Technical difficulty to the side. Hello, everyone, and thank you for joining us for our Growth Stock Conference and today's session with Tyler. My name is Jonathan Ho, and I'm the analyst that covers for William Blair and Company. Our speaker today is Brian Miller, who's the CFO of Tyler. Before we begin, I am required to inform you that a complete list of research disclosures or conflicts of interest is available at our website at www.williamblair.com. With that, I'll hand it over to Brian to give us an overview of Tyler, which will take up the majority of the session, followed by a little bit of fireside chat. Thank you.
Thanks, Jonathan. Thanks, everyone, for joining us here. I appreciate you taking the time to learn a little bit more about Tyler. Kind of assuming that I know, although I do see some familiar faces, assuming that you do not know a lot about Tyler, so I'll be going through a sort of a condensed Tyler overview presentation, and hopefully we'll have a little bit of time left for Q&A at the end. I'll flip through the non-GAAP measures and the required statements. Tyler is an enterprise software company focused entirely on the public sector vertical market. We exclusively serve governments, almost all domestic governments, or about 98% domestic in the U.S. We serve all levels of government with a primary focus on local government.
Less than 5% of our business is with the federal government, between 20%-25% with state governments, and the vast majority with local government. We are very broad in terms of not just the levels of government we serve, but also the products that we offer for government. We have by far the largest customer base of anyone serving software needs of government and by far the broadest portfolio of products. I will talk a little bit about what those products are here in a second. Definitely a long-term growth story. Jonathan and I were talking earlier. Jonathan has covered us, I think, for 15 years or so. We are, as you can imagine, serving the public sector market. It is never an explosive market. It is not a momentum or high-growth market, but it is a very, very steady compounding kind of market.
Tyler's been successful over a long period of time compounding at a very steady and reliable rate and growing margins as well. Just in the recent years, the last five years, Tyler's had a 20% compound growth rate in our recurring revenues, which is what we're primarily focused on. Over the years, we have moved to much more of a recurring revenue model. We're now about 85% recurring revenues. Our SaaS revenue growth, so our software, we've gone through on the latter stages of the SaaS migration, moving from a traditional on-premises license and maintenance model to a SaaS model. Our SaaS revenue has grown 25% CAGR since 2019. I think last quarter was our 17th straight quarter of more than 20% SaaS growth. It's still a very fragmented market.
Even given that we're the biggest player in the market, it's historically a market that's been served by a lot of niche players. We have different competition across each of our product areas. If you still look at the whole $21 billion public sector software market, we're only at about a 6% market share. Still a tremendous growth opportunity ahead of us. As I said, we're about 85% recurring revenues today. Free cash flow margin last year was just shy of 27%. We have very, very sticky customers. Our gross retention averages between 98% and 99%. To be fair, our customers don't get acquired and they don't go out of business. We have a very stable customer base to start with, but we do a very good job of retaining those customers and selling them more things.
Just a snapshot here of what the products that we provide are by broad categories. All the products we provide are essential applications that run mission-critical functions of government, kind of back office functions. ERP and financial systems, so accounting, human resources, payroll is the largest product that makes up about 1/3 of our revenues. Platform technologies, things like an application platform, payments platforms make up a little less than a third of our business. Courts and justice, about 15%. We sell court case management systems that manage all the aspects of criminal cases, family court cases, civil cases. Public safety, one of our faster growing areas, about 7% of our revenues. We sell things like 911, computer-aided dispatch systems, police, fire, and ambulance record systems. Public safety and courts and justice are obviously kind of closely aligned markets or adjacent markets.
K-12 schools, about 7% of our business with ERP systems, student transportation systems, student information systems. Appraisal and tax is a leading provider of property tax systems. That is really important to local governments because that is generally their biggest source of revenues. Civic services are things like licensing and permitting, community development, and that kind of makes up the balance. We talk about sort of being in a new growth area from 1998 to 2017. 1998 is really when Tyler entered the public sector software space through a series of acquisitions. Before Tyler, there really was not a company that had a national presence and this broad set of products. We saw, the leadership saw, a void in the market that there really was not a company like Tyler and that there was an opportunity.
Initially through some cornerstone acquisitions and then primarily through organic growth, but supplemented by a regular M&A program, we have built this leadership position in the space that I talked about earlier. 2018 through 2022 really was kind of accelerating the cloud transition, what we call connected communities, but bringing our products more closely integrated, creating foundational elements across our products to create more value around those. Then really entering the state and federal markets in a larger way, also through acquisitions. Now really kind of starting at 2023, we're sort of in a new era of growth around the acceleration of our cloud transition and the number of sort of aspects of that cloud transition kind of crossed that inflection point where our SaaS revenues were more than our on-prem revenues in 2023.
That also marked the trough in terms of margins, the margin pressure that we saw around the cloud transition and the revenue growth pressure that we saw as we transitioned from big upfront licenses to more of a recurring revenue stream. That transformation driven primarily by the cloud move is well underway with both a positive impact on revenue growth as well as on margin expansion. 20% CAGR in recurring revenues over the last five years. Our operating margin went from 18.2% to 24.5%. I will talk about some of our longer-term targets around that. Our recurring revenues were only 55% of our total in 2010. We have gone to now 85% and are just a little north of $2 billion in total revenues. In 2010, we were under $300 million. Along with that expansion, our TAM has grown significantly around the software side.
As we've added new solutions, both from acquisitions and from internal R&D, and have entered the state and federal markets, our TAM has grown pretty significantly over the last seven years. You can see the numbers now. We address a total market, including federal, where we have a pretty small presence, of about $32 billion. In terms of total market, what we believe our addressable part of that is north of $7 billion. You can kind of see where we are today with that. If you think about kind of what's driving the growth in those markets, the vast majority of the systems that governments use today are what would kind of fall in the legacy software category. They're either homegrown systems, some of them written in the 1970s in COBOL that are still in use, or systems from vendors who are no longer competitive.
Systems they might have bought in 1999 because of Y2K that run on old hardware that still are being supported by the existing vendor, but that vendor doesn't have a cloud solution that anyone would buy today. All those systems eventually get replaced, and they're not replaced by the existing vendor or by another homegrown system. That replacement cycle creates this very steady flow of new business that is really almost non-discretionary because when it gets to end of life, they don't really have a choice about replacing that system. We think that those kinds of systems account for more than 60% of the systems that governments use today. Governments are also increasingly shifting to the cloud. Like with most things, government is not the first to adopt any new technologies or new ways of doing things.
They tend to be slow to change, but there has been a move in the last few years to accelerate that adoption of cloud systems. Again, a lot of vendors in the space do not have good cloud offerings. We have made significant investments even before the market was ready to move to the cloud. We are in a really good position now to be a leading provider in that arena. There is also more of a demand for digital modernization. You have all heard a lot about pushes for more government efficiency.
In some cases, that means cost cutting, but in a lot of cases, and really we think that ultimately the way governments become more efficient is using technology more effectively because a lot of their inefficiencies are because they have inefficient, people-heavy processes that are governed by old software solutions or old technology that really does not allow them to take advantage of the efficiencies by being able to do something online. You have to go down to the DMV to renew your driver's license, or you have to call the tax office to get some information and talk to a person. Those are the kinds of things that, in our view, this increased push towards government efficiency and digital modernization will continue to accelerate opportunities in our space. A little bit, yeah, I mentioned a little bit about this.
The market is a very large fragmented market, 88,000 local government entities. Each of those has multiple systems: a tax system, a court system, a public safety system, an ERP system. There are literally hundreds of thousands of systems being used. We think that 2/3 of those are legacy-type systems. The other third are from vendors that are at least competitive, some of the names you've heard of. A lot of the public sector space, those are served by really niche companies that would not be household names. The strengths of Tyler, really a number of them, the broadest solution set of anyone serving the space, are focused just on this vertical market where we compete in some areas like ERP with horizontal players like Oracle and SAP and Workday. They obviously serve lots of different vertical markets.
They do not have the deep domain expertise and the deep functionality in things that just governments use. That is really our only focus. All of our development efforts, all of our technology, and all of our expertise in terms of the people that support those systems and implement those systems are experts in each of these areas of government. About 45% of our employee base has worked in the public sector in the past. That also contributes to that deep domain expertise. As I said, we have the largest installed base in terms of the customer base of anyone in the space. That also provides us with a lot of cross-sell and upsell opportunities.
We generate a lot of cash flow, and we invest a lot of that back into R&D and continue both maintaining our competitive position, but advancing it and providing new technologies and features to both our existing customers and new customers. We have also, while we've primarily grown organically, we have a long M&A history as well. I've been with the company for 27 years, and we've done about 60 acquisitions during that time, a few really large ones and a lot of tech and acquisitions that add, fill in gaps in our portfolio or add new technologies that we can leverage across our portfolio. Talking a little bit more about that installed base, we've got about 45,000 installations of our products.
Think of that as a suite of products or an office in a city or a county across a little over 13,000 different locations, which would each be a distinct city or county or state or school district. The average customer has two to three products from us, and they could have eight to ten products from us. That cross-sell and upsell opportunity is a tremendous asset to Tyler and something we increasingly look to leverage as one of the key pillars of growth going forward. I'll talk a little bit more about that. In 2021, just about two years ago, I think from this week maybe or next week, we had an investor day and talked a lot about our growth path going forward.
As we were kind of entering this accelerated phase of our cloud transition, we had acquired and built a growing payments and transaction-based business. There were a number of things we wanted to talk about, how we saw the next few years playing out, and really talked about four primary growth pillars, one leveraging the installed base. With both flipping our existing on-prem customers to the cloud and getting a revenue uplift from that, but also selling them more products as they move to the cloud, cross-selling products, a customer that has a tax system selling them a court system or an ERP system, sort of a cross-solution set, and then continuing to expand our portfolio through M&A, expanding our TAM, especially in state and federal levels.
We have, as I said, primarily a focus historically on local government, but both M&A and internal investments around growing our state business and our federal business. The cloud transition has a number of growth vectors around it, but really drives significant long-term recurring revenue growth and expanding our free cash flow through the acceleration of that cloud transition. Lastly, growing our transactions business, which really got a big jumpstart in 2021 when we acquired a company called NIC, which primarily was a transaction-based business providing sort of digital front-end to government and processing transactions for state governments. Both growing that business at the state level, but leveraging those capabilities on a payments and transaction side to drive that revenue stream down into our local government customer base. I'll talk just a little bit about each of those.
Leveraging the installed base, as I said, our average customer has two or three products from us, could have eight to ten products. We continue to grow the number of cross-sell opportunities and products through acquisitions, as well as increasing our R&D spend. More recently, we've talked a lot about our increased focus on client experience and client satisfaction, recognizing that to continue to sell our customers more and more products, we need to have really happy customers. We've made a number of investments there to make our client experience, especially as they experience multiple product groups within Tyler, a more seamless, consistent experience across Tyler. We hired a creative new role of Chief Client Officer that started at the beginning of this year, and we're doing a lot of work around our back-end systems as well as our processes and creating that better client experience.
Expanding into state and federal, we have a number of products at the state level that we believe we can leverage the relationships we got from the NIC acquisition to sell more software at the state level through these state enterprise contracts. We also have a low-code application platform that came to us through an acquisition that's our primary revenue stream at the federal level, again, less than 5% of our revenues, but looking to expand the use of that across both federal and state agencies. We also have a very robust data and insights platform that is used to provide sort of a business intelligence platform for governments at all levels. That is something that we increasingly are growing at the state level. Third area, the next generation of our SaaS growth. Completing our cloud transition and the margin expansion that comes with that.
We've also been investing in optimizing our products, which were in many cases originally designed to be deployed on premises. Optimizing those to run more efficiently in the cloud and lower our hosting costs, improve our margins. We're well along the path with that and starting to see the positive impact on our margins from that. Consolidating product versions. This is probably the biggest impact item here. We've historically supported multiple versions of many of our products, which has been expensive from a support perspective, expensive from a development perspective of resources that we expend on products that are not our current version, but where clients have not moved to the current version of software.
As we move to the cloud or move those customers to the cloud, our goal is to have one cloud-efficient version of each product in the cloud that every customer is on the same version, upgrades at the same time, has a less disruptive experience around their regularly receiving new technology and new features. That really will continue on for the next few years as we move into the second phase of our cloud transition. We also have moved into a relationship with AWS and are moving out of our private data centers where we formerly hosted many of our cloud customers. That process will be completed by the end of this year when we exit our last data center, also providing us with a positive margin impact as we eliminate those fixed costs around our data centers.
Our goal is by 2030 to be north of 90% in recurring revenues, and we're not very far away from that now. Transactions growth, another key pillar for us. Growing our payments business across our installed base. We have a lot of software products that facilitate payments or present bills, things like utility billing systems, traffic, municipal court systems, traffic tickets, licensing and permitting systems, property tax systems. Historically, we did not actually process those payments. Us, like a lot of software companies, have had a desire to participate in making money off of those payments. We have historically done that through reselling third-party payment processors. With the NIC acquisition in 2021, we acquired the technology and expertise on a very large scale around payment processing.
NIC, for its state customers, processed north of $60 billion in payments last year and is the largest payment processor in the public sector space. We are leveraging that now by integrating that payment platform with the software solutions like a utility billing system or municipal court system to create an integrated end-to-end payment system integrated with the system of record that creates a highly differentiated solution that provides more value to the customer by automating reconciliations, providing better analytics. A system that they are willing to also pay a premium pricing around those transactions for. Very sticky, reliable kinds of transactions, strong free cash flow contribution. Payments do inherently have a lower margin than software, but it is a very nice complementary margin and cash flow generator. There we go.
Payments, again, several opportunities there, leveraging our customer base to drive payments into the software customer base, increasing the services that we currently provide to states under a transaction-based model. Things like digital motor vehicle titling is an area where we sold that solution to a number of states that's paid for on a transaction basis. When you buy a car, they file or register the title with the state. It's done in a digital system now instead of on paper. You pay a fee to the state, and we get a transaction fee or a convenience fee as part of that. The state gets a new system. The citizen has a better experience than dealing with the paper.
The state does not actually have to have a line item in their budget because it is paid for by a fee that is levied on the citizen that is doing the transaction. Also expanding payments beyond our current installed base to do enterprise-wide payments, to handle all the payment processing for a city or a county. Increasingly looking at not just the inbound payments, but the outbound payments and providing disbursement solutions for customers as well. Our view in 2030 is, and all of these targets that we have talked about for 2030 are organic targets. We talked about for our SaaS revenues from 2022 to 2025, a 20% CAGR. We have been a bit above that to date and a high teens CAGR all the way through 2030, with maintenance declining as our customers moved to the cloud.
Software revenues of around or staff revenues around $2 billion by 2030. Blended recurring software revenues of 9%-12% over that extended period of time. Gross margin, we have talked about 400-500 basis points of gross margin expansion from moving out of our private cloud, optimizing our solutions to run more efficiently in the cloud, and consolidating versions of products. The kind of overall algorithm is our base organic growth supplement with consistent margin expansion. Roughly 700 basis points of operating margin expansion over seven years, driving strong free cash flow growth, using that capital wisely and creating value for shareholders. When we talk about our targets, we have 2025 targets and 2030 targets.
Our 2025 guidance is generally, well, in all cases, either in line with or ahead of where we set those targets for 2025, especially on the free cash flow side. We have set a target of 17%-19% free cash flow margin, and our current guidance is for 24%-26%. You can see moving on up to an operating margin of 30% + by 2030. We have said that we are well on track or ahead of track to achieve those 2030 targets. With that, I think we have a couple of minutes for questions.
Yeah. Why do we not go ahead and open it up to the audience. Before that, Brian, let me just ask you one question, my obligatory host question, which is I have covered Tyler for 15 years now, and in many ways, I feel like the story really has not changed.
It's been a fantastic run with the company that really dominates the market for state and local government software. Can you talk a little bit about what you think makes Tyler unique and able to succeed over such a long period of time?
I guess the secret sauce, I mean, I think it's a combination. It's the vertical focus. It's that all we do is public sector. And so we go very deep in the things that are important to government.
Even when we compete with a big company like Workday in the ERP space, we have dozens of—we both do accounting, human resources, payroll, but we have dozens of applications that a government needs that are in that suite of products, like a utility billing system or a parks and recreation system or even a cemetery management system that they do not have because they do not go that deep. They also have things that a retail company needs or a manufacturing company needs that are noise to government. It is that focus just on government. That is really reflected in what really is the secret sauce, which is the people. As I said, 45% of our people roughly have worked in the public sector in the past. They have worked in a tax office or worked in a 911 center.
The people that support the software, that develop the software, that implement the software all have that deep domain expertise. Our strategy, we've broadened in terms of the size of government and the levels of government and in terms of the breadth of product. The strategy really hasn't changed from what we started 28 years ago to what we're doing, which is providing a very focused set of solutions for governments. I think the fact that we stick to that strategy over that long period of time is kind of our secret.
Excellent. Any questions from the audience? Anyone? Okay. All right. We don't have any questions. We'll go ahead and adjourn for the breakout session.
Okay. Thank you.
Thank you.