And welcome to today's Tyler Technologies 4th Quarter 2019 Conference Call. Your host for today's call is John Marr, Chairman 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. As a reminder, this conference is being recorded today, February 13, 2020.
I would now like to turn the call over to Mr. Marr. Please go ahead.
Thank you, Kate, and welcome to our Q4 2019 earnings call. With me on the call today are Lynn Moore, our President and Chief Executive Officer and Brian Miller, our Chief Financial Officer. First, I'd like for Brian to give the Safe Harbor statement. Next, Lynn will have some preliminary comments. Then Brian will review the details of the Q4 results and provide our guidance for 2020.
Then I'll have some final comments and we'll take your questions. Brian?
Thanks, John. During the course of this conference call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses and profits. Such statements are considered forward looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections. We would refer you to our Form 10 ks and other SEC filings for more information on those risks. 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?
Thanks, Brian. We closed out 2019 by reaching 2 significant financial milestones, as our annual revenue surpassed $1,000,000,000 and adjusted EBITDA exceeded $300,000,000 for the first time. This was also our 33rd consecutive quarter of double digit revenue growth, as GAAP revenues grew 19.4% and non GAAP revenues grew 18.3%. Organic revenue growth accelerated for the 3rd consecutive quarter, returning to double digit growth at 10.2% for non GAAP revenues. Our core software revenues from licenses and subscriptions grew 30.5% on a non GAAP basis, with 18.3 percent organic growth.
The mix of new business was once again weighted more towards subscription arrangements, which represented approximately 52% of the total number of new deals and approximately 54% of new contract value signed this quarter. Over the last 5 years, the percentage of new SaaS business has continued to rise, and 2019 was the 1st year in which subscription arrangements made up more than 50% of the total contract value of new software deals, finishing at 63% for the year. This new business mix shift has put pressure on short term revenue growth. If the mix of new business in 2019 had been similar to 2018, we estimate that 2019 revenue growth would have been approximately 160 basis points higher. As the trend toward greater cloud adoption continues to grow in our market, we are actively working with Amazon Web Services teams under the strategic collaboration agreement with AWS that we announced in October.
We're currently refining roadmaps for optimizing Tyler products for the cloud and for transitioning certain clients hosted in our data centers to AWS. GAAP subscription revenues grew 34.3% and non GAAP subscription revenues grew 32.7%. Total recurring revenues from maintenance and subscriptions grew 22.7% on a GAAP basis and comprised 67.2% of total revenue. Although the mix of new business in the 4th quarter was weighted more towards subscription arrangements, software license and royalties revenue reached a new quarterly high at 32,400,000 dollars an increase of 25.3 percent over Q4 of 2018, driven by strong sales in our public safety and MicroPact units. The total value of new contracts signed in the Q4 for New World Public Safety was more than double than last year's 4th quarter signings.
Also, as we discussed last quarter, there were several significant MicroPact deals that were signed by our partners in the 3rd quarter, the related contracts with Tyler were signed in Q4 and contributed to this quarter's license growth. Bookings in the 4th quarter were particularly robust approximately $331,000,000 up 33.5% over Q4 of 2018. Even excluding MicroPact, bookings were up approximately 26%. Bookings growth was primarily driven by the number of new deals, particularly mid sized deals rather than by very large deals, and our largest new contract was just under $9,000,000 We signed 314 new software contracts in the quarter, a new record. For the full year 2019, we signed over 1100 new software deals, approximately 44% more than last year.
Our 6 largest SaaS deals of the quarter each had total contract values of greater than $3,000,000 2 of these were for our Odyssey court case management solution, an $8,700,000 contract with Franklin County, Ohio, the largest court system in the state
and a
$3,600,000 contract with Jefferson County, Texas. With the Jefferson County deal, we now serve courts in all of the 20 largest counties in Texas. We also signed 2 large multi suite SaaS contracts that each included our Munis ERP, EnerGov Civic Services, Executime Time and Attendance and Socrata Data Insight Solutions, 1 with the City of Oxford, California valued at $8,300,000 and the other with the City of O'Fallon, Missouri $4,700,000 In addition, we signed 2 large SaaS contracts with clients in Florida for our EnerGov Civic Services solution, a $6,300,000 contract with St. Johns County and a $5,600,000 agreement with the City of West Palm Beach, which also included our Socrata data and insights solution. Our 5 largest on premises license deals of the quarter, each had total contract values greater than $3,000,000 The largest was a multi suite contract valued at $5,100,000 with the City of Lawton, Oklahoma, which included our Munis ERP, EnerGov Civic Services, New World Public Safety and Socrata Data and Insight Solutions.
The 2 largest license contracts for our MicroPact and Teletrac solution were a $4,300,000 contract for the Puerto Rico Vocational Rehabilitation Administration and a $4,200,000 contract for the U. S. Department of Veteran Affairs, Vocational Rehab and Employment Agency. We also signed a $4,200,000 license arrangement with the City of Coral Springs, Florida for our Munis, EnerGov and Executime solutions as well as a $3,500,000 contract for our New World public safety solution with the City of Jackson, Mississippi, which is the largest public safety contract ever for New World. I'd also like to highlight a contract with the North Carolina Administrative Office of the Courts that we announced earlier this week.
The contract, which was signed in the Q1 of 2020, is a 10 year, dollars 14,500,000 SaaS agreement to provide our Brazos electronic citation solution for over 500 law enforcement agencies statewide. It's a great example of our ability to expand existing client relationships through the unmatched breadth of our product suites. This latest contract builds upon our largest SaaS deal ever, an $85,000,000 statewide contract for our Odyssey Court case management solution in North Carolina, which was signed in June of 2019. As a point of reference, when we acquired Brazos in 2015, Brazos had annual revenues of approximately $10,000,000 As a result of the investments we've made in the Brazos products and organization and their integration into Tyler, we now generate approximately $17,000,000 in annual revenues from Brazos, and this latest single contract is 1.5x their total revenues at acquisition. Now I'd like for Brian to provide more detail on
the results for the quarter and provide our annual guidance for 2020. Thanks, Lynn. Yesterday, Tyler Technologies reported its results for the Q4 ended December 31, 2019. I'm going to provide some additional data on the quarter's performance and provide our annual guidance for 2020, and then John will have some additional comments. 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've also posted on the Investor Relations section of our website under the Financial Reports tab schedules with supplemental information provided on this call, including information about quarterly bookings, backlog and recurring revenues. GAAP revenues for the quarter were $288,800,000 up 19.4%. On a non GAAP basis, revenues were $287,400,000 up 18.3%. Organic revenue growth rose from the Q3 of 2019 to 10.6% on a GAAP basis and 10.2% on a non GAAP basis.
Our core software license and subscription revenues combined grew organically 18.3%. Subscription revenues for the quarter increased 34.3%. We added 164 new subscription based arrangements and converted 18 existing on on premises clients, representing approximately $74,000,000 in total contract value. In Q4 of last year, we added 81 new subscription based arrangements and had 8 on premises conversions representing approximately $33,000,000 in total contract value. Subscription contract value comprised approximately 54% of total new software contract value signed this quarter, compared to 40% in Q4 of last year.
The value weighted average term of new SaaS contracts this quarter was 4.4 years, compared to 4.1 years in Q4 of last year. Revenues from e filing and online payments, which are included in subscriptions, increased 25.5 percent to $21,700,000 That amount includes e filing revenue of $14,700,000 up 12.8% over last year and e payments revenue of $7,000,000 up 65%. For the Q4, our annualized non GAAP total recurring revenue or ARR was $769,900,000 up 21%. Non GAAP ARR for SaaS arrangements for Q4 was approximately $235,000,000 up 35.6%. Transaction based ARR was approximately $87,000,000 up 25.5 percent and non GAAP maintenance ARR ARR was approximately $448,000,000 up 13.7 percent.
Our non GAAP operating margin increased sequentially 10 basis points from 25.6 percent in the 3rd quarter to 25.7% in the 4th quarter, but declined 110 basis points from last year's Q4. The year over year decline reflects 2 major factors, our increased investment in R and D and the lower operating margins from acquisitions completed in the last 2 years, which are also receiving significant investments that affect their near term profitability as they are integrated into Tyler. Our R and D expense in the 4th quarter increased 22.1% from last year, that was essentially flat sequentially from Q3. We believe the level of investment in emerging revenue streams like e payments, existing products and recent acquisitions well positions us as we continue to focus on competitiveness and future growth, while making progress towards improving margins. Our backlog at the end of the quarter reached a new high of $1,460,000,000 up 16.9%.
Backlog included $407,000,000 of maintenance compared to a year ago. Subscription backlog was $606,000,000 compared to $480,000,000 last year and includes approximately $118,000,000 related to fixed fee e filing contracts. As Lynn noted, our bookings for the quarter were very strong at approximately $331,000,000 an increase of 33.5 percent from Q4 of last year. For the trailing 12 months, bookings were approximately $1,300,000,000 up 32.3%. Our software subscription bookings in the quarter added $12,000,000 in new annual recurring revenue, up 52.5 percent over last year's $7,900,000 For comparison, if all of our new subscription contracts had been under license arrangements, we estimate that they would have represented additional license revenue of approximately $16,000,000 Cash flow from operations rose 7.5 percent to 76,200,000 dollars while free cash flow declined by 0.5 percent to $66,500,000 For the full year of 2019, cash flow from operations increased 1.8% to $254,700,000 Free cash flow declined by 4.5% to $212,700,000 mainly due to an increased level of capital investments related to expansions or renovations at several of our office facilities.
We ended the quarter with $314,000,000 in cash and investments and no outstanding debt. Our guidance for the full year of 2020 is as follows. We expect 2020 GAAP revenues will be between 1 point $204,000,000,000 $1,224,000,000 and non GAAP revenues will be between 1.205 $1,000,000,000 $1,225,000,000 We expect 2020 GAAP diluted EPS will be between $3.81 $3.93 and may vary significantly due to the impact of stock incentive awards on the GAAP effective tax rate, as well as the final valuation of acquired intangibles. We expect 2020 non GAAP diluted EPS will be between $5.60 5.7 $2 of which approximately 55% to 60% is expected to be generated in the second half of the year. For the year, estimated pre tax non cash share based compensation expense is expected to be approximately $77,000,000 We expect R and D expense for the year will be between $92,000,000 $94,000,000 Fully diluted shares for the year are expected to be between 41,500,000 and 42,000,000 shares.
GAAP earnings per share assumes an estimated annual effective tax rate of 10% after discrete tax items, includes approximately $31,000,000 of estimated discrete tax benefits related to share based compensation, which may vary significantly based on the timing and volume of stock option exercises. Our estimated non GAAP effective tax rate for 2020 is 24%. We expect our total capital expenditures will be between $36,000,000 $38,000,000 for the year, including approximately $9,000,000 related to real estate and approximately $7,000,000 of capitalized software development costs. Total depreciation and amortization is expected to be approximately $80,000,000 including approximately $54,000,000 of amortization of acquired intangibles. Now I'd like to turn the call back over to John for his comments.
Thanks, Brian. We're pleased with our 4th quarter performance as we finished the year and the decade on a strong note. From a historical perspective, when we started the decade, our revenues were $290,000,000 with less than 50% of those recurring. Our stock price was $20.05 and our market cap was approximately $700,000,000 We finished the decade with revenues of more than $1,000,000,000 of which 67% are recurring, a stock price of more than $300 and a market cap of approximately $12,000,000,000
We're proud of our progress over
the last 10 years and especially appreciative of our extremely talented team of more than 5,400 employees whose efforts are crucial to the success of Tyler and our clients. But we're even more excited about the opportunities ahead of us as we build on our strengths to expand our markets and drive toward $2,000,000,000 in revenues. Our robust bookings in 2019 and particularly in the Q4 are indicative of our competitive strengths as well as an active marketplace. We expect to achieve double digit organic revenue growth in 2020 and to show significant progress toward returning to the margin expansion trajectory that we achieved through most of the last decade. Although R and D expense is expected to increase approximately 15% in 2020, the rate of growth is significantly below that of the last 2 years and includes our increased investment in cloud technologies as we continue to work in partnership with AWS to accelerate our move to the cloud as well as increased investment in expanding our revenue streams for payments.
Finally, Tylo was recently named for the 2nd consecutive year to the Forbes diversity. Now Kate, we will take questions.
We will now begin the question and answer session. Your first question comes from Peter Heckmann with D. A. Davidson. Please go ahead.
Good morning. Thanks for taking my question. Brian, could you talk a little bit about bookings for the quarter the year and just if you have it a constant term comparison, I know that at least in the second quarter that the term the average term is a little bit longer?
Yes. The average term of new software subscriptions in the Q4 was 4.4 years. Last year in Q4, it was 4.1 years. So that change would have had we had the same term as last year, our bookings growth would have been 32 point 3% this quarter. So, they were that mix although as we've talked about, we've driven the average term length down over the last couple of years, leading with a shorter initial term.
We still do some contracts that are 5 years and the way the mix fell out this quarter is a little bit higher.
Okay. Yes. So not much difference on a Q4 basis. Would we assume it would be about the same, just a small difference in year over year growth for the full year 'nineteen?
That's correct.
Okay.
And then just payments has been growing really, really nicely. Can you just remind us some of the areas that are contributing to that?
Yes, sure, Pete. This is Lynn. Payments is something that we've been doing for some time now. I'd say in 2019, we've really taken a hard look at it and looked at the market and started thinking this is really a potential strategic driver for us. As you know, it's transactional business, it's online transactions, it's credit card fees, it's things, for example, in our utility billing solutions, our tax, our courts, our payments for permitting and licensing community development, parks and rec, miscellaneous payments.
So historically, we've done a little bit of that. We're consolidating that internally in Tyler under our business unit and putting some investment and focus on that this year. And I do believe it's a stream that we're excited about in the future. I think it's something that you're going to see it grow and something that we can really capitalize on. But I think it was John's comment, we it is something that will require a little bit more investment this year, as we bring all these various applications across these business lines together, work on a consistent UI and ID and stuff like that, but not long term investments, but investments that will occur this year.
Great. I appreciate it.
The next question is from Jonathan Ho with William Blair and Company. Please go ahead.
Hi, congratulations on the strong bookings quarter. I just wanted to start out, just trying to understand if there was anything abnormal in 2019 in terms of the pipeline or as we look at 2020 and start to sort of contemplate the bookings activity and pipeline there, is this sort of a sustainable level that you guys are seeing?
I don't believe there's anything abnormal about the pipeline in 2019 as opposed to the pipeline we go into 2020 with. Obviously, in the middle of the year, we had those 2 very large contracts, particularly the $85,000,000 SaaS deal in North Carolina, but we've continued to see strength. As we mentioned on the call or on the comments earlier, it really wasn't Q4 didn't have any mega deals in it. It was a lot of solid mid range deals and a high volume of deals. Certainly, we're seeing more volume of deals from the acquisitions we've made over the last couple of years and MicroPact had a very strong Q4 as well as public safety, but we're very confident in the competitive position of both of those products.
And as we've talked about in the past that often there's a period of investment after acquisitions and after that we start to see the impact of the leveraging our sales organization, leveraging our customer base, and we're certainly seeing that with public safety at this point. So I think we go into the year of 2020 with a strong pipeline and but nothing particularly unusual about the market activity or the pipeline as we finish 2019.
Got it. And then as we sort of look at the Public Safety performance in the Q4, can you talk about what made the most difference in terms of the investments and maybe compare and contrast the opportunities that you could target and win rates relative to maybe last year? Thank you.
Yes, Jonathan. I think the as you know, we've talked about this for several years now, the investments we've been making at Public Safety. And part of it is too is, as we talk a lot of these things take time. We've had a lot of success over the last couple of years, both in sales, but then actually starting to implement and getting those customer references. Those investments are paying off.
I think we mentioned the number of licenses in the Q4 of this year were more than double of last year, same thing with number of new names. There is just a lot of momentum going on in the marketplace right now and really validates our strategy. But it's also it's a testament to the work that folks at the Public Safety have been doing. We talk a lot about the reputational business and there's been a lot of work going on. It takes time.
We talk about it's slow moving, but it starts getting momentum. And I think we're starting to see that. And so it's investments that obviously in CAD, we've got some big projects coming out with our e records. But it's a lot of the new stuff we've been doing, for example, around mobility and things like that, that's really put us sort of at the cutting edge in the public safety market right now. So we're excited to get those big deals.
We've talked about how we're moving up market and getting larger deals. We've also starting to similar like we did with courts a couple of years ago, we talked about Franklin County and how we were making inroads into Ohio. We're seeing some of that in public safety. We're just starting to crack into some markets they hadn't cracked into before. And also I'd say leveraging our the inside sales channel, leveraging other products, bringing Brazos along.
We mentioned the Lott in Oklahoma deal. We were partnering with other sales teams at Munis and sort of leveraging the whole Tyler total Tyler concept, has really been resonating with the public safety customers.
Thank you. The next question is from Rob Oliver with Baird. Please go ahead.
Great. Good morning. Thank you for taking my question, guys. Lynn, one for you. Clearly, some early success here with new subscription offerings from you guys over the past year and that's been a pivot.
We've seen that number grow nicely. I'm curious, the pace of conversions more than doubled, albeit still off of a really small base. I'm just curious how you guys think about that conversion side of the story versus selling new subscriptions, how you are thinking about it from a go to market perspective, if you're thinking about approaching clients early, earlier than the renewal point of their contract? And then as you look at your pipeline of renewals over the next couple of years, how you think about that? And then I just had one quick follow-up for Brian.
Thanks, Lynn.
Yes, sure, Rob. I mean, you're right. We've talked about it. The market continues to tend to shift towards SaaS. As we look at conversions, it is something that we're thinking about and mapping out plans that obviously also lines up with our strategic collaboration with AWS.
I don't know that we're necessarily have a significant acceleration of that planned in the near term, but it is something that we are looking at stepping back our relationship with AWS. We are trying to modernize our products. We do recognize the shift, but there still is a piece of the market that is still focused on on prem and we want to make sure we don't lose that as we go through this change and recognize the shift in the market.
Great. Thanks for that. And then Brian, just for you quickly, you guys obviously are coming off this period the last couple of years where you had elevated R and D growing around 30 ish percent. It looks like it's going to be up 15% this year. So seeing that moderation that I think you spoke about, I know John mentioned in his comments that you guys would be sort of returning to that margin growth.
Again, is that I'm not sure if I missed it, if there's a timeline on that. So are we then assuming that this trajectory now you've established of that R and D growth moderating will continue beyond this year without giving specific guidance? Thanks.
Yes, I think that's a correct assumption. Our R and D guidance is up around 15% from this year, which from 2019, which is about half the growth rate that we've seen in the last 2 years. Actually, if you look at the run rate that we exited Q4 with, the 2020 R and D is only up about 10% from that Q4 run rate. So it is moderating. The R and D around our products, existing products is flattening.
We've sort of grown into that level. Lynn talked about some of those investments we've made in public safety, but broadly across our product lines. So, most of the incremental R and D is around the acquired companies, emerging revenue streams like payments and our optimization of our products for the cloud. So, we talked about sort of growing into this higher level of R and D and seeing that moderate and I think you'll continue to see that. From a margin perspective, I think the midpoint of our guidance for next year implies roughly flat margins with 2019 after a couple of years of declines, mostly driven by the increased R and D and the acquisitions.
And I think we would expect to see that improve lead towards improved margins as we move out of 2020, but certainly getting back on that trajectory of margin improvement that we've historically seen is a key part of our long term model. Rob,
if I could add to that, I think historically we've taken a pretty balanced approach to investing in growth and focusing on margin expansion. And we've talked about the last few years about the elevated investments. And as Brian mentioned, growing into those and potentially redeploying some of those. It is a focus on us to look at margin expansion opportunities, but at the same time, want to be careful also to recognize that when we see market opportunities out there, market opportunities either a new or emerging revenue stream like Tyler Payments, changes in the competitive landscape, either we see some weakening of some competitors or we see some opportunities with some competitive advancements in our products or shifts in the market. As we continue to move to the cloud and we think about modernizing our apps, which we think over time will also lead to margin expansion, We will continue to take advantage of those opportunities.
I just want to make sure that that's also set out there.
Yes, that makes a lot of sense. Thanks guys very much. Appreciate it.
The next question is from Kirk Materne with Evercore. Please go ahead.
Yes. Thanks very much and congratulations on the nice end to the fiscal year. Maybe John or Lynn, if you guys could just talk a little bit about the broader market. Obviously, you service a market that doesn't exactly move on a dime in terms of technology trends. But the number of deals and the velocity of deals, I think, this quarter was really impressive.
I mean, you were sort of kind of a 1 major deal from a bookings credit perspective. So are you just reaching a much broader audience of deals at this point in time? Or how do you see sort of your end market? Is that picking up? I'm just trying to get a sense on how much of this is sort of the market, maybe picking up a little bit in terms of spending?
And then how much of this is you being able to sort of go after a much broader set of opportunities? Thanks.
Sure, Kirk. I'll start and let John jump in. From my perspective, as Brian mentioned, the market and the pipeline are solid. I wouldn't say that there's been any material change in the last quarter or 2. On some level, I think it's a little bit of validating some of our investments.
We've been increasing our competitive position. We've been doing things both internally with builds and through acquisitions. We're out there executing really well in the market. There still continues to be a lot of activity that's outside of RFP. I don't know that it's anything specific to the market as so much as our internal performance and validating our, again, our prior R and D investments.
Yes, I think that's right. I would say that, Kirk, it's more attributable to our addressable market space. So we continue to try to broaden the breadth of products we have through organic builds as well as the acquisitions we've done, the size and range of clients that we're competitive with. So some of our products were competitive in certain size cities or communities and we've broadened that. Public safety would be a good example as we announced in this and one of the largest deal ever.
In terms of market size, the only thing I'd say that's a little different and again, more of it's attributable to what we're addressing in the marketplace. Some of these companies that we competed with pretty recently are maybe becoming a little more legacy and their attrition is accelerating to some degree. So some of the better competitors we've had over the last 10 years, I think, are seeing significantly higher attrition rates than what we experience in most of our products. And those are really good opportunities. Those are the right sized cities and counties and districts that we look for.
And as they come back in the marketplace, those are really good opportunities for us.
And then just one last one for you, Hohl. And I realize it's too early in terms of the AWS relationship. But as you think about sort of the technology shift towards AWS as your infrastructure platform, do you have any thoughts on how that might inform your thought process around M and A, meaning are you going to be able to build perhaps a little bit faster if you have a little bit more flexible infrastructure? Would it slow you down from buying some of the companies you bought if they would have to be ported over? I'm assuming it's maybe too soon for you guys to have a really definitive view on that, but I'd be curious if that's come up at all as you guys think about sort of build versus buy over the next couple of years?
Thanks.
Kirk? Interestingly,
some of the acquisitions we've done are they already had maybe more comprehensive relationships with AWS. So it will work both ways. There could be some acquisitions that aren't as cloud oriented or have other facilities that they're using, but AWS is a big player. So a lot of the acquisitions we do are obviously smaller companies than us. They don't have their own clouds.
They're generally hosted somewhere else, and AWS is a place where many of them may already be hosted. So it will work both ways. But in a lot of cases, the target companies are AWS customers.
That's helpful. Thank you.
The next question is from Scott Berg with Needham and Company. Please go ahead.
Hi, Lynn, John and Brian. Thanks for taking my questions and congrats on a very strong quarter.
I guess, I can't remember who said it.
I think it was John in the prescriptive remarks that you expect organic revenue growth to remain in the double digit range here in 2020. I guess can you unpack that a little bit? And I asked the question relative to assumptions around mix on new deals, either subscription or license. Usually, we see a company as they tilt stronger towards subscriptions, revenue growth kind of decelerates or is a little bit lower because the rev rep impact of the shifting transaction mix?
Yes. And I think it's a midpoint of our guidance implies and certainly the upper point implies double digit growth, just a little north of 10%. The lower end of the guidance range would be a little bit below that. I think the organic implied range is roughly 9% to close to 11%. There's a couple of things now.
Licenses are well under 10% of our total revenues. So the impact as more of our businesses become subscription driven over the last few years is less significant. I think we're starting to see some of the contribution from some of our recent acquisitions, which generally we expect to grow above Tyler's core organic growth rate. And also as some of our subscription arrangements that were longer term arrangements entered into in prior years start to come up for renewals and see increases in The The exact mix of new business between SaaS and license is difficult to estimate. Often customers make that decision late in the process.
So even with deals that have happen this quarter, there are a few that we're not certain which way they're going to go. But generally, I'd say the assumption is that the mix of subscriptions will be a little bit higher in 2020 than it was in 2019. But again, 2019 was skewed a bit by the very large deal in North Carolina and we continue to see a mix in those larger deals that's weighted even generally a little bit more heavily towards license deals, although that's changing over time. So, there are number of factors that go into that growth rate, but it clearly is accelerating a bit from what we've seen in 2019.
Very helpful. Thanks, Brian. And then from a follow-up perspective, just trying to think about the model with the increasing payments and transaction mix going forward even though it's a small change. But can you remind us what the kind of the gross margin profile is on those more transactional revenues? And just trying to understand if that's maybe a tailwind or headwind for margins as it becomes a greater mix of the business going forward?
Thanks.
Well, I think it's certainly a tailwind for margins over the long term. Those transactional margins, we don't really break them out completely, but the margins on those are well above our blended overall margins, particularly when we get any start up costs associated with a new contract behind us. But those would be margins, I think, on the payments arrangement or a e funding arrangement that's at scale, that's fully implemented, those margins would be well above our blended overall margins.
The next question is from Charlie Strauzer of CJS Securities. Please go ahead.
Good morning. This is Brendan on behalf of Charlie. So I just want to ask looking at the R and D beyond just this year, do you see an inflection point where you get operating leverage on that line or just too many opportunities right now and you think at least for a while you'll be I guess outgrowing your top line with R and D or similarly? And then another second question with New World, obviously, a really strong quarter with public safety and really exciting that you got the
Jackson contract. Is there any other
progress going on with
Jackson deal? Thanks.
With respect to R and D, yes, we I'd say beyond 2020, as Lynn said, we sort of reserve the right to adjust our investments to address market opportunities, competitive opportunities and to take advantage of those over the long term. But generally, we would expect that we continue to see more leverage in R and D after this period of elevated investments over the last couple of years and 20 20 certainly shows progress towards that. In the public safety area, one of the goals of the increased investments we've made in that product at New World over the last couple of years was to position ourselves to have the features and functionality to compete for larger opportunities. And we've seen some evidence of that this year going live in Orlando, Florida, a jurisdiction that has more than a 1,000,000 calls for service, its 911 system each year and now the Jackson deal being the largest deal in New World's history. But we're still kind of in the early stages of that.
These are long sales processes and it's only been within the last year that we've really been in a position to start to respond to those larger RFPs. So we would expect there to be meaningful opportunities ahead for us to continue to pursue larger deals in the public safety area and to be successful there.
I think the follow on the public safety thing is, it's a big result of that is the fact that we've really got a competitive offering across a full suite of public safety solutions. So as we continue to build out and bring additional solutions to market as well as leverage other Tyler products, for example, in Jackson, it's just it's not just CAD and records, but it's fire records, it's our mobile solutions, it's Tyler corrections that we've been investing in, it's our Brazos offering, it's Socrata. So when you're able to compete in those larger jurisdictions when you have a fuller suite of competitive offerings.
All right. Thank you, guys. Appreciate it.
The next question comes from Keith Hausman of Northcoast Research. Please go ahead.
Good morning, gentlemen.
Can you just remind me in terms of the ADS agreement in terms of any impact on R and D, is there a time where the investment to put everything to the cloud is going to do, I guess, peak? And how long will that period last of additional investments to get everything over into the cloud?
Yes, Keith. So we've as we talked about over the last year, while there are already some initiatives going on within Tyler, part of what the AWS agreement did was it's helping us move there across all our product suites together. And we're still finalizing some of those product roadmaps. We're obviously making already starting to make some investments on those. The timing of those is going to take it's going to take a couple of years.
These things aren't going to happen overnight. At the same time, we're still going to be investing our competitiveness, but we're also evolving the back end architecture to make them more cloud efficient. So I wouldn't put a specific timeline on it right now, but it's not 12 months, but it's not 5 years, it's somewhere in between.
Okay, thanks. Appreciate it. And just a follow-up, but hopefully I'm not getting too granular here into the guide. But I look at the software licenses gross margins over the past year or 2, actually those have come down a little bit. How do you think I guess what's happening there that we call it to come down and how should we think about the gross margins of software licenses business and royalties next year?
It's I think some of the change in the margins there is around the amortization of software, the allocation of purchase price of acquired companies to software. So, typically, when we acquire someone, part of their purchase price is allocated to the acquired software and that amortization, which is generally over 5 years or less, is expensed as part of the cost of software. So, given the elevated level of acquisitions we've had over the last couple of years, that's driven that up a bit. So, I would expect now those costs are not incremental costs, they stay at the same level. So I'd expect that as and software licenses, we probably expect to see something like mid single digit growth in those next year.
And so, you probably see margins be similar to this year, including the amortization.
Okay. Thank you.
At this time, there appear to be no more questions. Mr. Marr, I'll turn the call back over to you for closing remarks.
Okay. Thanks, Kate, and thanks for joining us on the call today. If you have any further questions, please feel free to contact Lynn, Brian or me. Have a great
day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.