What Tyler Technologies (TYL) Said on Its Q3 Earnings Call

Key Points

• Strong Q3 performance: Tyler Technologies reported 11% recurring-revenue growth, 21.2% SaaS growth, 150 basis points of operating-margin expansion and record free cash flow of $277 million.
• Cloud migration is accelerating: Management is using proactive outreach and incentives—or disincentives for certain legacy products—to move on-premises customers to the cloud, with broader “Cloud Living” rollouts expected in early 2027.
• AI and capital returns remain priorities: Tyler has about 300 AI-enabled deals and is targeting 25 generally available AI agents by year-end, while also repurchasing roughly 8.5% of its shares year to date and retaining nearly $1.4 billion in buyback authorization.

Tyler Technologies NYSE: TYL reported third-quarter results marked by recurring revenue growth, expanding margins and record free cash flow, while management emphasized cloud migrations, artificial intelligence adoption and capital returns as key components of its long-term strategy.

Executive Chair, President and CEO Lynn Moore said the company delivered 11% recurring revenue growth in the quarter, including 21.2% SaaS revenue growth. Operating margins expanded by 150 basis points, and quarterly free cash flow reached a record $277 million.

Moore said public-sector demand remained healthy, supported by government modernization priorities, client engagement and an active sales pipeline. Total SaaS bookings increased 14%, while the company continued to see demand for cloud adoption and digital-transformation projects.

Cloud migration efforts intensify

Management said Tyler is taking a more proactive approach to moving on-premises customers to the cloud. Moore said the company contacted local enterprise clients in July to communicate the value, incentives and urgency of cloud migration, followed by direct outreach from sales representatives.

The company has also begun using what Moore described as “disincentives” for certain on-premises products. One flagship product announced end-of-life support and the final release containing new product upgrades for its on-premises version during the quarter. Moore said similar actions are expected in future quarters.

“The receptiveness from our clients with this new, more proactive approach has been really strong,” Moore said. “They welcome it.”

Tyler completed its first implementation of a multi-tenant solution for an existing enterprise ERP customer, a milestone in its “Cloud Living” strategy. Moore said broader Cloud Living rollouts remain on track for early 2027, positioning the company for an accelerating pace of migrations beginning next year.

Chief Financial Officer Brian Miller said the timing of larger SaaS deals shifted later in the year, affecting the amount of revenue recognized in 2026 without meaningfully changing the company’s sales outlook. He said Tyler had already signed a large ERP deal in October, described as its largest ERP agreement in several years, as well as a statewide court-system cloud conversion.

Miller also noted that contract duration affected reported bookings growth. Average duration for new SaaS contracts was a little over two years in the third quarter, compared with about three years in the prior-year period. The shorter duration contributed to the difference between SaaS annual contract value growth of more than 30% and total SaaS bookings growth of 14%.

Transaction-funded software contributes to growth

Transaction revenue growth exceeded management’s expectations during the year, Miller said. The company continues to embed payment capabilities in its software products and sell transaction services to both existing and new clients.

Some software arrangements are funded by user fees rather than traditional SaaS fees. Those agreements do not appear in SaaS revenue or SaaS bookings, Miller said, but they have SaaS-like margins. Examples include digital motor vehicle titling, regulatory software and outdoor recreation services, including a Louisiana State Parks agreement signed during the quarter.

Miller said transaction-funded arrangements can be attractive to state-government clients because they are not dependent on appropriated budget funds. While such revenue can carry more variability because it is tied to transaction volumes, many contracts include floors, and Tyler expects the agreements to be at least as profitable as conventional SaaS deals.

AI strategy centers on embedded functionality

Tyler said it now has approximately 300 deals across its portfolio containing AI. Chief AI Officer Franklin Williams said the company’s AI-related product attachment and revenue uplift have generally remained in the single digits so far, but are growing.

Moore said customers are generally seeking improved functionality rather than AI as a standalone offering. The company is embedding AI capabilities inside its existing systems instead of relying on external bolt-on products.

Tyler had 11 AI agents generally available and is targeting 25 by year-end. Williams said adoption will depend on demonstrating measurable returns, trust and predictability for public-sector customers.

He pointed to document automation in the Courts & Justice business as an example, saying the technology can reduce document-processing times from weeks to days or hours. Williams also described early feedback from Tyler’s Priority Based Budgeting strategist agent, including a large county that identified $9 million in savings while facing a $13 million budget shortfall.

Williams said public-sector customers have expressed concerns about variable, metered AI pricing. He said Tyler aims to provide predictable pricing and cost controls that enable customers to budget for AI-enabled products without unexpected increases.

Capital allocation, market opportunities

Tyler acquired CODY Systems during the quarter and repurchased approximately 8.5% of its shares outstanding year to date. Moore said nearly $1.4 billion remained under the company’s repurchase authorization.

Moore said share repurchases remain a priority, although the pace will depend on cash flow and acquisition opportunities. He added that the company will continue to evaluate tuck-in acquisitions, while citing confidence in Tyler’s 2030 strategy and long-term free-cash-flow outlook.

Management highlighted ERP, Courts & Justice and public safety as areas of opportunity. Miller said ERP has experienced a strong year, with improved win rates and more activity at the upper end of the market. Courts & Justice continues to offer cloud-conversion opportunities, while public safety demand remains strong and CODY expands Tyler’s presence in the lower end of that market.

The company also cited growth in state and federal opportunities. Miller said Tyler’s dedicated state sales team is generating opportunities through cross-selling into enterprise state relationships. Federal business remains less than 5% of total revenue, he said, but the third quarter benefited from federal budget-cycle activity and deals involving Tyler’s application platform, including workforce case management and other agency processes.

Management said it remains confident in its long-term target for SaaS revenue growth of about 20% through 2030, though Miller said the company was not prepared to provide 2027 revenue guidance. He said cloud conversions, AI capabilities and continued demand across state, local and federal markets support the company’s longer-term outlook.

About Tyler Technologies (NYSE:TYL)

Tyler Technologies, Inc provides integrated software and technology services to public-sector organizations. Its customers include municipalities, counties, states, courts, school districts, public safety agencies, and other government entities. The company's solutions are designed to help public organizations manage operations, improve service delivery, and engage with residents and constituents.

Tyler's product portfolio includes enterprise resource planning and financial management software, property tax and appraisal systems, court and justice solutions, public safety and emergency communications platforms, permitting and licensing tools, and software for schools and elections.

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