected, adding approximately 200 basis points to our free cash flow margin for the year. Similarly, we expect that our cash tax payments in 2026 will be minimal. We ended the quarter with $600,000,000 of convertible debt outstanding and cash and investments of approximately $895,000,000 and net leverage of zero.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

In light of our strong second quarter results and our positive outlook for the balance of the year, we have revised our annual guidance for 2025 as follows. We expect total revenues will be between $2,330,000,000 and $2,360,000,000 The midpoint of our guidance implies growth of approximately 10%. We expect GAAP diluted EPS will be between $7.4 and $7.7 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 $11.2 and $11.5 Our estimated non GAAP tax rate for 2025 is expected to be 22.5. We're currently evaluating potential impacts of the new tax bill on our tax rate going forward.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

We expect our free cash flow margin will be between 2527%. We expect research and development expense will be in the range $2.00 $2,000,000 to $2.00 $5,000,000 Other details of our guidance are included in our earnings release and in the Q2 earnings deck posted on our website. I'd also like to add some additional color around our revenue guidance. Subscription revenues in total are expected to grow between 1719%. Within subscription, SaaS revenue is expected to grow between 2123%.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Transaction revenues are expected to grow between 1416%, with merchant fees up 7% to 9%. We now expect the majority of payment services under the Texas contract to continue through the 2025 or early twenty twenty six with full year revenues of approximately $41,000,000 Maintenance revenue is expected to decline 4% to 6%. Professional services revenue is expected to decline 3% to 6%. License revenues are expected to decline 16% to 18%. Hardware and other revenue is expected to grow between 35%.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

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

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Thanks, Brian. We closed the second quarter with strong performance and solid execution positioning us well for the second half of the year. Our results reflect the competitive strength of our diversified business delivering the broadest, most integrated portfolio of public sector solutions to lead our clients' digitally empowered future. In May, nearly 7,000 clients, sponsors, and team members came together at Tyler Connect twenty twenty five in San Antonio. At the conference, we previewed our AI strategic road map with resounding client interest and indications of elevated adoption readiness. Our AI strategy rooted in three core pillars, productivity, decision making, and service delivery will include the introduction of new AI features for multiple products by year end. We've also worked to standardize our monetization strategy, focusing on a value based SaaS model that provides predictability that our clients need. We also highlighted our increased focus on and investments in improving the client experience, including presentations by our new Chief Client Officer, Andrew Call. You may have seen our Form eight ks filed last week announcing John Maher's intention to end his service on Tyler's Board of Directors, effective after the company's annual meeting of shareholders in May '26.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

John joined Tyler through the acquisition of Munis, ultimately rising to President and CEO of Tyler. He joined the Board of Directors in 2002 and has chaired the Board since 2017. John's impact on the company is immeasurable, and we look forward to celebrating him and his leadership next year. In the meantime, we extend both our profound thanks and our sincere congratulations to him. We're also grateful that he made this decision months before his actual board service ends so that we have time to execute a thoughtful and responsible board transition.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

To that end, independent directors of the board discussed and unanimously agreed that their current intention is to nominate me as the company's next board chair. Independent directors also unanimously agreed that they would continue to appoint a lead independent director for so long as the board chair is not independent. On a personal level, I wanna thank John for the remarkable ride we've had together since 1999. I'm deeply grateful for his leadership of the company and the board, but also in my own career at Tyler. I remain fully committed to executing our mission, building momentum on the initiatives we have launched, and delivering value to our shareholders, clients, and Tyler team members.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

It's been a privilege to do that with John, and I'm as despite inspired as ever to continue writing more chapters in the incredible story that John helped write. Additionally, I'm pleased to announce the recent appointment of Ryan O'Connor as our senior vice president of payment strategy and operations, a newly created executive role to support strategic objectives and further expand our payments market opportunities. Ryan brings more than thirty years of experience in the payments industry and a proven track record of driving innovation and operational excellence. He'll be responsible for Tyler's overall payment strategy, technology, third party payments partnerships and day to day payments operations. Ryan's strategic counsel will be key in this next phase of our growth as we realize the full potential of Tyler's payments business.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

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

Operator

Thank you. And we'll now begin the question and answer session. If you are using a speakerphone, please pick up your handset and then press star one. If you would like to withdraw your request, press star 1 a second time. As a reminder, please limit your question to one question so that we may stay within the allotted time, And our first question comes from the line of Terry Tillman with Truist Securities. Your line is open.

Terry Tillman
Terry Tillman
Managing Director at Truist Securities

Yes, thanks. Good morning. And first, I guess, I want to say congrats to John and all the best going forward. Lynn, Brian and Hala, my one question, I'm going to focus on bookings, the SaaS bookings. I think there were some commentary in the prepared remarks about maybe some benefit from stuff from 1Q to 2Q, actually materializing.

Terry Tillman
Terry Tillman
Managing Director at Truist Securities

But if I just look at the SaaS bookings, the 148 to 02/18, that is a substantial uplift sequentially and is higher than any bookings last year, including some quarters where there were some big deals. So just anything you could share more on that bookings because I know part of the definition of the SaaS bookings is not just new deals, but also extensions and renewals. So maybe unpack a little bit more about around that SaaS bookings. Thank you.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Yeah,

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Terry. The the real strength in the in the SaaS bookings this quarter, although the the new deals, the new logo, new name deals, did improve pretty significantly from from q one sequentially, and that did include the impact of some of the deals that, that we talked about in q one that were delayed. But really the strength there was around, inside sales, which the expansions, additional sales to existing customers and renewals. It was a very strong renewal period. Some of that is just timing of when some of the SaaS deals, especially multi year deals, deals that we signed last year in a very strong bookings year have renewed.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

And so that's really what drove most of that strength. But there's really four components there as you you mentioned. New names, the additional sales to existing customers, renewals and flips. And the latter three were all pretty strong this quarter. Thank you.

Operator

And our next question comes from the line of Alexey Gogulov with JPMorgan. Your line is open.

Alexei Gogolev
Alexei Gogolev
Executive Director at JPMorgan Chase

Hello, everyone. Lynn, yesterday, we've heard the Tenable call out improving federal spending environment. How have, Tyler's sales cycle evolved since q one? And what specific improvements are you observing in the pipeline as macro begins to improve?

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah. Alexei, that's a good question. And and you're right. I think, if you step back and look at the broader economy, you go back just three months ago, there was kind of lot of noise going on, on a lot of things, whether it was Doge or whether it was tariffs. And things seem to be stabilizing on a more broader level.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Think reports recently inflation is down. GDP, I think, was around 3% this past quarter, reflecting, I think, both a change in import exports. Think their for q one, there was a lot of pre tariff imports coming in, wages are up, know, and there's an expectation of rate cuts coming. So I think some of that market uncertainty is is starting to is starting to loosen on the broader environment. You know, what we're seeing is there there there was a little bit of uncertainty, think, coming out of q four, really into q one around that broader environment.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

And but, you know, in our business, those those deals don't go away. So when we talk about our pipeline remains strong, it does remain strong. And even when there's been a little bit of a delay in some decisions, we're still delivering mission critical systems to our clients. They have to have them. The demand doesn't go away.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

And I think you're starting to see that, and we're seeing that in market activity. An anecdote for example in our ERP space RFPs are up I think 25% since Q1. So as I said the demand doesn't go away. The pipeline is still there and robust and we are starting to see decisions. And I think as we continue throughout the year sequentially, we'll be seeing those increase in those decisions more back to our what we were accustomed to the last several years.

Alexei Gogolev
Alexei Gogolev
Executive Director at JPMorgan Chase

Thank you, Lynn.

Operator

And our next question comes from the line of Ken Wong with Oppenheimer. Your line is open.

Ken Wong
MD & Senior Analyst at Oppenheimer & Co. Inc.

Great. Thank you for taking my question. Yeah. I realize that everyone's still digesting all the the potential OBVA impacts. Any any thoughts on, you know, as more responsibility is pushed down to states, specifically around things like Medicaid, then that's they're already stretched in.

Ken Wong
MD & Senior Analyst at Oppenheimer & Co. Inc.

Any concerns this could potentially influence buying behavior in the near term?

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah. Ken, I that's not something that we're hearing, and particularly when you talk about things being pushed down to the state. I mean, what we see is is pretty normal budgets. I think NASBO recently came out with a report that state budgets are are are relatively flat over the past couple years, and and those budgets the last few years have been elevated.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

And just as a reminder, even in our our state business, our DSD business, I think less than 15%, of our deals are actually coming from state funded expenditures as opposed to, transaction based funding. So it's a small that's a small percentage of our business. But what I would say is we're we're not seeing we're not seeing any any real change, due to that, due to one big beautiful bill act.

Ken Wong
MD & Senior Analyst at Oppenheimer & Co. Inc.

Fantastic. Thanks for the color.

Operator

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

Michael Turrin
Michael Turrin
MD & Equity Research Analyst at Wells Fargo

Hey, great. Thanks. Good morning. Appreciate you taking the question. Brian, was hoping we could just go back to some of the free cash flow commentary and unpack it a bit more.

Michael Turrin
Michael Turrin
MD & Equity Research Analyst at Wells Fargo

I guess with Q2 specifically, I'm wondering if anything in terms of transaction outperformance at all impacts seasonality of free cash flow or anything we should be mindful of? And then the commentary on the bill impacts, was that 200 basis points for the full year just given the change in the second half assumptions? Anything additional you can add just there and in terms of seasonality as we're updating our forecast and just trying to get a bit more calibration around some of the changes there is helpful. Thank you.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Yes. The 200 basis points is the impact of that $55,000,000 lower cash tax payments for the full year. So that is the impact on the the full year margin. In terms of seasonality, it wasn't really strong. Seasonally, the second quarter is the strongest quarter for for transaction revenues.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

But this quarter was especially strong and exceeded the expectations around the cash flow from those transaction revenues with higher volumes and some of the newer contracts that we've signed in in recent quarters coming online. The third quarter is still our biggest free cash flow quarter by by a wide margin, and and that continues to be the expectation, especially because we still have a lot of maintenance that the majority of which renews in the third quarter or that we can't collect the cash for in the third quarter. So the really big change to the second half assumption is around, the lower cash taxes. So we really expect that that we won't pay any meaningful federal cash taxes, for the next year and a half almost.

Michael Turrin
Michael Turrin
MD & Equity Research Analyst at Wells Fargo

Thanks very much.

Operator

And our next question comes from the line of Matt VanVliet with Cantor. Your line is open.

Matt Vanvliet
MD & Software Equity Research at Cantor Fitzgerald

Yes, good morning. Thanks for taking the question. I guess when you look at the pipeline for Cloudflips, curious on how that was trending into your Connect user conference, how the conference helped support that? And then as you look towards the back half of the year, how should we think about the progress of cloud flips, and the magnitude of the ARR flipped over?

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah. Matt, I think, I'll I'll start, Brian. You may wanna jump in with some specifics. But, I think generally speaking, as every quarter goes by and as more clients successfully flip to the cloud, it creates more momentum. I've got a phrase I've used around Tyler, momentum creates momentum, and we're seeing that.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

I think the the SaaS flip that we did in California is a good example. Think I can't remember exactly when it was, maybe a year and a half ago, two years ago when we did our first statewide court flip in Idaho, and we talked about how that reference would create more momentum, and and we're seeing that. You know, I think the other thing is it's one of the things that I think also drives, the the elevated interest in in AI is is just some of the unique factors that are going on in the public sector. One being the the changing workforce and and really the reductions in workforce, which, also is going to be driving, as people retire continue to retire and and they're having more difficulty hiring than, say, in the public sector. I think that's also gonna continue to fuel momentum in our cloud flip business.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

And and with respect to the flips this year, it is a little bit more back end weighted towards the second half of the year. I think our assumption around flips this year really hasn't changed from where we started out the year. We expect the number of flips to grow around 25% year over year. The I would say that our our client base, our on prem client base is still more heavily weighted towards large customers. As Lynn said, we've only flipped at this point one of our, state court customers.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

We have big presence in California, with counties that we just flipped the first county there. So the timing of the bigger flips really impacts that ARR, and it can be somewhat unpredictable. We still see the sort of the peak of the flips, especially around the bigger customers somewhere in that 2027, 2028 time frame, and and we're working with customers all across our our on prem base to develop timelines for when they'll flip. But I think with virtually every customer now, it's a matter of when and not whether they'll flip. But, we still see that peak, a couple of years down the road.

Matt Vanvliet
MD & Software Equity Research at Cantor Fitzgerald

Great. Thank you.

Operator

And our next question comes from the line of Saket Kalia with Barclays. Your line is open.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

Hey, great. Hey, guys. Thanks for taking my question here. Great to see some of the stabilization. Brian, maybe for you.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

Again, it really good to see the SaaS bookings this quarter and that sequential growth. I noticed that you narrowed the SaaS revenue growth for the year just a little bit. It's really not that material. But I was just wondering if you could just talk us through what were some of the puts and takes that you considered when doing that? And then just broader, remind us what you said about the long term model here with SaaS growth at Analyst Day.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

If I remember correctly, it was kind of a two stage sort of model. Wanted to wanted to see if you had if you if you could just remind us about what that two stages sort of said about SaaS growth. Thanks.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Yeah. Sure. Yeah. As we look at the you know, just so we get further in the year now halfway through the year, we just have more clarity and are able to to narrow that range. I think the biggest variables around the SaaS growth in the current year, it's not as much the current year bookings. As you get into the second half of the year, they don't they don't have much impact on the current year revenues. But really, fully understanding the timing around, the the start of revenues around, those bookings in the first half of the year, more more information around the timing of flips and and when, those revenue shifts from from maintenance to to SaaS will will occur. So, those are the biggest factors that enabled to kind of narrow that range down a little bit, but, really no fundamental changes there.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

In terms of the Investor Day targets, we talked about, you know, long term between '20, the time of the Investor Day and 02/1930, recurring revenues in total growing 10 to 12% CAGR with SaaS in the high teens, kind of a 20% CAGR through 2025. As you've seen, we're we're ahead of pace on that. But as we get through that peak of the flips, starts to move more towards that high teens over that total period. But, you know, kind of low twenties, up through the peak of the flips and then, slowing down as we get on the downside of the, the flip chart.

Saket Kalia
Saket Kalia
Managing Director at Barclays Capital

Makes a ton of sense. Thank you.

Operator

And our next question comes from the line of Joshua Riley with Needham. Your line is open.

Joshua Reilly
Senior Analyst at Needham & Company

Yes. Thanks for taking my question. As we enter the second half of the year here, how should we think about the pipeline for big deals? I know specifically there's two states with RFPs for statewide court management contracts. Any update on how these are progressing and just the overall pipeline for big deals? Thank you.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

I think, Josh, as we said, just generally, pipeline is is is solid. I'm I'm aware generally, I probably can assume which dealers you're talking about. We we always have a a good pipeline in the court space. Those bigger deals in courts, you know, tend to be lumpy.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

We expect, some large RFPs to be coming out, over the next several quarters. We expect to be extremely competitive in those in those deals. The timing of those is always a little bit uncertain, but even, you know, even if even if RFPs were to be announced in the next, you know, quarter, say, it would take some time to get through the process and get those signed.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

I'd say at a high level, the mix of large deals in our pipeline is pretty consistent with what we've seen over a long period of time. But as one said, it's really hard to it's harder on the bigger deal to predict the timing until they actually get down to an award. Oftentimes, they're they're even when they have published timelines for procurements, they they don't, stick to them too religiously. So, but I'd I'd say that broadly, the the mix of large deals in our pipeline is consistent with kind of our historical norms.

Joshua Reilly
Senior Analyst at Needham & Company

Thank you.

Operator

And our next question comes from the line of Rob Oliver with Baird. Your line is open.

Rob Oliver
Senior Research Analyst at Robert W. Baird & Co

Great. Thank you. Good morning. My question is on cross sell. Brian, I think you mentioned from the SaaS revenue in the quarter, there was a good contribution from entire sales and cross sell.

Rob Oliver
Senior Research Analyst at Robert W. Baird & Co

So Lynn, my question for you is, and particularly coming out of Connect, you've done a lot to kind of change the culture internally at Tyler and to drive cross sell. So two areas of focus. One, where are you seeing kind of the bulk of the cross sell today? And and, you know, I guess, product sets? And then how are you seeing the evolution of kind of the one Tyler where you're, you know, creating a pipeline of ability to cross sell, say, public safety into into Munis and, you know, Odyssey into into Munis and and and and vice versa. Thanks very much.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah. Sure, Rob. I think that last point is pretty important. The the one Tyler initiative, which really encompasses a lot of things and will become foundational, for future cross sell and upsell. And it's it's more than just things we're doing around our sales teams and how we're how we're now quoting people.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

And even when we we talked recently about building out a state sales team, which is still in the early stages, but it's it extends into things like how we're approaching the cloud, how we're approaching cloud living, how we're approaching client experience, trying to give all of our clients a single unified experience, both from sales, to support, to implementation. That's what's going to continue to drive more and more cross sell and upsell. We're seeing those opportunities really, I'd say, just kinda consistently across the board. I'd I'd say we're still early in the process of capitalizing on the cross sell, upsell opportunities as we continue to build out that sort of one Tyler foundation that makes that that, for lack of better term, sort of helps grease the skids for those types of sales. So I continue to see that as as one of our long term growth drivers as we can continue to get more and more of our Tyler products into each of the clients' hands.

Rob Oliver
Senior Research Analyst at Robert W. Baird & Co

Great. Thank you.

Operator

And our next question comes from the line of Jonathan Ho with William Blair. Your line is open.

Jonathan Ho
Research Analyst at William Blair

Hi, good morning and let me echo my congratulations as well. In terms of the transaction based revenue, what maybe drove the strong performance this quarter? Can you just unpack that for us a little bit more? And, you know, what maybe causes us to drop back down to more normalized levels over the balance of the year? Thank you.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Well, there's a couple of things. Our our Tyler payments revenues, and as we've talked about, we have a focus on it's a cross sell focus really into to bundling payments, in an integrated manner with new Tyler software sales as well as back into our installed base. And we've had a lot of success with that, really over the last year and continued to, to work with existing customers to add payments to to their software solutions. So we've seen good growth in that. We've also seen growth in the revenues that we get from third party payment relationships that that with some of our customers, and we see nice growth there. And then in new new payment relationships, some of which are really what I kind of like to refer to as SaaS as a transaction where we're providing software but getting paid for it with transaction revenues. So for example, the California parks contract that we talked about last year went live last August. So that's still providing growth for us that that wasn't in there last year. Some of our digital titling solutions that are paid for with transaction revenues, we went live, for example, in the state of New Jersey with that. The Florida payments contract continues to grow as we went live, actually, last July with SunPass, the the toll roads in Florida.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

So that's new revenue on a year over year basis. And then Texas, which is going away at some point, continues to have higher volumes as well. So we saw some increase there. So it's really volumes, new customers, and some of those new customers being cross sell. I guess the things that would some of the volumes can be seasonal somewhat.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

And over time, I think, as we continue to mine the existing customer base, at some point, we'll sort of reach a peak there and have fewer opportunities or have worked through most of those opportunities. I think we're still some time away from having fully penetrated our customer base, but eventually, we'll get there.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

I think I think to add to that Jonathan, just just two things and and it was kind of I think you may have covered it Brian, but we're better at accelerating onboarding of our payment streams. And, we also have some initiatives around trying to help increase adoption within our client base. So, all the things that Brian mentioned plus those two factors as well.

Jonathan Ho
Research Analyst at William Blair

Thank you.

Operator

And our next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Alex Zukin
MD & Software Equity Research at Wolfe Research LLC

Hey guys, thanks for taking the question.

Alex Zukin
MD & Software Equity Research at Wolfe Research LLC

Echo there congrats. I guess maybe just two quick ones for me. First, around the kind of macro timing impact, is there kind of maybe gauge the level of conservatism still embedded in the outlook for those events just given the kind of maybe lower macro impacts that we've seen thus far? That'll that's just the first one, and then I have a quick follow-up.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah. I mean, as I've mentioned earlier, I think there has been a little bit of a macro cloud may be the wrong word, but, you know, hanging around. What's going on in the general economy, I think, should should free up some of that, maybe uncertainty or, you know, we experienced earlier. But it's short lived. I mean, it's it's as I said earlier, the demand hadn't gone away.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

The pipeline hasn't gone away. In terms of conservatism and the remaining outlook for the year, given the timing of even if we start seeing more deals and the timing of getting online, I wouldn't think that there's really any conservatism right now in our approach for the rest of 2025.

Alex Zukin
MD & Software Equity Research at Wolfe Research LLC

Got it. And then Brian, maybe just on the free cash flow raise. I guess, you have 200 basis points add from the bill. You increased it by 100. Maybe what's that delta tied to?

Alex Zukin
MD & Software Equity Research at Wolfe Research LLC

And then given that's a half year number, should we kind of I know we're not guiding to it yet, but as we kind of tune our models for next year, should we assume kind of a four to 500 basis point impact from that for next year on top of what we may have been modeling previously?

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Yeah. No. I wouldn't do that. I think that would probably be, overly aggressive. I think the difference is really around just the impact of higher margins and higher earnings.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

So that's flowing through in the cash, especially on the transaction side because the the cash flow characteristics of the transaction revenues are really strong. We get the cash when the transaction takes place. So those are the biggest factors, the the tax change and just the the higher earnings and and particularly transaction revenues. So I think your starting point is gonna be probably somewhere around where we are this year. And then the impact of basically no federal cash taxes next year, which would have been, you know, probably in the $100,000,000 range, but that impact on next year.

Alex Zukin
MD & Software Equity Research at Wolfe Research LLC

Got it. Thank you, guys.

Operator

And our next question comes from the line of Charlie Strauzer with CJS Securities. Your line is open.

Charlie Strauzer
Senior Managing Director at CJS Securities

Hi, good morning. Just a personal thanks to John for the twenty three plus years we've known each other. And, thanks to him and you, Brian, especially, you know, introducing us to the Tyler story at the the very early days. And, really, that's all I had for you guys. And then just thank you.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Thank you, Charlie. Appreciate that.

Operator

And our next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open.

Gabriela Borges
Gabriela Borges
MD - Software Research at Goldman Sachs

Hi. Good morning. Thank you. I wanted to follow-up on the prior commentary on the potential for Flip to grow around 25% year over year. Give us a little bit of a sense of how this progresses from here.

Gabriela Borges
Gabriela Borges
MD - Software Research at Goldman Sachs

I think in the past, you've talked about peak Flip being in 2027, 2028. So do you think that 25% can accelerate, or are we talking number of flips versus the finished growth rate? Maybe just a little color on where we go from here on the flip.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Yeah. The the 25% is number of flips, and really the dollar value of the flips or the size of the flips, they are are from those is is the bigger factor. It's it's a little bit hard to predict, but likely, you know, 26 is probably something like another 25% on top of of where we are in '25, and then, you know, acceleration from that to peak in '27 and '28. So we're probably looking at something like a 25% increase year over year in ballpark over the next couple of years and with larger and larger with an a a continuous increase in the number in the average dollar value of those flips as well. Certainly, counts around quarter to quarter, but so we're still probably on that kind of trajectory over the next couple of years till we get to the peak.

Gabriela Borges
Gabriela Borges
MD - Software Research at Goldman Sachs

I gotcha. And so even if the numb the number of flips percentage growth is getting to improving, the dollar value associated with that flips will be going up.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

That's correct. That's the trend we expect over the next couple of years, the dollar value increasing, more than probably the number of flips.

Gabriela Borges
Gabriela Borges
MD - Software Research at Goldman Sachs

Yeah. Especially if get to

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

the large court flips, some of those, the statewide courts, the, large counties are are multimillion dollar annual maintenance revenue streams, and and we're continuing to see a pretty consistent, around that 1.7 x uplift, from maintenance to SaaS.

Gabriela Borges
Gabriela Borges
MD - Software Research at Goldman Sachs

Very helpful. Thank you.

Operator

And our next question comes from the line of Mark Schappel with Loop Capital Markets. Your line is open.

Mark Schappel
Managing Director at Loop Capital Markets LLC

Thank you for taking my question and nice job on the quarter. Leland, I was wondering if you could just provide some additional details around emergency networking, the acquisition just announced. Looks like a nice little pickup, but maybe just some additional information such as maybe number of employees or customers. Were they a regional player? And were they profitable?

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yes. Thanks, Mark. That's a good question. So as we said, you know, the the primary solution is really in fire records and and patient care reporting for EMS. Fire records has always been part of our public safety suite, but something that we actually have not been investing in significantly as we focus more on our CAD and our our our police records.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

It's they've got a cloud native multi tenant offering. We've been partners with them for probably two years to help fill that gap. And part of this is is is is what we've they called internally a partner to acquire model. So we we kind of tested them out. We've got to know them as people, got to know the culture, got to experience whether or not that product is portable and can move up market the way we expected it that it could, and then it's proved that.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

There's some new compliance standards in this space. This this space has seen a lot of consolidation recently. There's there we talked about it being compliant with Nearest, the National Emergency Response Information System. That's where peep all these agencies are most of them are on what's called NFIRS, and they they're required to move in the '26. They've got that solution compliant.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

It's one of the things that we find really exciting about it shortly before after LOI, but shortly before closing. They had just closed on a statewide Pennsylvania deal, which has garnered a lot of interest. So we think we've got the the best solution out there in the market. We're excited about it. It is a small company, you know, several million in revenues, a little more than around breakeven.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

But we believe that we can take this now and do what we've done traditionally with some of these tuck in acquisitions. It rounds out our portfolio. It makes us even more competitive. And with the sort of urgency around this regulatory compliance change and what we've seen with success in the market, we're we're really pretty excited about it.

Mark Schappel
Managing Director at Loop Capital Markets LLC

Thank you. Sounds like a nice pickup.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

The impact is I'll add on the impact, from emergency networking, although it's, relatively immaterial is included in our guidance for the year.

Operator

And our next question comes from the line of Trevor Walsh with Citizens. Your line is open.

Trevor Walsh
Trevor Walsh
Director & Senior Equity Research Analyst at Citizens

Great. Thanks, team, for taking the question.

Trevor Walsh
Trevor Walsh
Director & Senior Equity Research Analyst at Citizens

Lynn, I appreciate all the color around kind of Doge maybe taking a bit of a backseat or at least the noise around that, diminishing and that kind of being a good, I guess, confirmation of stronger budgets at the state level. But have you seen anything, I guess, within the confines of your federal business? I know it's small, but just has that pressure, released there? Maybe just getting that broader question, just give give us an update on kind of where the opportunities might lie as you go more towards that, part of the, the customer base. Thanks.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah, Trevor. And and you're right. Our federal business is pretty small piece of our business, less than 5%. What we're seeing right now is that projects haven't been taken away. As you know, q three is the biggest quarter for that, so it's still a little TBD.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

But I think generally speaking, I don't see a material change in our outlook. There will be pockets, in federal. But as we mentioned, in in our opening remarks, while there has been some scattered stuff across our diversified portfolio, we don't view any of it as material.

Operator

And our next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.

Analyst

Hi, this is Bill on for Kirk and thanks for taking my question. How should we think about trailing twelve month bookings numbers? Is it still a bit too lumpy? Should we look at it more over a trailing two year basis?

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Well, the lumpiness probably does, sort of point you towards looking at over a longer basis to get a a more accurate trend. We will we've pointed out in the past, and and we'll remind people that last year was a record year for SaaS bookings. We had a number of very large deals, and and particularly in the third and fourth quarters. So we we do face difficult comps on with that just really strong that just a lot of it based on timing, but a lot of those came together in the third and fourth quarters of last year. We had large staff deals in courts in Arizona.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

We had a large resident portal deal in Maine. These were $1,520,000,000 dollar kinds of deals. So I think the longer, a little bit longer, look back probably gives you a more accurate, trend that eliminates a little bit more of that lumpiness. But as we said, the pipeline we're really happy with the pipeline, and the the outlook is for bookings in the second half of the year is solid, but it is up against a really tough comp from the last two quarters or last year's last two quarters. So just keep that in mind.

Analyst

Great. Thanks for taking my question.

Operator

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

Keith Housum
MD & Research Analyst at Northcoast Research

Good morning, guys. Hey, question for you on bookings. As I look at the bookings here, obviously, it's not quite what you guys are growing in terms of revenue. But in terms of your revenue, what do you guys recognize as perhaps not recording your bookings? Is there a gap there in terms of payments or whatever not might you you see in revenue but not in bookings?

Keith Housum
MD & Research Analyst at Northcoast Research

Well, payments doesn't show up in bookings at all. Well, it shows up in bookings when the revenue is recognized. So if we sign a new payments deal because or or or other transaction based deal, you won't see that show up in current quarter bookings because even though the revenue stream may be very predictable, and a lot of comfort around that, it is dependent on the transaction, so it doesn't go into the bookings number. So, so new transaction deals. And as I mentioned, we're doing, regularly doing deals that where we're delivering software, but it's being paid for through transaction revenues.

Keith Housum
MD & Research Analyst at Northcoast Research

And so those won't show up in that bookings number, but they will show up in in revenue growth. So there's there's kind of this hybrid model we have in many cases, which provides us with a a strong competitive advantage of being able to deliver software and get paid under a transaction model, especially at the state level. And but that does have the impact of really kind of under understating bookings, especially around the software.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Yeah, Keith. Like, a good example, our ERP suite, signed this past quarter a deal in Florida, I think, with the city of Apopka. I don't know how to I don't know how to pronounce it. Apopka, I think, Florida. Yeah.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

That was a 370 ish, thousand annual ARR for SaaS, but we expect 330,000 in in transactions a year. So it's about a $700,000 a year ARR. But, of course, a lot of most of that transaction doesn't doesn't show up in bookings.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

Just another example, we signed a deal with the state of Oklahoma for our cashiering product. There is a small SaaS fee associated with it and a 140 some thousand dollars a year. But with transaction revenues associated with it, it's a million dollars of ARR. But all that showed up in the bookings was 144,000.

Brian Miller
Brian Miller
EVP & CFO at Tyler Technologies

So that's why we've have sort of deemphasized backlog and and bookings in favor of total ARR.

Operator

And ladies and gentlemen, that concludes our question and answer session. I will now turn the call back over to Mr. Lynn Moore for closing remarks.

Lynn Moore
Lynn Moore
President & CEO at Tyler Technologies

Great. Thanks, Abby, and thanks, everybody, for joining us today. If you have any further questions, please feel free to reach out to Brian Miller or myself. Thanks, everybody. Have a great day.

Operator

And this concludes today's call and we thank you for your participation. You may now disconnect.

Executives
    • Hala Elsherbini
      Hala Elsherbini
      Senior Director - IR
    • Lynn Moore
      Lynn Moore
      President & CEO
    • Brian Miller
      Brian Miller
      EVP & CFO
Analysts
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